Airbus vs. Boeing the Case Study

With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.

The industry environment was also in Boeings favor at the time. Boeing had a history of dedicated customers. The company had been making commercially successful jet aircraft since it first developed the “707”. Boeing was so successful at manufacturing the jet aircraft, that it was one of two companies left making them. This advantage gave them the ability to be a powerful supplier. The expense of the development process also made it extremely difficult for new companies to even enter the market. Boeing faced only one competitor at this point; Airbus (Pearce, Robinson, 2003).

Seventy percent of the aircraft’s production and designing was outsourced to over fifty Tier 1 suppliers compared with only thirty-five to fifty percent that was traditionally outsourced in the production of other aircrafts (S. Tang and D.Zimmerman, 2009: 77). In late 2008, over twenty-seven thousand Boeing employees went on strike due to the company’s outsourcing policies and what its effects on job security (Doornbos n.d.). The strike lasted for fifty-seven days and it would cost Boeing a total of three months in production time, an estimated $100 million a day in revenue, and approximately $7 million a day in net income (Isidore

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

Airbus had a reputation for innovative design and technology. All Airbus planes employed “fly-by-wire” technology that substituted computerized control for mechanical linkages between the pilot and the aircraft’s control surfaces. This technology combined with a common cockpit design permitted “cross crew qualification” (CCQ) whereby pilots were certified to fly similar aircrafts, thus offering flexible scheduling in flight crews on various models, leading to better pilot utilization and lower training costs. These features helped explain why Airbus had received over half of the total large aircraft orders for the first time in 1999. However, despite the gains in market share, Airbus still did not have a product to compete with the monopoly of Boeing’s 747 in the VLA market.

In the market for large aircraft demand the emerging niche for very large aircraft (VLCT aircraft seating more than 400 passengers) saw only two competitors: Boeing and Airbus. Even though both competitors’ moves were clearly marked by technology enhancements, and different target markets but both exhibited strategic interdependence.

After a few number of mergers & acquisitions to become the world’s largest, most diversified aerospace company, Boeing enterprise now include: North American Aviation, McDonnell Douglas, Rockwell International, Hughes Space & Communications, and Jeppesen.

The primary inputs to the airline industry include airplanes, labor and fuel. There are only two major manufacturers (three at the time of the case – Boeing, Airbus and McDonnell Douglas) for large commercial aircraft. This, along with the relationship specific

In its published Current Market Outlook (CMO), Boeing forecast a much smaller VLA market despite general agreement on overall growth with GMF. Boeing predicts the total market demand for VLA aircraft is 330 over the next 20 years. In addition, the most of the demand for the lager planes would not materialize for at least ten years. If the predicted market demand is true, there is no way for Airbus to reach the breakeven point. It is most likely Airbus will run out of the business if it commits build A3XX. In this case, Boeing could ignore the A3XX and concentrate on its existing product line. That is to say, Boeing had an opportunity to enhance profitability on its existing products while Airbus was tied up developing the A3XX.

Dominating the commercial aircraft market for decades, Boeing is considered to be the most highly competitive U.S aerospace industry. “U.S. firms manufacture a wide variety of products for civil and defense purposes and, in 2010, the value of aerospace industry shipments was estimated at $171 billion, of which civil aircraft and aircraft parts accounted for over half of all U.S. aerospace shipments. The U.S. aerospace industry exported nearly $78 billion in products in 2010, of which $67 billion (or 86% of total exports) were civil aircraft, engines, equipment, and parts” (Harrison, 2011). However, its position of influence has lessened in recent years. This is due to its main competitor, Airbus, who in recent years has made significant

The following analysis discusses the suppliers, buyers, industry competition, threats to entry, and substitutes that exist within the large commercial aircraft industry. Additionally, the analysis identifies the pressure that each of these groups applies on the industry and estimates the impact this pressure has on potential industry profits. Each group is identified using a high, medium, or low-pressure classification. A high-pressure classification indicates the group reduces industry profit potential and vice versa.

THE BOEING COMPANY: STRATEGIC AUDIT I. CURRENT SITUATION A. Current Performance Boeing performance has been outstanding for the past few years. Their Return on investment rose from three percent to 6 percent from 1998 to 1999, but it did drop to five percent in 2000. In 1996 Airbus claimed 42% of the market share, while Boeing had 64%. Boeing is looking at falling below the 50% mark. Boeing's profits have been doing quite well. They have risen drastically in the past few years, which can be seen in the profitability ratios. Boeing is doing fine when it comes to profitability, even though they have dropped slightly since 1999.

The Boeing corporation had been a very successful company in the mid-1990s. At the time, it dominanted the market in commercial aviation with an additional thriving sideline in the military and space contracts market. Boeing faced and then overcame a huge number of challenges but also took advantage of many opportunities that were offered up by the aerospace market in the late 1990s. The company faced a number of challenges. In wake of he the first Gulf War, the incumbent economic slowdown severely decreased the market demand. Also, the Boeing encountered stiff competition from the company Airbus which many experts have attributed to heavy subsidies by European government that gave the company an unfair advantage market advantage. For instance, in 1999, Airbus outsold Boeing for the first time in the company's history and delivered to the market more airplanes than the Boeing company did in

The Boeing Company was formed in 1916 by William E. Boeing in Seattle, Washington. The following year they had a twenty eight person payroll which included pilots, carpenters, boat builders and seamstresses. The lowest wage was fourteen cents an hour, while the company's top pilots made two to three hundred dollars a month. When the company was short on money, William Boeing used his own financial resources to guarantee a loan to cover all wages, which was a total of about seven hundred a week. ("Boeing History," n.d)

Weaknesses that Airbus has, is that due to their structure, and having a multi country consortium, they were slow to make decisions. In the 1980’s Airbus experienced difficulties in financing the A-320 project, since all the Airbus partner governments had not approved the program (Carpenter, M. A., & Sanders pg. 613). Airbus was slow in its decision making process because the partners of the consortium tried to safeguard its own interests rather than make decisions that would benefit them as a whole (Carpenter, M. A., & Sanders pg. 613).