Boeing Vs Airbus Two Decades Dispute

CASE 2

Boeing versus Airbus

Two Decades of Trade Disputes

[pic 1]May 2nd 2016

SUMMARY

OVERVIEW        p.3

        Introduction

        Industry competitive dynamic

        Trade frictions before 1992

        The 1992 agreement

        The BOEING - MCDONELL Douglas merger

        Back to the future: 2007 – 2009

QUESTIONS        p.9

OVERVIEW^[1]

Introduction

 Aircraft industry was an American success story, the US manufacturers had the monopoly.

Then Airbus, which is a European company, rose. There were 2 US firms: Boeing and McDonnell Douglas both of them had the 2/3 of world market share.

Boeing acquired McDonnell and became huge. They had « twice the size of its nearest competitor ». Boeing is the largest US exporter.

Airbus Industry has been founded in 1970, it had begun a consortium of 4 European aircraft manufacturers: British, French, German and Spanish.

They progressively gained market share and in 2003 for the first time Airbus exceeded Boeing in deliveries of aircrafts.

The problem is that the governments of France, Great Britain, Spain and Germany subsidize Airbus but Boeing has also benefited of hidden government subsidies.

In 1992, both companies reached an agreement: « Airbus received some launch aid from EU governments and Boeing benefit from government research and development contracts ».

In 1997, the dispute was revived. The European Union returned to the merger between the two US companies.

In 2004, US decided that given the success of Airbus they no longer need help from the EU Governments so Airbus point out that Boeing shouldn’t be supported by subsidies.

In 2005, another dispute broke down and Boeing has submitted the dispute to the World Trade Organization.

Industry Competitive Dynamics

The costs of developing new airliner are huge. Because of the costs a company needs a « significant share of world demand to break even ».

To turn profit it can take many years.

The demand for aircraft is volatile. « Volatility^[2] refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction ».