The Rivalry Between Boeing and Airbus Essay -- Economics Airlines Airc

The Rivalry Between Boeing and Airbus The rivalry between Boeing and Airbus goes back a long way, when Boeing was by far the dominant supplier of commercial airplanes. Up until 1997, Boeing was the clear market leader on the passenger airplane market. Now the situation is less certain, as Airbus has overtaken its American competitor[1] not only in the domestic market but also in the world market, with its introduction of new models of passenger aircrafts. The main issue addressed in this article is that a 1992 U.S.-EU civilian aircraft pact allows too much European government support for Airbus, helping it sell more jetliners than Boeing, which had an 80% share in the market a decade ago. Thus the U.S. government wants the E.U. to put an end to any new subsidies provided by their government, which are aimed at protecting their aerospace industry. The market structure for the aerospace sector is oligopolistic i.e. there are few enough firms to enable barriers to entry to new firms because of various reasons such as huge capital investments and high technology. Hence, Boeing and Airbus, which are the two giants in the aerospace industry, have virtually split the market. When Airbus was first set up, it faced a lot of competition from Boeing. This civilian aircraft pact allowed the European government to take protectionist measures by providing various government subsidies to its developing high –technology industry (i.e. Airbus) so that it could compete with Boeing in the international market. The diagram below illustrates the impact of the subsidies on the quantity supplied by Airbus in the domestic market. In the diagram we assume that the world supply is perfectly elastic at Pw. Under conditions o... ... disputes and worsen trade realtionships between the U.S. and the E.U. The E.U. government was justified in providing subsidies to Airbus earlier. This is because Boeing were the clear market leaders and had established a monopoly power (i.e. Boeing was the only major industry in the aerospace sector) not only in the world market, but also in the local European market. Hence, this posed as a big threat to Airbus, since they were not able to compete in the world and local market and this could have lead to the decline of the aerospace industry of Airbus. But now, since Airbus has established itself as one of the main producers in the aerospace sector, future subsidies are not desirable for free trade. References: Essential of Economics – John Sloman http://news.bbc.co.uk/1/hi/business/125726.stm [1] http://news.bbc.co.uk/1/hi/business/125726.stm