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Boieng and airbus.

  1. 1. Running Head; Boeing Vs. Airbus 1 (NAME) BOEING VS AIRBUS (COURSE) (PROFESSOR) (DATE) Total World count; 6386 2011
  2. 2. Boeing VS Airbus 2 Abstract The demand facing aircraft manufacturers for new orders is in principal derived fromthe perceived future demand for commercial aviation. Several key external economic factorsare likely to outline demand for new aircraft. These factors are accessed from the perspectiveof decision makers in the airline industry, Airbus and Boeing, in this paper. Also analysed inthe paper are the relevant strategies employed by both airliner makers to manipulate thisfactors or manoeuvre around them in order to survive in the market. The relevant theories ofstrategic management are also analysed in the paper. The paper is also divided into twodistinct parts one tackling on contemporary business issues and strategic management.
  3. 3. Boeing VS Airbus 3 Part A; Contemporary business issues Introduction Wilbur and Orville Wright, in Ohio, made the initial successful flights in 1903, andtwo years later, they assembled a well-controlled aircraft1. This original success in thecenturies-long reality of flight cleared the way for the start of the road to the emergence ofthe 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 inexports to other countries2. An essential section of this industry entails the commercialaircraft manufacturers. Consequently, it is very important to re-examine the constituents andthe past of this industry to analyze the effects various public policies and economic factorscould 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 onaircrafts as reliable ways of transport owing to the insight that it was unsafe. Nevertheless,this discernment was altered, when Charles Lindbergh effectively transversed the AtlanticOcean in 1927, generating an immense interest in flying4. In 1909, the Wright brothers formed the Wright Company, which began by creatingairplanes prior to losing it in an astringent competition to another airplane producer in NewYork known as Glenn Curtiss5 . Curtiss’s company built such premium planes that the Wright1 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.
  4. 4. Boeing VS Airbus 4Company could not fight, resulting to changing its name to Wright Aeronautical Companyand 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 theleading features in the expansion of the air transport industry in the post-war era was theadvancement of the mail transport system by the U.S. Postal Service6. The Kelly Airmail Actof 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, aswell as passengers. Prospects for new profits also led to the expansion of previously newproducers such as Donald Douglas, William Boeing, and Alan Loughead to go into business.7 An investment corporation by Boeing, United Aircraft and TransportationCorporation, achieved a major advantage over other producers in 1926 by constructing asingle-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 atcommuters to increase the income from the airmail system8. The demand for commercialplanes carried on to augment progressively all through the 1930s, but again endured anotherdemand downturn when World War II broke out. Conversely, the war assisted in generatingsupport 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 armyorders were rescinded10. In the 1950s, the aptitude and comfort of commercial aircrafts advanced significantlyas planes were modernized, including the introduction of jet service in 1959; facilitating6 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.
  5. 5. Boeing VS Airbus 5faster cross-country flight service. During this period, Boeing launched Boeing 707 whileDouglas manufactured its DC models, DC-8 being the latest model in that decade .11Insubsequent years, Boeing and Douglas competed profoundly to vend their planes byproposing conventional deviations of a basic design that would serve airlines’ particularneeds such as big wings for long variety. These customizations were expensive, which aidedBoeing win a significant advantage over Douglas since it was capable of making largerinvestment, 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 themarket. Towards the end of the Vietnam War, Boeing, Douglas, and Loughead all enduredeconomic difficulties.12Gradually recuperating from post-war economic circumstances,Boeing launched airliner 747. However, this model was too huge, which gave Loughead andDouglas the chance to manufacture smaller airliners. Loughead manufactured L-1011 whileMcDonnell Douglas presented DC-10. However, this was a blunder since there was just roomfor one model of miniature airliner in the market13. This ended in both corporations losingcapital and shoved Loughead in leaving the commercial aircraft development, becoming asolely military designer. Douglas continued the business but was monetarily feeble from thecompetition with Lougheadand thus it could not support the research and development ofnew planes. These issues raised the likelihood of Boeing to become a near monopoly in theaircraft industry. Although this outlook made Airline executives provisionally concerned,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, the11 ibid12 ibid13 ibid
