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Airbus vs Boeing

In: Business and Management

Submitted By samuelpete
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Executive Summary
Activities in the commercial aeroplane manufacturing industry have been outshined by the competition involving the European owned Airbus and the USA owned Boeing. These two companies exist as a duopoly at the top end of the commercial aeroplane manufacturing industry that covers the development of airplanes with a capability of more than 200 persons. Other aeroplane manufacturers also exist but at the lower end of the industry, these smaller firms mainly develop low capacity airplanes that basically convey less than 150 persons.
Boeing is a United States of America based company which was founded by William Edward in 1916, the firm has been dominating the industry since its inception while on the other hand Airbus was founded in 1970 by the European Aeronautic and Space Co. (EADS) with its headquarters in Toulouse, France in other to challenge the monopoly thus far enjoyed by Boeing. The trade disputes or disagreements involving the European Union (EU) as well as the United States (US) take precedence in the rivalry or fight between this two firms. Whilst Airbus receives subsidies in the form of launch aid from the European Union while at the same time Boeing is granted right to use the United States military’s Research and development technology.
Owing to the soaring operating fund as well as long product break even time associated in the airplane manufacturing industry, it can be reasonably debated or argued that it will be somehow difficult for each of these firms to carry on or survive without a little support in a way from their respective Governments. Nevertheless, these subsidization programmes dangers precedence for new Government sponsored companies incoming to the industry. In broad, the ultimate winners or beneficiaries in the Airbus-Boeing competition or rivalry are basically the customers who are clever to select airplanes from range or variety of options. It can be said that this two companies distinguish their products mainly by capacity as well as technology. Boeing and airbus tend to operate a head to head based rivalry or competition involving particular products, for instance the Boeing 787 vs Airbus A350 series.
Furthermore, from Michael E. Porter’s theory on the competitive benefit of nations, the factors that have mainly assisted the US and EU to attain competitiveness in the area of airplanes manufacturing can be pointed to a firms strategy, structure and rivalry, factor conditions, related and supporting industries as well as demand conditions (Porter, 1990). After analysing the aircraft manufacturing industry based on this reason or factor, it was realized that government support considerably decreases the hurdle or difficulty to entry into any section of the industry. Owing to the level of support that is being provided to Boeing as well as Airbus by the United States (US) and the European Union (EU) correspondingly, there is no doubt that they will stay put in the market as a duopoly. Conversely, the activities of airplane manufacturing companies supported by Russia, Japan, China as well as Brazil convey a sounding signal that it might not be long before the Boeing-Airbus duopoly is broken which will result to a formation of new company which will become part of their market segment.
Over the decades, Airbus and Boeing, the two major players have been at loggerheads for aircraft orders. This case details the intensity of the rivalry between the two companies by elucidating facts of a new aircraft being developed from each of their stables. Boeing’s 787 Dreamliner being designed with new composite material is meant to set industry standards. As according to the company, this aircraft would help airliners save fuel costs. The aircraft is also intended to be tons lighter than other models.
Airbus, on the other hand, with its A350 XWB intends to offer the airline market with the largest aircraft it has produced till date. Post, Paris Air Show and the Dubai Air Show held in 2007, A350 claims to give a stiff competition to 787. Boeing plans to deliver its Dreamliner by 2008, and Airbus by 2013. Boeing with 5 years of advantage, and confirmed orders, industry observers inquire, if Airbus would beat the time advantage or bank on the strength of the A350, or better still use the time to their advantage and modify the aircraft to being user friendly

QUESTION 1: What is a duopoly market? How is competition dynamics structured in a duopoly market? What are the pitfalls of a duopoly market?
A duopoly market can simply be referred to as one in which two firms own all or nearly all of the market for a given product or service or it is a term which is basically used to describe an industry where market share is dominated by only two firms. This market structure which is a form of an oligopoly applies where few competing companies with many buyers strategically interact with its rivals by reacting to key business decisions. This has been the case for market segments for the manufacturing of commercial airplanes. Over the years this market has been dominated mainly by US Boeing and European Union Airbus. Although, there are other airplanes manufacturers at the lower end of the industry covering mainly aircrafts of less than 150n passenger’s capacity, the furious rivalry or fight between these two big firms takes precedence in any analysis of the industry.
