Running Head; Boeing Vs. Airbus 1

2011

(NAME)

BOEING VS AIRBUS

(COURSE)

(PROFESSOR)

(DATE)

Total World count; 6386

Boeing VS Airbus 2

Abstract

The demand facing aircraft manufacturers for new orders is in principal derived from

the perceived future demand for commercial aviation. Several key external economic factors

are likely to outline demand for new aircraft. These factors are accessed from the perspective

of decision makers in the airline industry, Airbus and Boeing, in this paper. Also analysed in

the paper are the relevant strategies employed by both airliner makers to manipulate this

factors or manoeuvre around them in order to survive in the market. The relevant theories of

strategic management are also analysed in the paper. The paper is also divided into two

distinct parts one tackling on contemporary business issues and strategic management.

Boeing VS Airbus 3

Part A; Contemporary business issues

Introduction

Wilbur and Orville Wright, in Ohio, made the initial successful flights in 1903, and

two years later, they assembled a well-controlled aircraft1. This original success in the

centuries-long reality of flight cleared the way for the start of the road to the emergence of

the aircraft commerce; which is the United States’ most profitable market and industry,

having generated about 140 billion dollars in sales in 1999, as well as 62 billion dollars in

exports to other countries2. An essential section of this industry entails the commercial

aircraft manufacturers. Consequently, it is very important to re-examine the constituents and

the past of this industry to analyze the effects various public policies and economic factors

could have on the producers in addition to the buyers of aircrafts.

A Brief History

In 1903, the Wright brothers thrived in flying the primary plane, Kitty Hawk,

establishing the onset of the aviation industry3. Previously, the community did not take on

aircrafts as reliable ways of transport owing to the insight that it was unsafe. Nevertheless,

this discernment was altered, when Charles Lindbergh effectively transversed the Atlantic

Ocean in 1927, generating an immense interest in flying4.

In 1909, the Wright brothers formed the Wright Company, which began by creating

airplanes prior to losing it in an astringent competition to another airplane producer in New

York known as Glenn Curtiss5 . Curtiss’s company built such premium planes that the Wright

1 Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of Flight Commission. http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.2 William Col. “Industry Studies: Aircraft,” The Industrial College of the Armed Forces. http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm.( 2005)3 Devani Boyd, “Safety and Profits in the Airline Industry.” The Journal of IndustrialEconomics, 34 (3) (2000): 305.4 Ibid..pp 3105 Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of Flight Commission. http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.

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Company could not fight, resulting to changing its name to Wright Aeronautical Company

and turning to creating aircraft engines.

With the break out of World War I, The industry experienced a decline in demand,

and this low demand persisted all through some years after the war. However, one of the

leading features in the expansion of the air transport industry in the post-war era was the

advancement of the mail transport system by the U.S. Postal Service6. The Kelly Airmail Act

of 1925 permitted private airlines to operate as mail transporters through competitive bids.

The airmail proceeds aided private carriers to develop into taking other types of cargo, as

well as passengers. Prospects for new profits also led to the expansion of previously new

producers such as Donald Douglas, William Boeing, and Alan Loughead to go into business.7

An investment corporation by Boeing, United Aircraft and Transportation

Corporation, achieved a major advantage over other producers in 1926 by constructing a

single-engine plane that was able to carry mail and commuters over the Rocky Mountains.

Subsequent to this accomplishment, both airline corporations and aircraft producers aimed at

commuters to increase the income from the airmail system8. The demand for commercial

planes carried on to augment progressively all through the 1930s, but again endured another

demand downturn when World War II broke out. Conversely, the war assisted in generating

support for military aircraft research and expansion, which expanded to commercial aviation9.

The end of war brought a fall down in the aircraft industry as a considerable number of army

orders were rescinded10.

6 Devani Boyd “Safety and Profits in the Airline Industry.” The Journal of IndustrialEconomics, 34 (3): (20000 311.7 Ibid 3128 Ibid 3129 Ibid pp 31510 Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview” U.S. Centennial of Flight Commission. http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.

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In the 1950s, the aptitude and comfort of commercial aircrafts advanced significantly

as planes were modernized, including the introduction of jet service in 1959; facilitating

faster cross-country flight service. During this period, Boeing launched Boeing 707 while

Douglas manufactured its DC models, DC-8 being the latest model in that decade .11In

subsequent years, Boeing and Douglas competed profoundly to vend their planes by

proposing conventional deviations of a basic design that would serve airlines’ particular

needs such as big wings for long variety. These customizations were expensive, which aided

Boeing win a significant advantage over Douglas since it was capable of making larger

investment, since it was selling planes to the Air Force in large numbers. In the 1960s,

Boeing launched 727 while Douglas also stayed in the game by bringing its DC-9 to the

market.