  6. 6. Boeing VS Airbus 6world’s single supersonic aeroplane.14These countries united with West Germany to form theAirbus Industries. During the 1980s, Airbus competed dynamically with Boeing, capturing abig number of orders and becoming an influential rival to Boeing in the industry. Somemergers made the airliner business even more concentrated. Boeing ultimately boughtMcDonnell Douglas and another aircraft producer, Rockwell International, becoming thesolitary major commercial aircraft producer in the United States. Today, the BoeingCommercial Aircraft Company and Airbus Industry control the commercial aircraftindustry.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 economiccrisis. This refers to a major fiscal catastrophe in a country or transversely many countriesthat affects the banking scheme, the stock market, and the steadiness of a government. Aneconomic crisis can happen owing to many factors but it is frequently due to anamalgamation of reasons that merge to generate financial insecurity. It does not only affectthe international trade but also the domestic businesses in an economy. The recent recessionin the US market and the international meltdown referred to as Global recession, haveoverwhelmed 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 Stockmarket, recession in jobs accessibility and companies ;following downsizing in the existingaccessible staff and reduction of the bonuses and salary amendments16. In the globalized market circumstances, the effect of recession at one-sectorpercolates down to all the associated sectors and this can be accurately construed from the14 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: BookmarksPublications 2009) ;498
  7. 7. Boeing VS Airbus 7current market condition that is faced by the world. The badly hit sector is the financialsector, with Liquidity Crises being a major issue in the international markets17. Countries withcurrent account shortfalls and strong credit cycles are discovering it hard to reduce cost ofcapital within this existing environment. The equilibrium of Payment deficit, at a time whendomestic credit demand is elevated, results in a ferocious circle of decreased access toliquidity, 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 theinternational corporations including the Boeing and Airbus require continuous flow ofliquidity, which is derived from the market, and without this, they contract in order to copewith the current business atmosphere. So on order to survive in the business world at thecurrent climate, the two companies are necessitated to comply with the demands of cheaperto maintain and more efficient aircrafts that can reduce operational costs and increaseprofitability. Boeing has had plans of launching the Boeings futuristic, fuel-savingDreamliner as Airbus release the A330. As in most oligopolies, public policies have a key role in the performance of theproducers of commercial aircrafts. Especially, some of the policies that the Europeancountries have undertaken toward Airbus have affected the nature of the competition betweenBoeing and Airbus. Therefore, it is crucial to reassess some of these policies in order tounderstand 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 oftechnological cooperation that has occurred among the European countries19. Over the yearsfollowing World War II, technological collaboration increased noticeably among European17 Ibid. pp. 50018 Mritunjai kumar, expert economist and prolific writer.201019 Keith Hayward “Airbus: Twenty Years of European Collaboration.” International Affairs, 64 (1) (1988): 11
  8. 8. Boeing VS Airbus 8countries to put up with important national interests of several states. Although suchassociations have not been ideal and competitive and cooperative forces coexist,collaboration has become a schedule for most European companies. Cooperation has beenexercised as a normal industrial tactic to aid European countries cope with large growth costsfor products and tolerate international market forces. This has especially been true in theaerospace industry where key technologies are very closely linked to military and economicsecurity. At times, such assistances have ignited criticisms that countries were forfeitingeffectiveness in certain cases for the sake of functioning in a definite program with otherEuropeans. For example, France got one such condemnation when it maintained on the progressof two editions of Concorde and the allotment of Tornado equipment agreements to Germancompanies in spite of their insufficient experience20. However, European economists haveresponded by asserting that just like the production of aircrafts, learning curves are alsoapplicable to collaboration; in other words, by “practicing” collaborations, countries arecapable of gradually moving toward more efficient collaborative projects. Airbus Industrieshas been considered the European organization that has come closest to this integratedapproach to collaborative programs. The Airbus collaboration is unique in that it has unitedthe three major European countries in the aerospace industry, France, Germany and GreatBritain, to a significant degree on a large-scale program. This integrated collaboration is oneof the reasons why the relatively young European aircraft manufacturer quickly became amajor competitor to Boeing. This can also be a major player in demand for a new aircraft. Another factor, which has had a major influence on the nature of the rivalry betweenBoeing and Airbus, has been European government financial supports that have permittedAirbus to expand new technologies21. The Airbus Industries came into being with the20 Ibid pp 1321 Shad H Shokralla, “Boeing 777 Case Study,” Synthesis Coalition.http://bits.me.berkeley.edu/mmcs/b777/main.html. (1997)