However, competition dynamics is well structured in this market where two dominant companies control and share large proportion of the industry is formed and maintained by determining the behaviour of the dominant firms towards the overall market outcome. This involves a strategic interdependence between the dominant firms by assessing the impacts of their decisions with respect to those of the rival firm.
The competition within this market revolves round the decision making processes of the major players, each firm know that their rival would react to their actions thus taking expected reactions into account in the decision making process. The decision to introduce the 787 Dreamliner by Boeing, a simple, comfortable, efficient and cost effective airline to convey passengers to their required destinations without intermittent stops prompted the introduction of A350, and subsequently the A350 XWB. The decisions made on the interior styling and design of the 787 Dreamliner by Boeing made Airbus design similar but slightly aircrafts with differences in engine design, passenger windows, fuselage, wings and cruise speeds.
In a duopoly market where both players produce similar products for a single market price, maximizing their profit would require both firms cooperating to form a monopoly where each firm produces half of the required market output to earn large profit. However, in situation where individual firms decide to compete owing to fear of being deceived on the agreement and increases its output as in the case if Airbus and Boeing, they both earn low profits.

Pitfalls of duopoly market a) The setting of prices may be of advantage for the firms, but if it is done unrealistically, it may prove to be a great disadvantage for the customers. b) New firms cannot enter into the market due to the various barriers of entry. c) The lack of new firms means lack of new products and a market can go stale. d) A duopoly market leaves the customers with less choice. e) Creative ideas in the duopoly market often times fail to come into reality.
Furthermore, other pitfalls that are associated with a duopoly market includes;
Entry barriers
The nature of a duopoly market has two firms being the larger than other existing firms and thus controlling a large market proportion as in the case of the aviation industry where 99% of commercial aircrafts would be produced by Airbus and Boeing and the remaining 1% shared amongst other market players. Entry barriers into duopoly markets are high and sometimes impossible, as new firms cannot compete.
Interdependence of firms
The firms operating in a duopoly market constantly have to weigh the impact of their decisions and that of their rival with respect to their output. The decision making process of these firms will have to carter for reactions from rival firms, thus the amount of adverts for a product in a firm might trigger corresponding drop in price for the rival firm
Unpredictability
The ability to one firm to determine how its rival would react within a duopoly makes it impossible to assume the outcome of any action. The effect of a drop in price within a firm would cause a reaction by the other firm causing different assumptions to yield different results.
Competition and collusion
The interdependence of firms within the duopoly might force them to collude and operate as a monopoly (cartel), thereby maximizing profit but the fear of losing individual competitive advantage due to rivals; past behaviour would tempt them to compete in a bid to gain a larger share and profit.

High degree of market and price control
The presence of two dominant firms within the market causes them to have almost total control of the market thereby determining the quantity of output and corresponding price for each output. These major players might collude and offer low product quality while prices may be very high depending on the size of the market.
Question 1A: The dynamics of global aircraft manufacturing industry
Nevertheless, factors that mainly characterise activities or dynamics in the commercial aircraft manufacturing industry include: * Major political meddling or interference by home country of the companies * Looking for technology * Economics of scale * The furious or severe rivalry with product based head to head competition * Pre-selling of aircrafts prior to manufacture * Decentralisation of manufacturing as well as outsourcing * Long product lead time and long break even time * High operational cost * Centralisation of marketing activities
The theory of the five competitive forces that shape strategy by Michael E. Porter’s has been in use to help clarify the dynamics of the commercial aircraft manufacturing industry with particular stress on the Airbus-Boeing Duopoly. Depicting from Michael E. Porter’s theory the competitiveness or profitability of the airline manufacturing industry can be assessed with the use of the factors listed below. * Rivalry between existing players * The intimidation or threats of new competitors * The good deal or bargaining power of suppliers * The good deal or bargaining powers of customers * Threats of alternative products
2.1 Rivalry between existing competitors
The United States of America owned Boeing maintained a nearly unchallenged monopoly on the commercial aircraft manufacturing industry until when Airbus was founded in 1970 with the sole aim of given Boeing competition as well as to challenge this monopoly and since then, the both companies have asserted a duopolistic dominance on the industry. Irrespective of the Boeing versus Airbus duopoly, other aircraft manufacturers have managed to operate at lower ends of the market by manufacturing as well as successfully making sales on lower capacity such less than 150 persons and medium range aircrafts. The lower end markets are mainly occupied by companies from Canada, Brazil, Russia and china.