Towards the end of the Vietnam War, Boeing, Douglas, and Loughead all endured

economic difficulties.12Gradually recuperating from post-war economic circumstances,

Boeing launched airliner 747. However, this model was too huge, which gave Loughead and

Douglas the chance to manufacture smaller airliners. Loughead manufactured L-1011 while

McDonnell Douglas presented DC-10. However, this was a blunder since there was just room

for one model of miniature airliner in the market13. This ended in both corporations losing

capital and shoved Loughead in leaving the commercial aircraft development, becoming a

solely military designer. Douglas continued the business but was monetarily feeble from the

competition with Lougheadand thus it could not support the research and development of

new planes.

These issues raised the likelihood of Boeing to become a near monopoly in the

aircraft industry. Although this outlook made Airline executives provisionally concerned,

11 ibid12 ibid13 ibid

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during the late 1970s, European plane producers totally altered the nature of the industry.

France and UK, which had powerful aviation industries, had created the Concorde, the

world’s single supersonic aeroplane.14These countries united with West Germany to form the

Airbus Industries. During the 1980s, Airbus competed dynamically with Boeing, capturing a

big number of orders and becoming an influential rival to Boeing in the industry. Some

mergers made the airliner business even more concentrated. Boeing ultimately bought

McDonnell Douglas and another aircraft producer, Rockwell International, becoming the

solitary major commercial aircraft producer in the United States. Today, the Boeing

Commercial Aircraft Company and Airbus Industry control the commercial aircraft

industry.15

Factors that may affect demand for a new aircraft

A major factor that can lead to demand of creation of new aircraft is an economic

crisis. This refers to a major fiscal catastrophe in a country or transversely many countries

that affects the banking scheme, the stock market, and the steadiness of a government. An

economic crisis can happen owing to many factors but it is frequently due to an

amalgamation of reasons that merge to generate financial insecurity. It does not only affect

the international trade but also the domestic businesses in an economy. The recent recession

in the US market and the international meltdown referred to as Global recession, have

overwhelmed total world economy with a varying measure of digressional effect. World over,

the impact has varied and its effect can be scrutinized from the very truth of falling Stock

market, recession in jobs accessibility and companies ;following downsizing in the existing

accessible staff and reduction of the bonuses and salary amendments16.

14 Devani Boyd “Safety and Profits in the Airline Industry.” The Journal of IndustrialEconomics, 34 (3): (2000) 318.15 Shad H Shokralla, “Boeing 777 Case Study”, Synthesis Coalition.http://bits.me.berkeley.edu/mmcs/b777/main.html. (1997)16 Chris Harman Zombie Capitalism: Global Crisis and the Relevance of Marx (London: Bookmarks Publications 2009) ;498

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In the globalized market circumstances, the effect of recession at one-sector

percolates down to all the associated sectors and this can be accurately construed from the

current market condition that is faced by the world. The badly hit sector is the financial

sector, with Liquidity Crises being a major issue in the international markets17. Countries with

current account shortfalls and strong credit cycles are discovering it hard to reduce cost of

capital within this existing environment. The equilibrium of Payment deficit, at a time when

domestic credit demand is elevated, results in a ferocious circle of decreased access to

liquidity, slowing expansion, and amplified risk-aversion in the monetary system18.

Altogether, the recession has reduced the growth process and stability of the market,

which is needed for the smooth running of the economy. Companies especially the

international corporations including the Boeing and Airbus require continuous flow of

liquidity, which is derived from the market, and without this, they contract in order to cope

with the current business atmosphere. So on order to survive in the business world at the

current climate, the two companies are necessitated to comply with the demands of cheaper

to maintain and more efficient aircrafts that can reduce operational costs and increase

profitability. Boeing has had plans of launching the Boeing's futuristic, fuel-saving

Dreamliner as Airbus release the A330.