  9. 9. Boeing VS Airbus 9generous financial help of EU governments22. Europeans justified the subsidies that coveredthe 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 hasgrown 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-termcompetitive advantage, which enables them to afford research and development withouthaving to pass on the costs to the customers. Major European countries’ continuous subsidization of Airbus has been a key issuethat has put Boeing at a drawback to participate in the world market. Frequently in cases ofarguments concerning major companies in a concentrated business in the same country, thegovernment may have a little interest in the conclusion of the disputes. However, thecommercial aircraft business is a global industry with its two main firms situated in twodifferent continents. In this perspective, international trade take part in a major role in thisindustry23. Large economies of scale as well as the learning curves in the industry requireproducers to look beyond domestic markets, relying on export markets to lower their averageproduction costs. Since components of demand for aircrafts is limited, this scenario couldinitiate Boeing to react by either creating a more stylish or more efficient plane in order tostill compete with Airbus. Another factor would be; increasing jet fuel costs and inadequate infrastructuredevelopment in less developed countries are serious obstacles to continued growth24. Worldmarkets are critical to both Boeing and Airbus, and aircraft manufacturers need to penetratethese markets in order to increase sales as well as making air travel more accessible to alarger population. In addition, governments with aircraft manufacturers require throwing their22 Pavcnik, Nina.. “Trade Disputes in the Commercial Aircraft Industry.(Blackwell Publishers; United Kingdom2002) ;3523 Ibid. pp 3724 William Col, “Industry Studies: Aircraft,” The Industrial College of the Armed Forces.http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm. (2005)
  10. 10. Boeing VS Airbus 10support behind the research and development of substitute fuel, such as the fabrication of jetfuel 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 aircraftsmore lucrative in the market, but their ventures will also be advantageous in other sectorssuch as automotive industry. Consequently, both companies will maintain their pursuit ofbudding technologies that offer cost savings and greater operational efficiency. Developmentof aircrafts that use cheaper fuel is expected to immediately gain considerable favour in theworld market due to high worldwide oil prices. Hence, aircraft producers have a genuineincentive in the development of substitute fuel and aircrafts with the machinery to use suchfuel. This definitely affects the production of less fuel consuming and much efficient aircraftto cater for their rising demands. Another factor that can affect demand in terms of both the key players, Airbus andBoeing, making new planes is the aspect of looming terrorism in the world. High hijackinglevels have been witnessed all over the world. In a recent study, “effects of the recent terroristattacks in America on Virgin Atlantic”25, It is evident that Richard Branson’s airline, VirginAtlantic 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 stringentmeasures which would optimistically consequence in the carrier not only avoiding a loss buthelping the airline in reaching the breakeven point and ideally, though improbable, making aprofit. In the report, it was also evident that Virgin Atlantic had decreased the number offlights it operated. This consequently proposed that there was a decrease in demand; acollapse in consumer confidence and, consistent with this, reduction in the number of flightsthus diminishing the total variable costs, for example fuel, foodstuffs, and airport costs. It was25 No Author,” Effects of the recent terrorist attacks in America on Virgin Atlantic.” AerospaceCorporation(2005)