Owing to the enormous market value of the long range and larger capacity aircrafts, the duopoly involving Boeing and Airbus has a major effect on the industry. Competition among this two big companies has been strong with elements of belligerence or aggression shown in the form of suits and counter suits at the World Trade Organisation (WTO). Despite the fact that they both base their suits on allegations of subsidies being received by the other, it can be argued that the cases may have been inspired by anger at loss of market share especially by Boeing. Factors that add to this rivalry can be narrowed down to the following * The both companies share nearly identical competence and capabilities * Exit barriers are high owing to the high operating cost and lead time * The two firms are highly committed to capturing optimum market share. * The operations of the firms have become an issue of national pride for their home countries.
According to the case study material, Airbus and Boeing are mainly equipped in the manufacturing of similar or comparable aircrafts like the single aisle, long range and wide body aircrafts. In addition, high exit barriers in the form of cost make it hard for any of the companies to even consider divestment. The lead time for the delivery of an aircraft can get very longer (Hassan, 2008); and as a result it takes longer for a particular aircraft to break even. It can also be observed that the operations of the two firms have become something of a national pride to their home countries. This is indicated or evidenced in the quality of support the both companies receive from their respective governments. For instance, Boeing gets access to what otherwise would have been classified technology from the United States defence programmes whereas Airbus receives funds which it only have to repay upon making profit. The consequence or downside of these subsidization initiatives is that it creates a precedence that will be followed by new entrants.
2.2 The threats of new entrants: competitive advantage of nations
Basically, the barriers to entry into the commercial aircraft manufacturing industry can be dynamic depending on the segment of the industry that the new company is venturing into. Hence, the barriers can be said to be higher in the industry segment covering the development of mid to long range aircrafts with capacity for over 150 persons for the reason that this is the industry sector where Airbus and Boeing operate on a duopoly. Nevertheless, an independent company without political support will find it almost impossible to break into this industry. This is owing to the high start-up as well as operating capital required, in addition the long time required for a project to break even.
Whilst it may be said that it will be extremely difficult for a company without government shore up to break into the commercial aircraft manufacturing industry, the same thing cannot be said of companies that goes into the industry with the support of their home countries. Conversely, firms with government shore up or support are able to leverage the resources of their home countries as can be seen from the Airbus and Boeing duopoly, these governments have the tendency to go out of their way to help firms achieve competitive advantage.
Furthermore, as a consequence of the important role been played by the home countries of aircraft manufacturing companies Michael E. Porter’s Competitive advantage of nations (Porter, 1990) will be mainly used to analyse countries where strong competition is likely to come from in challenge of the Boeing – airbus Duopoly. According to the case study material, Russia, Brazil, Canada as well as China create the strongest threat to Airbus and Boeing duopoly. In addition, Japan is another nation that is worth considering. (Porter, 1990) established that the forces that helps a country to achieve competitiveness includes the listed bullet points. * Firm strategy, structure and rivalry * Factor conditions * Related and supporting industries * Demand Conditions
Nevertheless, these listed factors have immensely helped the United States and the European Union to achieve the competiveness reflected in the Boeing versus Airbus duopoly. They as well provide a means for assess the decisive or critical success factors necessary for a firm to survive in the tough and competitive commercial aviation industry.
2.2.1 Firm Strategy, Structure and Rivalry
Airbus and Boeing try hard only to outdo each other. The repercussion or implication of this is that the both companies end up operating two similar organizational strategies with slight differences exhibited only in the technology of their product. On the other hand, the sustained control of market share that has been achieved by Boeing and Airbus demonstrate that their strategies are not entirely bad. With regards to local rivalry, there has not been major localised rivalry in the aircraft manufacturing within the European Union and the United States owing to the high capital needed to successfully operate in the industry. Though, one can argue that the competition among subcomponent suppliers helped to drive quality towards a positive direction.
