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Introduction
Globalisation has driven dramatic changes in the international business. In the business world, these changes have challenged American businesses to be come more competitive as their dominance of the domestic market weakens. A good company seeks production and markets on global scale, examples of air bus and Boeing. To accomplish this, businesses have adopted the latest management techniques that represent the best practices regardless of the location.
Economic principals are global, not dependent on local cultural variation. Thus, the ways in which the transactions are valued and the types of effective strategy implemented are generally the same throughout the world. Likewise ,the ways in which they businesses of any scale resolve their disputes are converging. In general, good management practices , whether human resource, project analysis, or strategic planning, are common throughout the world among businesses. Of course, such practices are sometimes skewed by local cultural differences or local government regulations, but the importance of the common features increasingly dwarfs any remaining differences.
Main text
It may be argued that the next major challenge in the business of air transportation, beyond the invention of heavier-than-air flight and jet-powered planes, is the worldwide separation of the market between two mega-corporations. Airbus and Boeing currently dominate about 90% of the air transportation market with very few major competitors on the horizon. This therefore, makes them the provider of airplanes almost to every country in the world.
The competition between Airbus and Boeing, therefore, sets the overall tone for the air transportation industry at present and their decisions of future directions for their company’s gives insight into the direction of the industry. However, Airbus and Boeing have recently diverged in their vision of the future of air travel as evidenced by their newest models in production, the A380 and the 7E7 respectively.
An economic analysis of the Airbus-Boeing competition by Drs. Irwin and Pavcnik predicts that the A380 will further reduce the market share of Boeing’s 747 by 14.8% (Irwin & Pavcnik, 223). This analysis indicates that Airbus’ current market share will continue to dominate for the next decade while Boeing’s will continue to decline. If one also considers the present renegotiations of the 1992 US-EU subsidies agreement, aimed specifically at leveling the playing field between these two companies, the competition between Airbus and Boeing becomes far more than competing balance sheets.
As corporations grow into international behemoths, their business concerns play a key role in the policy decisions of nation-states. Without another corporation to disrupt the polarization created by Airbus and Boeing, their competition may be characterized as that between the upstart European Union and the United States and their policies on the future air travel. Thus, a comparison of Airbus and Boeing, their histories, competition factors, and plans for the future, will provide insights into the globalization forces shaping air transportation and its future.
Airbus, headquartered in Toulouse, France, has quickly moved from the market newcomer to the market leader in air transportation since its integration as a single company in 2001. In 1988, Airbus controlled 16% of the market, climbing rapidly to 37% in 1996 (Dempsey & Gesell, 85). By 2004, however, Airbus has rocketed to over 50% of the market that is up to half the national airless world wide, delivering 305 jets in 2003, and signaling its major suppliers its intention to deliver 310 jets in 2004 and 400 jets in 2005 (Reuters, 9/8/2004).
As an international company, yet with an integrated approach, it is no surprise that Airbus has had rapid growth even during the economic downturn of the late 1990’s – early 2000s. Airbus is benefiting from a broad-based customer focus as well as highly innovative designs. Its emphasis on environmental issues for its aircraft is one of the most telling aspects of its internationalism. However, Airbus’ first aircraft, the A300B, was debuted in the 1969 Paris air show.
Since then the company has collected a number of ‘firsts’, like the A300 in 1972, the first twin-aisle, twin-engine commercial jet, the A300FFCC in 1982, the first forward facing crew cockpit in commercial aircraft, the A320 in 1988, the first ‘fly-by-wire’ commercial aircraft, and the upcoming A380 slated for operation in 2006, the first four-aisle, double-decker commercial aircraft (Airbus, Our Advantages).
Boeing, headquartered in Chicago, U.S., has emerged as a world leader of aircraft production after a series of mergers and purchases including such companies as Rockwell International (merger, 12/1996) McDonald Douglas (merger, 8/1/97), Hughes Electronics (purchase, 1/2000), Jeppesen Sanderson (purchase, 9/2000), and Hawker de Havilland (purchase, 10/2000). Boeing engages in a number of business sectors including air traffic management, commercial airplanes, broadband services to airlines, integrated defense systems, and research and development. Boeing’s history dates back to the Wright Brothers as William Boeing attended the first American air meet in 1910.