  11. 11. Boeing VS Airbus 11also noticeable that the airline had to decrease its workforce; it intended to make 1,200members of staff redundant26. By cutting the dimension of its personnel, Virgin Atlantic wasto reduce the cost of labour. Both of these two reductions proposed that the airline wasreducing supply in order to meet declining demand, this is the fundamental law of demandand supply; as demand increases, so does supply; price is probable to fall. As demanddecreases, so does supply; price is likely to increase. Between this period and the recession of2008, the airline also had to retract all Virgin Atlantic orders of acquisitions new aircrafts toits suppliers, Boeing. In line to this, there will be no surprise if either Boeing or airbus infuture were to create planes, which were burglar proof to curb such acts, and in the endpromote demand by increasing safety, so customers feel secure. On the other hand, this issueof terrorism could increase demand for military planes to counter the acts. The key playerscould also be inclined to create powerful and efficient jets for such purposes. Commercial aircraft industry has become one of the key global industries over thedecades after World War II. Its elevated concentration is a sign of the economies of scaleengrossed in the business. As Boeing and Airbus carry on their dynamic rivalry to control theworld market, they have confrontations that they require to conquer, both in terms of rivalrywith one another, but also in terms of universal difficulties. Governments also require to worktogether in making policies that would aid the expansion of the industry as a whole andencourage competition. Only by surmounting these challenges, will the business havecontinued development and amplified demands for their brands in the world market. Part B; Strategic management Introduction26 ibid
  12. 12. Boeing VS Airbus 12 Aviation forecasters are familiar with the diverse outlooks of more frequenciesagainst more capacity. With aircraft producers proffering aircraft with more range but alsowith more capacity, airlines are at the present influential in determining whether the hub andspoke values or the point to-point idea is the best approach to follow. The other strategicmanagement methodologists include pestel analysis and Porter 5 forces, Altering factors and trends within the airline business does not only revolutionizeairlines, 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 areshaping into the next element in collaboration. In many ways, these collaborations will be theairline. Truly, the airline affiliates will become the lift-contributors, Comair or Mesaba; arenon-brand lift providers to Delta28. That denotes that the intent should be to line up onescommunity with entry to all three international airline coalitions. As this continues, there willbe a stop to an American, United, or US Airways product in support of an internationalalliance trademark. In fact, the coalition arrangement is entirely shifting airline market andfleet strategies as is evident in Airbus industries29. On the issue of post recession, the airline industry is projected to have a slow recoverythat will also see the industry continued decline through 2010. The main reason being that,the demand for aircrafts will return faster than capacity. This would almost certainly be agood thing since that would signify rise in airfares. According to a forecast, it is indicated that both entire passengers and enplanementswill be go down 2.6% and 2.9%, correspondingly, to 548,360 and 727,369 in 201430. Hub27 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): 376.30 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 361-382.
  13. 13. Boeing VS Airbus 13sites would also drop by 2.1% while large non-hubs will drop by1.4percentage. However, theprincipal loss will be in the regional markets, which will fall by 5%.31 Included in the forecastwas also a likelihood of a completely new fleet economics .Denoting That Boeing’s 747 maybe replaced by the smaller A33032, That ERJ-145 will see more of the desert, That C-Seriesmight be the new 737 and that 34-seat turboprop will never return once it gets parked. Inaddition, Noted was that the re-fleeting has already started, albeit slowly33. In fact, itarticulates, less than 70-seat aircraft are currently experiencing the same decline in demand asthe eight, 15, 19, 30 and 50 seaters have already endured34. In regards to Regional aviation, whether delineated by airline or plane, it appears tohave in general a desolate outlook, according to another forecast35. Boyd Group Internationalperceives an international demand for 12,847 airlines between 2010 and 2019 with China, thenumber two international market, needing 3,292 new aeroplanes36. It also observes thebroadened presentation covers of new airlines prompting what is expressed a categoryoverlap37. 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 thatdemand for lower capacity aeroplanes will go on to decline. In 2011, the entire fleet willreach 18,023 traveller airliners and will develop to 23,791 by the end of 2019 for a net31 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class AircraftManufacturing,” International Organization, 46 (4) :( 1992): 901.32 The Airbus A330 is a large-capacity, wide-body, twin-engine, medium- to long-range commercial passengerjet airliner33 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class AircraftManufacturing,” International Organization, 46 (4) :( 1992) 932.34 ibid35 Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class AircraftManufacturing,” International Organization, 46 (4) :( 1992) 93536 Boyd international group (2000)37 ibid38 ibid39 ibid