Amongst the possible entrants, one nation that is capable of taking a good advantage of rivalry amongst local aircraft manufacturers is Russia. According to the case material, Russia already has airline manufacturing firms that compete among themselves such as Irkut, Mikoyan, Sukhoi, IIyushin, Tupolev as well as Yakolev. Hence, the competition involving these firms has helped them develop their competence to a standard that make them tough competitors. Conversely, these companies will still need a substantial amount of time to grow into a strong force in commercial airline manufacturing due to the fact that they are all specialised in the development of regional jets with capacity of not more than 150 passengers. Moreover, Russian government’s decision to combine these companies into a singular airline manufacturing company should be a problem of concern for both Airbus and Boeing.
2.2.2 Factor Conditions
From (Porter, 1990), the factor condition is not just about essential factors of production like land, labour as well as capital. Nevertheless, it is the ability of a nation or country to persistently create specialised and sustained competence in areas mainly required by an industry. The academic systems in both United States and the European Union help them too persistently create a pool of highly skilled talents in the technology sector. In addition, these nations are also known to invest a lot in technology based Research and development. For instance the Silicon Valley in the United States and the M4 Corridor in the United Kingdom are just examples that illustrate how heavily the United States and Europe invests in Research and Development.
Irrespective of how far the United States and the European Union has gone with regards to consolidating their factor conditions, other nations like Japan, Russia, Canada, Brazil as well as China also have the potential to achieve this and hence reduce its impact on their barrier to entering the market segment characterised by the Boeing versus Airbus duopoly. In addition, as result of the political dimension of the aircraft manufacturing business, firms may be able to take advantage of national Research and development assets like military and space technology and human resources.
2.2.3 Related and Supporting Industry
The size as well as range of the operation of Airbus and Boeing presents a new dimension to Porter’s idea of Related and Supporting industry and its role in the competitiveness of countries. Globalization is gradually beginning to play an important role in the manufacturing of commercial aircrafts. This is because aircraft manufacturing companies leverage the quality of local suppliers of sub components like electronic control systems as well as engine components; they also outsource their manufacturing activities to international markets.
Boeing outsources the development of its aircraft body to Mitsubishi in Japan whereas Airbus outsources its work to US, Japan and China (Hassan, 2008). The majority of potential entrants to the high end of the commercial aircraft manufacturing market such as Russia, Canada, Japan and China can have the necessary supporting industry required for success at the higher end of the commercial aircraft manufacturing because they are already developing lower capacity commercial aircrafts. In addition, the global decentralisation of aircraft manufacturing means that potential entrants to the aircraft manufacturing industry can outsource aspects of their product development to the US or EU.
2.2.4 Demand Conditions
According to (Porter, 1990), the demand condition from the local industry also serves to improve a country’s competitive advantage. This force will work mostly in favour of China, because the country’s economy is really growing at an astonishing rate and it requires proportional growth in its aviation sector in other to balance the growing need for transportation. Also, the aircraft industry has become highly globalised in such a way that a company can also be impacted by this force from a global perspective. This is in essence to say that local demand condition can be substituted with global demand condition.
Although, not to the same degree, the majority of the countries being analysed including Russia, Canada as well as China possess the factor condition needed to make a commercial aircraft. Canada is already developing the Embraer C series airplane, Japan has been the location of the development of most of the body parts for Boeing and they are already developing the Mitsubishi Regional jet (The Sydney morning herald, 2012). While on the other hand China may not be well known for high skill technological products however this is beginning to change.
Chinas success in its space programme is evidence that the country has the resources and ambitiousness to bring large scale projects into fruition. In general, over the years, Boeing and Airbus has through experience achieved stability in the synchronization of their factors of production. Thus, it might be a long time for any country to achieve Boeing or Airbus level of stability in terms of production capability.
A significant point to consider is the possible response of Boeing and Airbus to new entrants into their high end market segment. The suits and counter suits filed by these two companies’ against each other at the WTO provide a clue to how they will react to future threats to their market share. It may not be completely wrong to assume that Boeing and Airbus will exploit every international trade law available to them in other to mitigate the threat posed by new entrants (5 forces).