As in most oligopolies, public policies have a key role in the performance of the

producers of commercial aircrafts. Especially, some of the policies that the European

countries have undertaken toward Airbus have affected the nature of the competition between

Boeing and Airbus. Therefore, it is crucial to reassess some of these policies in order to

understand their impact on this industry. One of the main factors, which have assisted Airbus,

the European aircraft manufacturer, in competition with Boeing, is the great amount of

17 Ibid. pp. 50018 Mritunjai kumar, expert economist and prolific writer.2010

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technological cooperation that has occurred among the European countries19. Over the years

following World War II, technological collaboration increased noticeably among European

countries to put up with important national interests of several states. Although such

associations have not been ideal and competitive and cooperative forces coexist,

collaboration has become a schedule for most European companies. Cooperation has been

exercised as a normal industrial tactic to aid European countries cope with large growth costs

for products and tolerate international market forces. This has especially been true in the

aerospace industry where key technologies are very closely linked to military and economic

security. At times, such assistances have ignited criticisms that countries were forfeiting

effectiveness in certain cases for the sake of functioning in a definite program with other

Europeans.

For example, France got one such condemnation when it maintained on the progress

of two editions of Concorde and the allotment of Tornado equipment agreements to German

companies in spite of their insufficient experience20. However, European economists have

responded by asserting that just like the production of aircrafts, learning curves are also

applicable to collaboration; in other words, by “practicing” collaborations, countries are

capable of gradually moving toward more efficient collaborative projects. Airbus Industries

has been considered the European organization that has come closest to this integrated

approach to collaborative programs. The Airbus collaboration is unique in that it has united

the three major European countries in the aerospace industry, France, Germany and Great

Britain, to a significant degree on a large-scale program. This integrated collaboration is one

of the reasons why the relatively young European aircraft manufacturer quickly became a

major competitor to Boeing. This can also be a major player in demand for a new aircraft.

19 Keith Hayward “Airbus: Twenty Years of European Collaboration.” International Affairs, 64 (1) (1988): 1120 Ibid pp 13

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Another factor, which has had a major influence on the nature of the rivalry between

Boeing and Airbus, has been European government financial supports that have permitted

Airbus to expand new technologies21. The Airbus Industries came into being with the

generous financial help of EU governments22. Europeans justified the subsidies that covered

the launching costs of the first Airbus model, the A-300, by relying on the “infant industry”

argument and the monopoly of the United States in the industry. However, while Airbus has

grown from a small firm into a powerful manufacturer effectively competing with Boeing,

subsidies have continued. These subsidies have caused Airbus to enjoy from a long-term

competitive advantage, which enables them to afford research and development without

having to pass on the costs to the customers.

Major European countries’ continuous subsidization of Airbus has been a key issue

that has put Boeing at a drawback to participate in the world market. Frequently in cases of

arguments concerning major companies in a concentrated business in the same country, the

government may have a little interest in the conclusion of the disputes. However, the

commercial aircraft business is a global industry with its two main firms situated in two

different continents. In this perspective, international trade take part in a major role in this

industry23. Large economies of scale as well as the learning curves in the industry require

producers to look beyond domestic markets, relying on export markets to lower their average

production costs. Since components of demand for aircrafts is limited, this scenario could

initiate Boeing to react by either creating a more stylish or more efficient plane in order to

still compete with Airbus.

21 Shad H Shokralla, “Boeing 777 Case Study,” Synthesis Coalition. http://bits.me.berkeley.edu/mmcs/b777/main.html. (1997)22 Pavcnik, Nina.. “Trade Disputes in the Commercial Aircraft Industry.(Blackwell Publishers; United Kingdom 2002) ;3523 Ibid. pp 37

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Another factor would be; increasing jet fuel costs and inadequate infrastructure

development in less developed countries are serious obstacles to continued growth24. World

markets are critical to both Boeing and Airbus, and aircraft manufacturers need to penetrate

these markets in order to increase sales as well as making air travel more accessible to a

larger population. In addition, governments with aircraft manufacturers require throwing their

support behind the research and development of substitute fuel, such as the fabrication of jet

fuel from agricultural produces or via clean coal technology in order to decrease fuel costs.

These ventures will not merely promote the companies, in the industry, in making aircrafts

more lucrative in the market, but their ventures will also be advantageous in other sectors

such as automotive industry. Consequently, both companies will maintain their pursuit of

budding technologies that offer cost savings and greater operational efficiency. Development

of aircrafts that use cheaper fuel is expected to immediately gain considerable favour in the

world market due to high worldwide oil prices. Hence, aircraft producers have a genuine

incentive in the development of substitute fuel and aircrafts with the machinery to use such

fuel. This definitely affects the production of less fuel consuming and much efficient aircraft

to cater for their rising demands.