  14. 14. Boeing VS Airbus 14augment of 24.2% or 5,768 aircraft. Substitution will explain 52.1% of the demand attaining6,688 aircraft while development will justify 47.9% or 6,159 airliners40. In another forecast on category, the narrow bodies between 126 and 180 seats willexplain the maximum demand at 4,282 aircraft or precisely a third41. The forecast predicts180+ seats representing 20.3% of demand or 2,611 aircraft42. Fascinatingly, Malian sees the101- to 125-seat as gaining 19.6% of demand or 2,521 aircraft43, which is precisely the sweetspot for the C-Series.it continues to predict that Seventy five to 100-seat aeroplanes willrepresent 15.4% or 2,110 aircrafts while 61- to 74-seaters will observe a demand for 1,008airliners, or 7.8%. The regional-cabin planes will be merely 2.5% of the demand at 315aeroplanes over the forecast interlude. In addition, North America will have the uppermostdemand, 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% ofthe market at only 810 jets as Asia and Latin America accounting for at 9.4% or 1,206aircraft and 5.2% or 666 aircraft respectively. The huge transformations the industry is experiencing; that is the standard method ofusing historical data to forecast the future no longer applies; is also major factor. Existingtraffic and O&D allotment are inventions of current service levels, and not air serviceconsumer demand. Airline service that was sustainable 10 years ago is frequently out of reachtoday. Projections of powerful less-than-75-seat demand are attractive, but incorrect. Nocompany is manufacturing them, albeit demand. Economics have eradicated the 15, 19, and40 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): 369.44 Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” TheJournal of Economic History, 20 (3): 370.
  15. 15. Boeing VS Airbus 1530 seaters including any other aircraft below -70-seat capacity45. The proposed demand for 70to 100 seaters is doubtful. The new economics may make big aircraft more sector-efficientand 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 thepracticability of that section into question47. Embraer is by now in the market productivelyand it lingers to be seen whether the other two will be significantly economic. Boeing is alsoforetelling a market for 2100 RJs, though; no consumer is likely to invest in an aircraft onlyto sell them for $20 million48. The report also illustrated the complexity of defining regionaljets when they are being managed in such markets at Houston or Atlanta and Chicago. Thedimension of the aircraft has nothing to do with local markets and one describes it as lessthan 110 seats then the 707 was an RJ49 along with the A318. The indication is the idea of theRJ was a development jet for the regional airlines and it is not related size, markets, orproducer. New competitors could change the 101- to 180-seat field. A demand for 2,700 aircraftbetween 2016 and 2019 in this group is predicted with China accounting for 52550. There is agood prospect that the China market will be contrived to buy only Chinese airliners making itextremely uncertain that it will actually be a part of global demand. That also brings intoquery the manufacturer conjectures that count China as possible customers includingEmbraer, which has claimed that Chinese production will not be able to meet demand, at leastin the short term51.45 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 AircraftManufacturing,” International Organization, 46 (4) :( 1992) 93547 ibid48 ibid49 For the purposes of this forecast an RJ is an ERJ or CRJ only50 ibid51 ibid
  16. 16. Boeing VS Airbus 16 The trend is also perceived as towards a larger and more costly aircraft pushing therevenue 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 becameunprofitable and were substituted by the RJs with new market submissions not to substituteturboprops. The new dynamic RJs are on the verge of exiting, as are the assignments they areoperating52. Air service dynamics have primarily changed since the economics of themachinery has transformed and there are no prospective economic substitutes for lesserturboprops or RJs on the perspective. The smallest airline in circulation in the West is 70seats and they are expensive. These new aeroplanes can fly longer while Airbus is leading theway in the very huge capacity sector. Airbus asserts there is still life in the hub and spokesystem 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 traveldepends on the financial system and the economy. As the Gross Domestic Product (GDP)54 inmany countries is gradually escalating and liberalization of markets augments theaccessibility, the air traffic expansion is gradually stabilizing .Globalization and internationaltrade can initiate more wealth, which in turn has its outcome on international travel. Differences are seen between the major players when Boeing projects an annualpassenger traffic increase of 4.8%between 2005 and 2024, contradicting Airbus’s projectionof a slightly higher annual increase of 5.3% between 2004 and 202355. As Boeing foresees aninternational passenger fleet of35, 300 aircraft by 2024, Airbus sees an increase to 21,759aircraft by 202356. Boeing also predicts about 22% will be in the midsize twin aisle category52 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.55 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theoryof corporate trade demands.” International Organization,43 (2) (1989): 26156 Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 978