2.3 The bargaining power of Suppliers
In the airline business, it is generally believed that there are more suppliers than there are more manufacturing firms, thus the suppliers have small power to influence the market. In view of the fact that Airbus and Boeing control the majority of shares in the top segment of the industry containing aircrafts of over 200 person’s capacity, they also have more bargaining power than their suppliers. The small drawback of this is that the aircraft manufacturers cannot always be assured that they are working with the best suppliers in the market simply because there are too many suppliers seeking for partnership with them. Nevertheless, the overall implication of a weak supplier bargaining power is more positive than it is negative because competition among suppliers effectively results to constant improvements in quality.
2.4 The Bargaining power of customers
Customers in the airline business have strong bargaining power because there are more customers than there are aircraft manufacturers. This basically puts enormous pressure on the manufacturers to persistently strive to meet customer requirements. This strong bargaining power was demonstrated when Airbus’s customers complained about the design of the A350. Airbus was instantly put under pressure to appease their customers in other not for them to opt for Boeings 787. As a result Airbus had to go through the difficulty of redesigning the whole aircraft into A350-XWB.
The merit or advantage of this is that as the aircraft manufacturers constantly struggle for improvement in quality, innovation is induced. On the other hand, the downside is that a change in design as it happened with the case of Airbus’s A350 is costly. In addition, having too many customers and few aircraft manufacturers makes it difficult to forecast the percentage of market share that will be held by a company. The basis of this is the popular idea that customers cannot be counted on to remain loyal. This is evidenced in the rate at which Airbus captured market share from Boeing even though Boeing had maintained a monopolistic hold on the market for over sixty years. In general the possession of extreme bargaining power by customers eventually results in overtly cautions pricing of offers thereby reducing net profit.
2.5 Threat of substitute products
Threat of substitute is one that can be debated as not being important as much as necessary to trouble commercial aircraft manufacturers. Michael Porte classifies this force as the threats posed by products that may stop a customer from acquiring the offer of a company. In respect to aircrafts, this could be ships or trains. Conversely, the aircraft manufacturing and airline businesses enjoy a uniqueness that gives it an edge over any substitute product. The ability to transport hundreds of people across continents over a short period of time is one that remains ever relevant to the society and difficult to be replicated by substitute products. No other transportation can be said to be as quick as airplanes either land or water.
Question 1.B: What are the critical success factors that help companies survive in a tough and competitive commercial aviation industry?
The critical success factors that help companies in a competitive aviation industry include the following:
Access to funds
The availability of ready funding from cooperate backers is a major factor for success in the commercial aviation industry, the monopoly these major players within the industry benefit from is ready funds from their respective government. The US and EU governments have supported Boeing and Airbus respectively with payment of aircraft and investment subsidies and tax reductions
Ability to respond to market demands
The capability to respond to market demands is a factor that Boeing and Airbus have thrived on with the design of different models to meet consumer needs. The demand of aircrafts with different seating capacity from global airliners had different models of aircrafts from Boeing and Airbus competing directly with each other by striving to gain a competitive edge.
Investing in Research and Development (technology)
The investment in technological innovation plays a role in the success within the aviation industry, Boeing’s ability to develop large airlines without intermittent stops, making it cost-effective and simple to operate using lightweight materials for increased fuel efficiency and reduced noise pollution. Other research and developments were noticed in the A350 XWB were the use of a wider fuselage, accommodating more passengers, larger wings, higher cruise speeds and more powerful engines

International Support
The support of the United States and the European Union government is a critical factor fuelling the duopoly of Boeing and Airbus respectively. These support which most other companies did not receive in terms of financial aids and grants have helped both companies soar above other competitors even during disputes. This support in which other companies like the Bombardier, Unified Aircraft Building Corporation (UABC) are receiving from the UK, Canadian and Russian governments is gradually demonstrating a critical success factor and challenging the existing duopoly.
Reliability of Service
An airline with a reputation for reliable service has been shown to develop a positive image among customers, which can lead to more repeat business. Reliability in the air travel industry is measured by several elements: reports of mishandled baggage, the on-time arrival of flights, involuntary boarding denials from overbooking flights, and passenger complaints. Those airlines that are able to control these elements are said to provide better service to the customer, and thus offer more reliable service.
Innovative
To survive the competition in a tough and very competitive duopoly aviation market, companies must be innovative. That is the company must be able to come up with and execute new ideas that will help it to remain in competition with the other player in the duopoly market and also to remain relevant in the industry. As an example, after the announcement of Boeing 787, Airbus decided its plan to launch the A350 XWB and the new airplane will be an improved and modified version of the previously existing plan.