Another factor that can affect demand in terms of both the key players, Airbus and

Boeing, making new planes is the aspect of looming terrorism in the world. High hijacking

levels have been witnessed all over the world. In a recent study, “effects of the recent terrorist

attacks in America on Virgin Atlantic”25, It is evident that Richard Branson’s airline, Virgin

Atlantic Airways, has suffered terribly because of the recent terrorist attacks in America.

Once a prosperous and expanding airline, Virgin Atlantic resorted to a number of stringent

measures which would optimistically consequence in the carrier not only avoiding a loss but

24 William Col, “Industry Studies: Aircraft,” The Industrial College of the Armed Forces. http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm. (2005)25 No Author,” Effects of the recent terrorist attacks in America on Virgin Atlantic.” Aerospace Corporation(2005)

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helping the airline in reaching the breakeven point and ideally, though improbable, making a

profit.

In the report, it was also evident that Virgin Atlantic had decreased the number of

flights it operated. This consequently proposed that there was a decrease in demand; a

collapse in consumer confidence and, consistent with this, reduction in the number of flights

thus diminishing the total variable costs, for example fuel, foodstuffs, and airport costs. It was

also noticeable that the airline had to decrease its workforce; it intended to make 1,200

members of staff redundant26. By cutting the dimension of its personnel, Virgin Atlantic was

to reduce the cost of labour. Both of these two reductions proposed that the airline was

reducing supply in order to meet declining demand, this is the fundamental law of demand

and supply; as demand increases, so does supply; price is probable to fall. As demand

decreases, so does supply; price is likely to increase. Between this period and the recession of

2008, the airline also had to retract all Virgin Atlantic orders of acquisitions new aircrafts to

its suppliers, Boeing. In line to this, there will be no surprise if either Boeing or airbus in

future were to create planes, which were burglar proof to curb such acts, and in the end

promote demand by increasing safety, so customers feel secure. On the other hand, this issue

of terrorism could increase demand for military planes to counter the acts. The key players

could also be inclined to create powerful and efficient jets for such purposes.

Commercial aircraft industry has become one of the key global industries over the

decades after World War II. Its elevated concentration is a sign of the economies of scale

engrossed in the business. As Boeing and Airbus carry on their dynamic rivalry to control the

world market, they have confrontations that they require to conquer, both in terms of rivalry

with one another, but also in terms of universal difficulties. Governments also require to work

together in making policies that would aid the expansion of the industry as a whole and

26 ibid

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encourage competition. Only by surmounting these challenges, will the business have

continued development and amplified demands for their brands in the world market.

Part B; Strategic management

Introduction

Aviation forecasters are familiar with the diverse outlooks of more frequencies

against more capacity. With aircraft producers proffering aircraft with more range but also

with more capacity, airlines are at the present influential in determining whether the hub and

spoke values or the point to-point idea is the best approach to follow. The other strategic

management methodologists include pestel analysis and Porter 5 forces,

Altering factors and trends within the airline business does not only revolutionize

airlines, but route arrangements plus the demand attributes of fleets; making the 101- to 180-

seat aeroplane the sector of interest in the future27. It is also evident that Airline alliances are

shaping into the next element in collaboration. In many ways, these collaborations will be the

airline. Truly, the airline affiliates will become the lift-contributors, Comair or Mesaba; are

non-brand lift providers to Delta28. That denotes that the intent should be to line up ones

community with entry to all three international airline coalitions. As this continues, there will

be a stop to an American, United, or US Airways product in support of an international

alliance trademark. In fact, the coalition arrangement is entirely shifting airline market and

fleet strategies as is evident in Airbus industries29.

On the issue of post recession, the airline industry is projected to have a slow recovery

that will also see the industry continued decline through 2010. The main reason being that,

27 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 361.28 Ibid 36629 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 376.

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the demand for aircrafts will return faster than capacity. This would almost certainly be a

good thing since that would signify rise in airfares.

According to a forecast, it is indicated that both entire passengers and enplanements

will be go down 2.6% and 2.9%, correspondingly, to 548,360 and 727,369 in 201430. Hub

sites would also drop by 2.1% while large non-hubs will drop by1.4percentage. However, the

principal loss will be in the regional markets, which will fall by 5%.31 Included in the forecast

was also a likelihood of a completely new fleet economics .Denoting That Boeing’s 747 may

be replaced by the smaller A33032, That ERJ-145 will see more of the desert, That C-Series

might be the new 737 and that 34-seat turboprop will never return once it gets parked. In

addition, Noted was that the re-fleeting has already started, albeit slowly33. In fact, it

articulates, less than 70-seat aircraft are currently experiencing the same decline in demand as

the eight, 15, 19, 30 and 50 seaters have already endured34.