He incorporated his airline manufacturing company in 1916 as the Pacific Aero Products Company, but changed the name in 1917 to the Boeing Airline Company. Since then, Boeing has become known for its own list of ‘firsts’, like the delivery of the first international airmail in 1919 in a C-700, the Model 247 in 1933, the first modern passenger plane, the 707 was used in 1959 for the first transcontinental jet route, the Lunar Roving Vehicle saw operation on the moon in 1971, and the one-year anniversary in 2001 of continued human habitation in space aboard the International Space Station (ISS), signifying Boeing’s success as the ISS primary contractor (Boeing, History – Chronology).
Given their multiple successes, it is not surprising that Airbus and Boeing have a number of competition factors driving their innovations. Foremost is their competition in wide-bodied commercial aircraft, as it is not only a competition between companies but also a subject of repeated trade disputes between the US and the EU. In 1992, the Bilateral Agreement for Large Civil Aircraft was aimed at limiting government subsidies due to US/Boeing concern over what they saw as an unfair advantage of Airbus in the marketplace.
As a result of this agreement, Irwin and Pavcnik have found that both Airbus’ and Boeing’s prices have increased by 3.7% in the wide-body and narrow-body market (Irwin & Pavcnik, 225). This agreement is currently being renegotiated further in an attempt to eliminate all government subsidies. The US continues to charge Airbus with an unfair advantage, while the EU has charged Boeing with receiving equal, if indirect, subsidies. If these negotiations fail, both parties have indicated their willingness to take their case to the World Trade Organization (WTO) for arbitration, but industry insiders believe that this is an empty threat as both companies would benefit the most without WTO oversight.
The newest models in production by Airbus and Boeing represent their competing views of the future of the industry. The Airbus A380 is their solution to growing traffic between major hubs. Their plans for the A380 signify their current goals of reducing operating costs, increasing range, reducing fuel burn, and reducing noise and emissions (Airbus, Aircraft Families – Introduction A380 Family). The Boeing 7E7 is their solution for non-stop flights between secondary cities.
Boeing’s goals for the 7E7 are to bring “big-jet ranges to mid-size airplanes”, burn 20% less fuel while traveling at Mach 0.85, an emphasis on passenger comfort to include higher humidity rates in the passenger area, and a composite material body with open architecture systems (Boeing, Boeing 7E7 Dream liner Will Provide New Solutions for Airlines, Passengers). These differing approaches highlight each companies distinction of the future of air travel, Airbus emphasizing larger passenger liners and the use of major hubs along with the growth of secondary hubs, yet Boeing emphasizing smaller passenger liners with direct flights to secondary cities in lieu of over-crowded hubs (Reuters, 7/22/04). This may be characterized as the tension between producing higher capacity versus short haul jet transports.
Conclusion
However the competition between Airbus and Boeing is played out in the future, one is guaranteed to witness increasing complexity in maneuvering through the networks of national and international policy formation, supplier-airline worker-corporation tensions, passenger demands, technological innovations, market uncertainty, and ever-increasing economies of scale. Airbus currently has the upper hand in the near-term over Boeing, but a new EU-US agreement combined with positive steps by Boeing to restructure in the face of the threat from Airbus may help to reverse this trend.
Yet, if the market has become overly complicated due to the current oligopoly, it will certainly suffer if one of these companies grows to monopolize aircraft production. Policy makers, therefore, should take a hard look at the business of air transportation and its effect on national and international options for air travel. As custodians of the public transportation system, their educated role is vital to counter-act purely business motivations and goals in air transportation. If re-regulation of the industry is the preferred solution to the decline and disarray of US airlines, then perhaps a similar solution is necessary to avoid a possible disaster across both sides of the Atlantic, created by the possibility of gross failures to read and react to the market by the current industry leaders.
Work cited
“Aerospace Firms Battle it out at Upbeat Air Show.” Reuters. 2004. Internet online. Web.
“Airbus Eyes Production of 400 Jets in 2005.” Reuters. 2004. Internet on-line. Web.
“Aircraft Families – Introduction A380 Family.” Airbus. 2004. Internet on-line. Web.
“Boeing 7E7 Dream liner Will Provide New Solutions for Airlines, Passengers.” Boeing. 2004. Internet on-line. Web.
Dempsey, Paul Stephen, and Laurence E. Gesell. Air Transportation: Foundations for the 21st Century. Chandler: Coast Aired Publications, 1997.
“History – Chronology.” Boeing. 2004. Internet on-line. Web.
Irwin, Douglas A., and Nina Pavcnik. “Airbus versus Boeing revisited: international competition in the aircraft market.” Journal of International Economics 64 (2004): 223-245.
“Our Advantages.” Airbus. 2004. Internet on-line. Web.
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