QUESTION 2: The nature and criteria of competition that exists between Airbus and Boeing? What are the strategies followed by them to sustain in the market?
The nature and criteria of competition that exist in market competition between Airbus and Boeing is characterized by a market structure where two firms producing the same product dominate the market and compete against each other. This market structure which is a form of an oligopoly, is called a duopoly where the major market players could either collude as in the case of Airbus and Boeing (1992 bilateral EU-US agreement) on the pricing and output quantity. This collusion is which usually to restrict output, increase prices and maximize profit by complying with the agreement or cheating thus leading to the formation of cartels. The strategy of collusion leaves each of the firms with a possibility of four combinations where in the case of Airbus and Boeing they could both: * Produce one half of the total market demand * Cheat by producing more than the agreed output * Airbus complies with the terms of the agreement while Boeing cheats * Boeing complies with the terms of the agreement while Airbus cheats
The nature of this market places emphasis on major firms to collude and monopolize, as well as jointly maximize their profit or compete as the Boeing and Airbus do in a bid to maximize individual profits. This makes each firm thinking how their rivals would respond to the decisions they make within their firm thus Airbus introducing the A350 XWB in response to the launch of the Dreamliner 787 by Boeing. The collusion of both firms would give them a monopoly of the market where the output from both companies would earn them a large profit each. Competing between each other would have both Airbus and Boeing producing more than the market demand, and two-thirds of the required monopoly and both companies would earn low profits. This leaves them with one option where they both cheat by producing two-thirds of the market demand as Boeing and Airbus do, and both maximize individual profit.
The strategies followed by them to sustain in the market is the ability of both firms to survive within this market, is to match each other squarely on design, output produced, price reduction, promotions and advertising. The design of the 747, 737-700 and 737-800 by Boeing corresponded with the designs ofA380 and A320 from Airbus, both designs ranging from 100 to 500 seats. The sale of 1,111 aircrafts by Airbus and 1,002 by Boeing leading to disputes between both parties was a response from Boeing citing Airbus’ receipt of unfair subsidies from the European Union as reasons for the difference.
In a bid to gain a larger market, Boeing introduced the Dreamliner 787, in 2003 to gain a defined and larger share of the 200 to 300 seat segment. This long ranged, mid-sized, wide-body, twin engine passenger aircraft designed with flexible interior design for comfortable, cost-effective long distance travels using lightweight materials and environmentally friendly design considerations prompted Airbus to emerge with her version of the same aircraft.
The A350 XWB from Airbus matched the Dreamliner as it had a wider fuselage, larger space for accommodation, larger wings, powerful engines and higher cruise speeds. The eco-friendly nature present in the 787 was also seen in the A350 WXB as it was also less noisy and approximately 5% more fuel efficient when compared to the 787. The nature of competition present in this market structure does not allow both firms to plan differently as both companies are gradually aiming for the Asia-Pacific region where orders are expected to triple while the huge US remains.
Question 2.A: What is the role played by respective governments in the growth and competition between these companies? Does the government intervention benefit their aircraft industry?
According to the case study material, the United States and the European Union have persistently sort to support Boeing and Airbus respectively in a way of direct or indirect subsidization of their operations. From the case material, whilst Airbus receives funds in the form of launch aid from the EU, Boeing is also granted access to the US military’s Research and Development technology. The trade disputes involving the EU and US governments have been overshadowed by these subsidies. As a result of the long period needed to break even and the high risk associated with the commercial aircraft manufacturing industry, it can be well argued that it will be quite difficult for the two companies to remain competitive without the subsidies. Nevertheless, the risk associated with subsidies is that the respective governments set precedence that will be followed by new entrants. This might become counterproductive in the future especially when a nation like China that has enjoyed significant economic growth in recent years decides to increase the subsidization of its own airline manufacturing company.
The government of both companies offer significant support to their respective beneficiary in tax reductions which results in lawsuits, and counter lawsuit with the World Trade Organization (WTO). As each government wants their representative to be the market leader by maximizing individual profit, they award financial assistance under different guises and sham research and development projects where their indigenous companies are the recipient while the other files complaint.