In regards to Regional aviation, whether delineated by airline or plane, it appears to

have in general a desolate outlook, according to another forecast35. Boyd Group International

perceives an international demand for 12,847 airlines between 2010 and 2019 with China, the

number two international market, needing 3,292 new aeroplanes36. It also observes the

broadened presentation covers of new airlines prompting what is expressed a category

30 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 361-382.31 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing,” International Organization, 46 (4) :( 1992): 901.32 The Airbus A330 is a large-capacity, wide-body, twin-engine, medium- to long-range commercial passenger jet airliner33 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing,” International Organization, 46 (4) :( 1992) 932.34 ibid35 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing,” International Organization, 46 (4) :( 1992) 93536Boyd international group (2000)

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overlap37. As for substitution equipment, they will come in the 2010-2013 period38.

Turboprops will develop in demand but still be restricted, Boyd pointed out39, and adding that

demand for lower capacity aeroplanes will go on to decline. In 2011, the entire fleet will

reach 18,023 traveller airliners and will develop to 23,791 by the end of 2019 for a net

augment of 24.2% or 5,768 aircraft. Substitution will explain 52.1% of the demand attaining

6,688 aircraft while development will justify 47.9% or 6,159 airliners40.

In another forecast on category, the narrow bodies between 126 and 180 seats will

explain the maximum demand at 4,282 aircraft or precisely a third41. The forecast predicts

180+ seats representing 20.3% of demand or 2,611 aircraft42. Fascinatingly, Malian sees the

101- to 125-seat as gaining 19.6% of demand or 2,521 aircraft43, which is precisely the sweet

spot for the C-Series.it continues to predict that Seventy five to 100-seat aeroplanes will

represent 15.4% or 2,110 aircrafts while 61- to 74-seaters will observe a demand for 1,008

airliners, or 7.8%. The regional-cabin planes will be merely 2.5% of the demand at 315

aeroplanes over the forecast interlude. In addition, North America will have the uppermost

demand, however, at a diminished percentage at only 30% or 3,851 planes, subsequently,

China at 25.5% or 3,282 and Europe at 23.6% or 3,03244. Africa will be positioned at 6.3% of

the market at only 810 jets as Asia and Latin America accounting for at 9.4% or 1,206

aircraft and 5.2% or 666 aircraft respectively.

37 ibid38 ibid39 ibid40 ibid41 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 361.42 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 361.43 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 369.44Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 370.

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The huge transformations the industry is experiencing; that is the standard method of

using historical data to forecast the future no longer applies; is also major factor. Existing

traffic and O&D allotment are inventions of current service levels, and not air service

consumer demand. Airline service that was sustainable 10 years ago is frequently out of reach

today. Projections of powerful less-than-75-seat demand are attractive, but incorrect. No

company is manufacturing them, albeit demand. Economics have eradicated the 15, 19, and

30 seaters including any other aircraft below -70-seat capacity45. The proposed demand for 70

to 100 seaters is doubtful. The new economics may make big aircraft more sector-efficient

and in fleet efficient.46

In another projection, the arrival of the 70- to 90-seat Mitsubishi local plane, the 75-

to 95-seat Sukhoi Super jet and the Embraer E-Jets at 70- to 120 seats, brings the

practicability of that section into question47. Embraer is by now in the market productively

and it lingers to be seen whether the other two will be significantly economic. Boeing is also

foretelling a market for 2100 RJs, though; no consumer is likely to invest in an aircraft only

to sell them for $20 million48. The report also illustrated the complexity of defining regional

jets when they are being managed in such markets at Houston or Atlanta and Chicago. The

dimension of the aircraft has nothing to do with local markets and one describes it as less

than 110 seats then the 707 was an RJ49 along with the A318. The indication is the idea of the

RJ was a development jet for the regional airlines and it is not related size, markets, or

producer.

45 Golich, Vicki L. 1992. “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing.” International Organization, 46 (4): 934.46 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing,” International Organization, 46 (4) :( 1992) 93547 ibid48 ibid49 For the purposes of this forecast an RJ is an ERJ or CRJ only

Boeing VS Airbus 16

New competitors could change the 101- to 180-seat field. A demand for 2,700 aircraft

between 2016 and 2019 in this group is predicted with China accounting for 52550. There is a

good prospect that the China market will be contrived to buy only Chinese airliners making it

extremely uncertain that it will actually be a part of global demand. That also brings into

query the manufacturer conjectures that count China as possible customers including

Embraer, which has claimed that Chinese production will not be able to meet demand, at least

in the short term51.