  17. 17. Boeing VS Airbus 17such as the 787and A350 while the 747 and larger aircraft will only take up 4% of the totalfleet according to Boeing57. In addition to the rise in number of aeroplanes, Airbus also projects a boost in thenumber of seats per aircraft in the proximity of 20% that is from181 to 215 seats58, inanticipation of the year 2023. According to Boeing, in the next 20 years, Cargo aeroplanenumbers will twofold to 3.530 full carriers projecting a typical growth of 6.2%59. Airbus alsoobserves the distribution of full freighters augment to 3,139 full freighters60, an increase of5.9% 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 citypairs; Boeing and Airbus are also hoping aviation authorities will endorse even higherETOPS61 evaluations that would increase such aircraft potential. ETOPS is particularly vitalfor point-to-point traffic where Boeing tenders the 787, 777, and Airbus, the A330 andA350.62At present Boeing embraces the record for the premier ETOPS score with 207minutes 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 donot desire ETOPS. Airbus is competing openly with Boeing’s 787 and the 777 with the A350,57 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theoryof 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 theoryof 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 landwithin 90 minutes if one of the two engines fails. Obtaining this rating requires the certification of the reliabilityof 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 theoryof 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 ibid
  18. 18. Boeing VS Airbus 18their newest twin-engine aeroplane that will also mark next generation engines comparable tothose presented on the 787. With 529 aeroplanes ordered so far65, Boeing has confirmed their 777 aircraft familyhas so far been an immense success in the medium to long-range point-to-point travel. Thelatest777 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 thisall-new aircraft is looking hopeful. The 787-800 will encompass a capacity of 223 passengersin a three-class design and has a range of 8,500 nm. The elongated 787-900 is expected tocarry 259 passengers over the same range according to Boeing68. Airbus’s A350-800 will takeup to 253 in a three-class design with a range of 8,800. The elongated A350-900 can carry300 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 airlineswith commitments signed by seven other airlines, including Leasing companies and anundisclosed customer, for 115 A350s69. Board approval has also been provided on the orderfor 60 A350s by a Middle Eastern airline is still pending. While, Airbus also proffers its ultralong range A340-500, this four engine aircraft is getting mounting competition from Boeing’sexceedingly triumphant 777 in the structure of the777-200LR ,which is getting more orderslately as interest from airlines for twin-engine operations is escalating70. With the vaguelyhigher range coalesced with lower operating costs, two engines instead of four, Boeing still65 ibid66 ibid67 ibid68 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theoryof corporate trade demands.” International Organization,43 (2) (1989): 266,69 Landler, Mark. 2006. “Airbus Edge in 05 Sales Comes With an Asterisk.” The New York Times. January 18.70 ibid
  19. 19. Boeing VS Airbus 19has an advantage. More airlines are seeing the benefits of operating twin-engine aircraft overlonger distances. In addition to twin-engine operations, Airbus is also working towards getting itslargest aircraft, the A380-800, into commercial service. Some see the volume of the A380 asthe drawback of the A380 while others see the larger number of passengers carried in theA380 as an advantage. Boeing launched its smaller but new invention 777 on November the15th. 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 theA380-800.With orders for 18 new generation 747 full freighters and negotiations stillongoing with several customers, Boeing is confident the new generation 747 will become asuccess71. The Airbus double deck A380 will be able to carry 555 passengers in a three-classlayout over a distance of 8,000 nm. The 747-8 will carry 34 more seats in a three-class layoutand carry 14 percent more cargo compared to today’s 747-400. The range of the 747-8 willbe similar to that of the A380-80072. While both Boeing and Airbus see an augment in the number of aircraft according totheir market forecasts, Airbus also sees intensification in the number of seats per aircraft,which would explicate their development of the larger A380. On the air cargo side, bothBoeing and Airbus have an analogous vision with Boeing seeing an increase in the number offull freighters of 5.9 % and Airbus seeing an increase of 6.2 % for full freighters. Thesenumbers would not be as shocking as these market forecasts are closely linked to thedissimilar 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 peraircraft to these overcrowded airports. Even though this market sector is not very big yet, the71 ibid72 Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theoryof corporate trade demands.” International Organization,43 (2) (1989): 269
