Global Aircraft Industry

Introduction

At the turn of the millennium, the global aircraft industry had developed into a market segmented into narrow-body aircraft designed for short -to-medium haul flights and wide-body aircraft designed for long haul flights. After the rise of Boeing’s 747 in the late 1970’s, Boeing largely dominated the wide-body segment and had captured as much as 90% market share. However, beginning in the late 1980’s and lasting through the 1990’s, European based Airbus steadily took market share from Boeing through sales of the A340. Airbus eventually surpassed its American rival in 2003.

Throughout the first decade of the millennium, Boeing and Airbus found themselves in a difficult industry even though they were effectively the only two competitors in the wide-body aircraft segment. The 2001 and 2008 recessions left few airlines financially healthy enough to order new planes. Although there was strong growth in air travel, the highest growth areas were for narrow or medium-body aircraft. Also, the wide-body aircraft generally required longer runways that were not supported by most airports throughout the world.

However, not all was bleak for Boeing and Airbus. 11 of the 15 largest airlines had fleets with an average life of 10 or more years. A 20 year average life for airplanes meant that aircraft manufacturers could expect man fleets to be replaced in the coming decade. High fixed costs, long lead times, and technical expertise for wide-body aircraft meant that Boeing and Airbus were unlikely to face the threat of new competitors any time soon. While competition between Boeing and Airbus was fierce, the next decade of aircraft sales could settle who would be number one in the wide-body aircraft market for the next 20 years.

Five-Forces Analysis of the Wide-Body Aircraft Industry

Market Definition

We confine our analysis to include companies that make wide-body aircrafts for commercial aviation. We will not take into consideration manufactures of smaller, narrow-frame planes or business aircrafts since they have little influence on the market for large-frame, wide-body planes. As a result we will largely concentrate on the two major players in this industry: Boeing and Airbus. Since both of these companies compete on a global scale, there is no sub-geography concentration to our market definition.

Internal Rivalry

Boeing began as a timber company in 1900’s in Seattle, Washington, designing its first plane in 1916, and securing its role as an aircraft manufacturer with contract to build training planes during WWI. By 1978 they announced the 757 (narrow) and 767 (wide-body), the latter of which was the first twin engine passenger approved for overseas travel.

In 2003 Boeing announced the development of the 7E7 program which