The trend is also perceived as towards a larger and more costly aircraft pushing the

revenue bar elevated than it is currently. In the early 1980s, the B-1900s, the C99s, EMB-

120s all made a lot of money. In the 1990s, the miniature turboprops became unprofitable and

were substituted by the RJs with new market submissions not to substitute turboprops. The

new dynamic RJs are on the verge of exiting, as are the assignments they are operating52. Air

service dynamics have primarily changed since the economics of the machinery has

transformed and there are no prospective economic substitutes for lesser turboprops or RJs on

the perspective. The smallest airline in circulation in the West is 70 seats and they are

expensive. These new aeroplanes can fly longer while Airbus is leading the way in the very

huge capacity sector. Airbus asserts there is still life in the hub and spoke system particularly

between large city pairs between Asia, Europe, and North America53.

Airbus and Boeing have dissimilar outlooks on the international market forecasts.

However, on some points both aircraft producers share the same analysis. International travel

depends on the financial system and the economy. As the Gross Domestic Product (GDP)54 in

many countries is gradually escalating and liberalization of markets augments the

50 ibid51 ibid52 Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 95553 Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 95554 GDP is the amount of goods and services produced in a year, in a country.

Boeing VS Airbus 17

accessibility, the air traffic expansion is gradually stabilizing .Globalization and international

trade can initiate more wealth, which in turn has its outcome on international travel.

Differences are seen between the major players when Boeing projects an annual

passenger traffic increase of 4.8%between 2005 and 2024, contradicting Airbus’s projection

of a slightly higher annual increase of 5.3% between 2004 and 202355. As Boeing foresees an

international passenger fleet of35, 300 aircraft by 2024, Airbus sees an increase to 21,759

aircraft by 202356. Boeing also predicts about 22% will be in the midsize twin aisle category

such as the 787and A350 while the 747 and larger aircraft will only take up 4% of the total

fleet according to Boeing57.

In addition to the rise in number of aeroplanes, Airbus also projects a boost in the

number of seats per aircraft in the proximity of 20% that is from181 to 215 seats58, in

anticipation of the year 2023. According to Boeing, in the next 20 years, Cargo aeroplane

numbers will twofold to 3.530 full carriers projecting a typical growth of 6.2%59. Airbus also

observes the distribution of full freighters augment to 3,139 full freighters60, an increase of

5.9% in the same period. The variation is the prospect vision that Boeing and Airbus have,

point-to-point versus hub & spoke.

Boeing and Airbus are seeing the need for longer distances being flown by twin-

engine aircraft. With this trend, they hope to operate more non-stop flights between more city

pairs; Boeing and Airbus are also hoping aviation authorities will endorse even higher

ETOPS61 evaluations that would increase such aircraft potential. ETOPS is particularly vital 55 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 26156 Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 97857 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 26258 Airbus website59 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 26560 Full Freighters are cargo planes61 Extend Twin-engine Operations (ETOPS) is the rule that implies a twin-engine aircraft must be able to land within 90 minutes if one of the two engines fails. Obtaining this rating requires the certification of the reliability

Boeing VS Airbus 18

for point-to-point traffic where Boeing tenders the 787, 777, and Airbus, the A330 and

A350.62At present Boeing embraces the record for the premier ETOPS score with 207

minutes ETOPS qualifications on their 777 model63. On the other hand, Airbus has its four-

engine A340, which needs no ETOPS rating64. This makes Airbus striking for airlines that do

not desire ETOPS. Airbus is competing openly with Boeing’s 787 and the 777 with the A350,

their newest twin-engine aeroplane that will also mark next generation engines comparable to

those presented on the 787.

With 529 aeroplanes ordered so far65, Boeing has confirmed their 777 aircraft family

has so far been an immense success in the medium to long-range point-to-point travel. The

latest777 model, the 777-200LR is able of carrying 301 travellers up to 9,420 nm. Its rival,

the four-engine A340-500 can ferry 313 passengers on a distance of 9,000 nm66.

Airbus is also assessing a higher gross weight (HGW)67 version of the A340-500 and -

600 to amplify its range more. With more than 200 787s requested so far, the outlook of this

all-new aircraft is looking hopeful. The 787-800 will encompass a capacity of 223 passengers

in a three-class design and has a range of 8,500 nm. The elongated 787-900 is expected to

carry 259 passengers over the same range according to Boeing68. Airbus’s A350-800 will take

up to 253 in a three-class design with a range of 8,800. The elongated A350-900 can carry

300 passengers in a three-class layout with a range of 7,500nm.

According to Airbus’s website, there are firm orders for 28 A350s from three airlines

with commitments signed by seven other airlines, including Leasing companies and an

of the airframe/engine combination as well as the airline’s flight operations maintenance.62 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 26363 Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.64 ibid65 ibid66 ibid67 ibid68 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 266,

Boeing VS Airbus 19

undisclosed customer, for 115 A350s69. Board approval has also been provided on the order

for 60 A350s by a Middle Eastern airline is still pending. While, Airbus also proffers its ultra

long range A340-500, this four engine aircraft is getting mounting competition from Boeing’s

exceedingly triumphant 777 in the structure of the777-200LR ,which is getting more orders

lately as interest from airlines for twin-engine operations is escalating70. With the vaguely

higher range coalesced with lower operating costs, two engines instead of four, Boeing still

has an advantage. More airlines are seeing the benefits of operating twin-engine aircraft over

longer distances.

In addition to twin-engine operations, Airbus is also working towards getting its

largest aircraft, the A380-800, into commercial service. Some see the volume of the A380 as

the drawback of the A380 while others see the larger number of passengers carried in the

A380 as an advantage. Boeing launched its smaller but new invention 777 on November the

15th. These large aircraft are more striking for the busier routes between crowded airports.

With the 747-8, Boeing is intending to fill at the gap between the 777/A340/A350 and the

A380-800.With orders for 18 new generation 747 full freighters and negotiations still

ongoing with several customers, Boeing is confident the new generation 747 will become a

success71. The Airbus double deck A380 will be able to carry 555 passengers in a three-class

layout over a distance of 8,000 nm. The 747-8 will carry 34 more seats in a three-class layout

and carry 14 percent more cargo compared to today’s 747-400. The range of the 747-8 will

be similar to that of the A380-80072.

While both Boeing and Airbus see an augment in the number of aircraft according to

their market forecasts, Airbus also sees intensification in the number of seats per aircraft,

69 Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.70 ibid71 ibid72 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory of corporate trade demands.” International Organization,43 (2) (1989): 269

Boeing VS Airbus 20

which would explicate their development of the larger A380. On the air cargo side, both

Boeing and Airbus have an analogous vision with Boeing seeing an increase in the number of

full freighters of 5.9 % and Airbus seeing an increase of 6.2 % for full freighters. These

numbers would not be as shocking as these market forecasts are closely linked to the

dissimilar views Boeing and Airbus have.

It is lucid the A380 is the right resolution for overcrowded airports in Europe, Asia,

and North America. Airlines will have no alternative other than to present more seats per

aircraft to these overcrowded airports. Even though this market sector is not very big yet, the

proposed traffic expansion over the coming years may make the A380 more attractive over

the years.

Simultaneously the related dimensions of the Next Generation 747 contrasted to the

current 747-400, may be more attractive to airlines. Pooled with the 787-based technologies

and plan, the Next Generation 747 becomes attractive to airlines that do not automatically

need the capacity and the size of the A380. In this reverence, the new 747 will find its home

between the777/A340 and the A380. Together, the advances regarding ETOPS, point-to-

point, and husband-spoke in the future are factors that have its sway on the accomplishment

of the 787/777 and theA330/A350.

Airlines can also decide to fly ETOPS free; picking Airbus’s A340. Even so, the

aeroplane producer with the highest ETOPS rating will have key advantage over its rival.

Both larger capacity and more frequencies are attractive resolutions. The accomplishment of

which one will be the better resolution depends on the location where the airlines and airports

find themselves in over the years and the development of ETOPS ratings for twin-engine

aircraft73. Overcrowded airports can use larger aircraft but at the same time, the pressure these

overcrowded airports are experiencing can be incompletely removed by distributing more

73 Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.

Boeing VS Airbus 21

flights from neighbouring airports. The accomplishment of point-to-point and hub-and-spoke

depends on market and economical developments all over the world that will establish the

achievement or failure of these new generation aircraft and their ranging capabilities.