The intervention by the respective government and the decision to compete while maximizing individual profits has not only reduced their profit margin, but also given other companies the opportunity to challenge the existing duopoly. This political power tussle, which has endangered the monopoly, held by both countries, has seen China, Russia, Japan and Bombardier another US company come into the fray thus potentially reducing the market share already dominated by Boeing and Airbus.
In 2007, US government accused airbus of getting illegal aid for $100 billion from the European Union. EU denied the claim and asked how finances received by airbus hampered Boeing. In response, the US government said, subsidies have enable airbus to develop a full family of airliners, targeted at its US competitors. It is not tolerable that one producer should have ready access to billions of dollars in up front, risk free financing to develop airplanes. The EU also had similar accusations against the US case against airbus ignored relevant international agreements and is supported by incorrect facts.
Boeing has continually protested over launch aid in the form of credits to Airbus, while Airbus has argued that Boeing receives illegal subsidies through military and research contracts and tax breaks. In the aftermath of airline deregulation, airlift strategic capability continues to undergo significant transformation and has reached the point where increasing shortfalls exist with little hope for improvement without federal intervention.
The major bone of contention is that of EU Member State co-financing of NASA R&D for new Airbus aircraft. EU governments so far have made handsome returns on their initial “investments”, even though there are instances where Airbus has been able to obtain financing on more favourable terms from private lenders, compared with government offers. The EIB (European investment bank) has indeed provided loans to Airbus but it has done so in full conformity with its lending rules and policy on conditions strictly similar to that of loans to other clients.
The intervention of the various governments on their aircraft industry may benefit the industry to some extent and it will also have an adverse effect on the other competitor. The issue of subsidy by the European Union and Airbus assisted the company for the first time to sell more planes which later resulted to a dispute between Airbus and Boeing.
Question 2B: Compare and contrast between Airbus 350 vs. Boeing 787 and explain how these firms differentiate their products?
Boeing 787 introduced and launched in 2003 and 2005 respectively is a long-range, mid-sized, wide-body, twin-engine 200-300-seat passenger aircraft. Designed for a 30 years minimum lifespan, the 787 Dreamliner conveys passengers without intermittent stops comfortably and efficiently while maintaining its simplicity and cost effectiveness. This airline, which has a flexible and economical interior design, was built using composite materials, which gives it a higher lease and resale value. Being the most advanced and efficient planes in its class, the 787 has fuselage diameter of 18cms – 13cms with engines designed to produce less noise and fuel-efficient. On the other hand the Airbus 350, an improved design from the existing A330 is a low operating cost airline, which has a wide body, wider fuselage with diameter of 31cms. This aircraft, which has larger wings, a more powerful engine and higher cruise speeds when compared to the 787 accommodates wider economy seats maximizing usable space, and a constant cross-section between doors one to four.
Similarities between Boeing 787 and Airbus 350 1. Fuel Efficient 2. Reduced noise pollution 3. Advanced and powerful engine design 4. Environmentally friendly
Below is table showing the SWOT analysis to compare between Boeing’s 787 and Airbus’s A350 series. The A350 series presented includes the A350 and A350 XWB aircrafts.

Table 1 showing SWOT Analysis of Boeing 787 vs Airbus A350 Boeing 787 | Airbus A350 and A350 XWB | Strenghths | * It has first mover advantage * It mainly occupies a clearly defined market segment for 200-300 seat aircrafts * The interior is interchageable over 30 years * It covers long distance trips without intermediate stops * It is cost effective to operate * The design allows for quicker as well as lower cost modification of interior * It is fuel efficient and low noise pollution in its design * Owners can expect high lease and resale values | * It has a second mover advantage * The A350 XWB is basically larger than Boeing 787 * A350 XWB was designed based on direct customer feedbacks * The interior is interchangeable over time * A350 XWB usable space is apparently maximised * It has a wider passenger windows * According to the Airbus, the efficiency of fuel per seat of A350 XWB is 4-5% better than Boeings 787 * The engine thrust ranges from 75,000 and 95,000 | Weaknesses | * It requires high capital for product development * Longer lead time with multiple cases of delays | * A350 risks being made obsolete by A350 XWB thus hampering the A350’s sales target * High capital needed for the development of the product * Also longer lead time with multiple cases of delays. | Opportunities | * in the advent of reselling the aircraft revenue can be generated from redesigning the interior * high demand forcast * it has US government support * has access to military grade technology | * in the advent of reselling the aircraft revenue can be generated from redesigning the interior * high demand forcast * Airbus has the backing of EU government. | Threats | * Suppliers not meeting delivery targets * Suppliers not meeting quality targets * New entrants might reduce percentage of market share | * Suppliers not meeting delivery targets * Suppliers not meeting quality targets * New entrants might reduce percentage of market share |

The Boeing 787 was initially introduced to the market before the A350 series. Hence, the 787 had first mover advantage as it started generating revenue before the A350 series. Nevertheless, the A350 series also has second mover advantage as Airbus was able to take advantage of technology gaps in the design of the 787 in other to improve the A350. For example, whilst Boeing designed the 787’s engine to be environmentally friendly, Airbus included extra thrust to the A350’s engines. In addition, Airbus had more time to develop the A350 as well as A350XWB and the design of these aircrafts were strategically streamlined to compete against the 787.
