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Competition Between Boeing And Airbus

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1. I believe that Airbus would have become a viable competitor without subsidies, although it would have taken significantly longer. By merely introducing an alternative would have gained new customers as competition not only forces the competitors to produce better products, but it drives prices down. Customers like to have options. Because of the enormous cost required to develop an airliner, the government subsidies helped Airbus to bring to market its alternative to Boeing’s offerings sooner. But I think the market was ripe for competition and therefore Airbus would have been able to eventually bring its product to market.

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As a side note, because Airbus was able to enter the market sooner thanks to subsidies, with two major manufacturers now established it has made it extremely difficult for new entrants. 2. I think the four countries that collaborated in the creation of Airbus were the most economically able to do so. They represented four of the largest countries in Europe, both in terms of economy and in terms of population.

They stood to gain the most from the creation of a European aerospace manufacturer, yet none of the countries were interested in assuming the risk by themselves.

By spreading the risk among the four countries they probably felt sufficiently hedged against failure to move forward with the investment. 3. Is Airbus’s position with regard to the long-running dispute over subsidies reasonable? (ITAI) Many in U. S. claimed that Airbus had been heavily subsidized by the governments of Great Britain, France, Germany, and Spain. According to a study by the Department of Commerce, Airbus received more than $13. 5 billion in the government subsidies between 1970 and 1990, $25. 9 billion if commercial interest rates are applied).

Airbus’s justification was that their success was not due to subsidies, but due to a good product and good strategy. And some European tried to justify its subsidies to support an infant industry. It seems it is fair for the Airbus to bring up the technological advantage of their products and services which would enable Airbus to compete against Boeing, or any other supplier fairly and ethically. However, Airbus obviously enjoyed and took advantage of huge subsidy and the preferred interest rate and tax break which should have definitely provided financial advantage to Airbus, I could not fully agree with Airbus’s justification. . Do you think that the 1992 trade agreement was reasonable? (ITAI) It is true that many of us agrees with Airbus’s position indicating their technological advantage for example in its state of the art material application and fly by wire concept and its application, the size and capability of their products and services kept its competitive advantage at the aircraft business market. We also recognize that the Airbus has been heavily supported by the European governments and definitely took advantage to maintain its competitive advantage and expanded their market share further as stated earlier under answer 3.

However, in accordance with European Commission study estimated that Boeing and McDonnell Douglas received $18 billion to $22 billion in indirect government aid between 1976-1990 period. It also claimed that the commercial aircraft operations benefited $6. 34 billion by Department of Defense, $$8 billion by NASA, additional benefit of $1. 7 and $1. 4 billion of the tax exemption for the Boeing and McDonnell Douglas respectively. It seems they both are in a same situation in my opinion.

The 1992 agreement only limited the direct government subsidies to 33% of total development cost of a new airplane and established the time threshold for its payment in 17 years. Although it may not be easy to compare and evaluate what is reasonable and what is not, I believe many of us realize we can not clearly segregate a commercial aircraft business from the overall aircraft manufacturing business as it could have a strong relationship and involvement with the government, the military and the national defense operations.

That being said, it seems it is fair for both parties to agree in some kind of trade agreement in order to set some level of restrictions so that all associated firms and suppliers will be able to reasonably and ethically operate for a fair competition. 5. Why do you think that the U. S. industry reacted with caution to attempts by politicians to reopen the trade dispute in 1993? (Hartman) The U. S. industry was doing well with the products it was selling, they did not want to “rock the boat” so to say. There wasn’t any reason to take chances on losing the deals they had. . In an era of global competition, what is the case for antitrust authorities to permit the formation of large domestic firms through mergers and acquisitions? (Hartman) They want to preserve competition and ensure that the couple or few companies in an industry do not engage in tacit collusion and raise the prices above the level that would prevail in more competitive market situations. 7. Was the threat by EU authorities to declare the Boeing McDonnell Douglas merger illegal a violation of US national sovereignty? There are two sides to this argument.

On one hand, the US government should have final and complete say over whether mergers of domestic firms are appropriate or not. For the EU to intervene would be a violation of US sovereignty. On the other hand, these firms both do business in Europe, and a merger would affect European firms. Thus the EU has a legitimate point in wanting to regulate the activities of firms that do significant business in the EU. The argument is less valid for action taken by the EU during the summer of 2001 when it actually struck down a merger between two U. S. companies, Honeywell and General Electric. That merger already had full approval of U. S. overnmental agencies. In a shocking decision, the EU ruled that the merged company would not benefit the European consumer and prohibited it from occurring. 8. Do you think the EU Commission had a strong case in its attempt to wring concessions from Boeing regarding the merger with McDonnell Douglas? Was Boeing right to make significant concessions to the EU? What might have occurred if the concessions were not made? Since this is a question of opinion, there can easily be some room for justifying multiple points of view. Overall the EU had a tough case to make, and its major intention was probably to wring some concessions from Boeing.

The concessions were not that significant, however, as airlines have strong incentives to not switch suppliers in any case (maintenance and spare parts costs are greatly reduced with a sole supplier). If these concessions were not made, the EU would have had to find some other face saving approach in order to justify its reluctant acceptance of the merger. When the concessions were made, the EU emerged stronger, received a vote of confidence from the European consumer, and was positioned to act without apparent impunity in the GE/Honeywell deal.

Cite this Competition Between Boeing And Airbus

Competition Between Boeing And Airbus. (2016, Nov 07). Retrieved from https://graduateway.com/airbus-vs-boing/

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