As it regards Porter 5 analysis of Boeing and Airbus, Threat of New Entrance is

considered. As seen, the threats are Low. It is not simple for new companies to penetrate the

market of developing large commercial airplanes. As seen, Substitutes are also Low. There

are numerous substitutes available like ship, and land transport. However, these alternatives

cannot compete with air transport since the price-performance transaction in this case is not

striking. In addition, Bargaining Power of Suppliers is also deemed as Low to Moderate. The

supplier sector in this industry is sectioned, so it is comparatively simple for the aircraft

producers to switch suppliers. However, some parts entail a high measure of concentrated

knowledge and are distinguished from others like the engine, thus mounting bargaining

power of this group. Inclusive in the factors is the Bargaining Power of Customers, which is

high. There are comparatively few buyers of huge commercial airplanes. In addition, the

airlines that buy aircraft make low profits thus making them price responsive. Also, each

client signifies a huge segment of the producer’s categories. Finally the Competitive Rivalry,

which is really high. Boeing and Airbus compete powerfully in the huge passenger jet airliner

market. Since industry growth is slow, both companies fight for market share. So as per this

porter 5 analysis, Boeing plans to introduce the Dreamliner, 787.It is supposed to address all

the factors and challenge the Airbus’s A330.

A pest analysis is merely a way of examining characteristics of the ellipsis PEST:

political, economical, social and technological aspects of a certain environment. It is

significant to conduct an airline pest analysis in the world because there are so many diverse

concerns to notice. Political factors can manipulate the approach in which a company works.

Boeing VS Airbus 22

If an airline is integrated within a country with a cruel political climate then politics plays a

huge function in influencing the range of business the company can handle. For example,

airlines that fly to the Middle East have to reflect on potential dangers of doing business in a

latently hostile climate; terrorism and piracy. According to economic data, it is advantageous

to verify whether or not economic objectives are being met. Other things that can be

established from this analysis comprise rate of inflation, budget limits, salary structure,

equipment maintenance, and how business will be conducted in the future. The airline

business requires high overhead costs therefore, economic scrutiny is extremely significant,

for example the various players did the changes discussed above during the recent recession.

In view of social aspects in the airline business, it is significant to keep in mind that

safety is an essential concern. The events of September 11, 2001, have changed the way the

airline industry works, as seen in the case of virgin Atlantic. For example, security has

become the focal point behind how airlines function. Apprehensions over preceding security

workforce have made many airlines reassess their hiring practices. The last characteristic of a

PEST investigation is the technological realm of conducting business. In the airline industry,

technology is a key aspect. Due to the high price of petrol due to the oil prices, many airline

business directors are eager that new and cheaper types of fuel are generated for use. In

addition, there are more computerized ticketing cubicles than before; enabling business to be

streamlined.

Boeing VS Airbus 23

Appendix A; Bibliography

1. Boyd, Devani L, “Safety and Profits in the Airline Industry.” The Journal of

Industrial Economics, 34 (3): 305-318, 2000

2. Col, William F. “Industry Studies: Aircraft,” The Industrial College of the Armed

Forces. http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm, 2005.

3. Hartley, K, “The Learning Curve and Its Application to the Aircraft Industry.” The

Journal of Industrial Economics, 13 (2): 122-128, 1965

Boeing VS Airbus 24

4. Hayward, Keith. “Airbus: Twenty Years of European Collaboration.” International

Affairs, 64 (1): 11-26, 1988.

5. Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of

Flight Commission.

http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.

6. Golich, Vicki L, “From Competition to Collaboration: The Challenge of Commercial-

Class Aircraft Manufacturing.” International Organization, 46 (4): 899 934, 1992

7. Landler, Mark, “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York

Times. January 18, 2006

8. Milner, Helen V., and Yoffie, David B. “Between free trade and protectionism:

strategic trade policy and the theory of corporate trade demands.” International

Organization, 43 (2): 239-272. 1989

9. No Author.. “Current Market Outlook.” Boeing Corporation.

http://www.boeing.com/commercial/cmo/pdf/cmo2005_OutlookReport.pdf. 2005

10. Pavcnik, Nina.. “Trade Disputes in the Commercial Aircraft Industry.” Blackwell

Publishers. United Kingdom. 2002

11. Shokralla, Shad H.. “Boeing 777 Case Study.” Synthesis Coalition. 1997

12. Simonson, G. R.. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The

Journal of Economic History, 20 (3): 361-382. 1960

13. Sturmey, S. G.. “Cost Curves and Pricing in Aircraft Production.” The Economic

Journal, 74 (296): 954-982. 1964

Appendix B: Case Studies and theories

1. Airbus Industries

2. Boeing International company

3. Virgin Atlantic

4. Porter 5 factors

Boeing VS Airbus 25

5. Pestel analysis

6. the hub and spoke values

7. point to-point idea