  20. 20. Boeing VS Airbus 20proposed traffic expansion over the coming years may make the A380 more attractive overthe years. Simultaneously the related dimensions of the Next Generation 747 contrasted to thecurrent 747-400, may be more attractive to airlines. Pooled with the 787-based technologiesand plan, the Next Generation 747 becomes attractive to airlines that do not automaticallyneed the capacity and the size of the A380. In this reverence, the new 747 will find its homebetween 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 accomplishmentof the 787/777 and theA330/A350. Airlines can also decide to fly ETOPS free; picking Airbus’s A340. Even so, theaeroplane producer with the highest ETOPS rating will have key advantage over its rival.Both larger capacity and more frequencies are attractive resolutions. The accomplishment ofwhich one will be the better resolution depends on the location where the airlines and airportsfind themselves in over the years and the development of ETOPS ratings for twin-engineaircraft73. Overcrowded airports can use larger aircraft but at the same time, the pressure theseovercrowded airports are experiencing can be incompletely removed by distributing moreflights from neighbouring airports. The accomplishment of point-to-point and hub-and-spokedepends on market and economical developments all over the world that will establish theachievement 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 isconsidered. As seen, the threats are Low. It is not simple for new companies to penetrate themarket of developing large commercial airplanes. As seen, Substitutes are also Low. Thereare numerous substitutes available like ship, and land transport. However, these alternativescannot compete with air transport since the price-performance transaction in this case is not73 Landler, Mark. 2006. “Airbus Edge in 05 Sales Comes With an Asterisk.” The New York Times. January 18.
  21. 21. Boeing VS Airbus 21striking. In addition, Bargaining Power of Suppliers is also deemed as Low to Moderate. Thesupplier sector in this industry is sectioned, so it is comparatively simple for the aircraftproducers to switch suppliers. However, some parts entail a high measure of concentratedknowledge and are distinguished from others like the engine, thus mounting bargainingpower of this group. Inclusive in the factors is the Bargaining Power of Customers, which ishigh. There are comparatively few buyers of huge commercial airplanes. In addition, theairlines that buy aircraft make low profits thus making them price responsive. Also, eachclient 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 airlinermarket. Since industry growth is slow, both companies fight for market share. So as per thisporter 5 analysis, Boeing plans to introduce the Dreamliner, 787.It is supposed to address allthe 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 issignificant to conduct an airline pest analysis in the world because there are so many diverseconcerns to notice. Political factors can manipulate the approach in which a company works.If an airline is integrated within a country with a cruel political climate then politics plays ahuge 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 alatently hostile climate; terrorism and piracy. According to economic data, it is advantageousto verify whether or not economic objectives are being met. Other things that can beestablished from this analysis comprise rate of inflation, budget limits, salary structure,equipment maintenance, and how business will be conducted in the future. The airlinebusiness requires high overhead costs therefore, economic scrutiny is extremely significant,for example the various players did the changes discussed above during the recent recession.
  22. 22. Boeing VS Airbus 22 In view of social aspects in the airline business, it is significant to keep in mind thatsafety is an essential concern. The events of September 11, 2001, have changed the way theairline industry works, as seen in the case of virgin Atlantic. For example, security hasbecome the focal point behind how airlines function. Apprehensions over preceding securityworkforce have made many airlines reassess their hiring practices. The last characteristic of aPEST 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 airlinebusiness directors are eager that new and cheaper types of fuel are generated for use. Inaddition, there are more computerized ticketing cubicles than before; enabling business to bestreamlined.
  23. 23. 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 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
  24. 24. Boeing VS Airbus 24 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 5. Pestel analysis 6. the hub and spoke values 7. point to-point idea
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