Airbus and Boeing mainly differentiates their products based on capacity ot technology. This is usually done based on head to head between particular products. For instance, according to the case study material, Airbus designed the A380 to be a bit larger than Boeing 787 as well as th A320 to be a bit larger than Boeings 737-700 but smaller than Boeings 737-800. With regards to technological innovation, Boeing took advantage of its first mover advantage to minimise noise and fuel emmisions. Also with respect to head to head competition between products, Airbus had little time to respond to the 787, therefore the company only had two points. Its first option was to develop a product that demonstrates a higher level of technological innovation than the 787. The latter option was to build a slightly larger aircraft than the 787. Airbus’s lack of ability to comprehensively achieve any of these resulted in the negative feedback that it recieved for the A350. The second option of increased size was later achieved with the A350 XWB.
Question 2C: With increasing competition, can either companies co-exist in duopoly or will it turn out to be survival of the fittest? Upon the rigorous analysis of the commercial aircraft manufacturing industry as well as the nature of the Boeing and Airbus duopoly it can be rightly assume the two companies will remain in businesses for a very long period of time. The case of duopoly will be more of coexistence than survival of the fittest. This notion is mainly supported by the following; * Boeing and Airbus have the financial support or backing from their respective governments needed to remain in the market even in times of negative cash flow * They both have the technical ability needed to continually innovate * The European Union and the United States have the political profile needed to push sales through to their allied countries even during tough economic times * In addition, since businesses have become an issue of National pride, their income nations will continually support them in other to maintain national integrity. Furthermore, irrespective of the idea that Airbus and Boeing will continue to coexist as a duopoly, their market segment is faced with serious threats by potential entrants that are poised not just to do businesses but also to make political statement. For this reason, it will be long before one of the major competing companies with the support of Russia, Canada, Japan, Brazil or China (competition for others) to become strong enough to break through the duopoly.
In addition, the competition between the two players is also strong. Hence it can be suggested that the market will soon be converted to the survival of the fittest. Looking at the delay in the launch of the A350 XWB is Airbus ready to manufacture anymore airplanes; no doubt their strategies are working for them it should focus on clearer strategy. In the not too distant future, it will be the survival of the fittest in aircraft industry.

References
[1] Hassan M.S., (2008), ‘Airbus vs Boeing 787’, ICFAI Business School, Bangalore. Case Study Reference no: 308-171-1

[2] Porter M.E. (1990), ‘The Competitive Advantage of Nations’. In Harvard Business Review, March to April 1990, pages 71 - 91. [Online] Available at: < http://kkozak.wz.cz/Porter.pdf> Accessed on 12 March 2015

[3] Porter M.E. (2008), ‘The five competitive forces that shape strategy’. In Harvard Business Review, January 2008, pages 78 - 93. [Online] Available at: <http://www.asec-sldi.org/dotAsset/292822.pdf> Accessed on 11 March 2015

[4] The Sydney Morning Herald (2012), ‘Mitsubishi’s first jet gets $4 billion order’, The Sydney Morning herald traveller, 17th December 2012, [Online] Available at <http://www.smh.com.au/travel/travel-news/mitsubishis-first-jet-gets-4-billion-order-20121217-2bi9y.html> Accessed on 14 March 2015

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