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Economics of Industry - Market structure in the aircraft manufacturing industry - Research Paper Example

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Introduction The market structure of commercial passenger aircraft is oligopolistic, primarily dominated by Boeing and Airbus. Boeing has a 70 year heritage and has been a leader in the industry for a long time. However, since the advent of Airbus, a European consortium, Boeing has faced tough competition and the market has developed and grown due to the presence of now two strong companies…
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Economics of Industry - Market structure in the aircraft manufacturing industry
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Download file to see previous pages (Boeing, 2011) Boeing, then expanded by acquiring Vertol Aircraft Corporation in 1960. (The Boeing Company, 2011) In 1996, Boeing took over Rockwell’s aerospace and defense units. Then in August 1997, Boeing merged with McDonnell Douglas. This merger allowed Boeing's leadership to increase as it joined with the line of Douglas airplanes. (The Boeing Company, 2011) The tax breaks given to Boeing by the US government have also helped in the expansion of the firm. It is believed that subsidies for the defense wing of Boeing have also helped with the commercial side of aircraft manufacturing. (Irwin & Pavcnik, 2003) In 2002, Boeing’s market share was 54%, however it is now struggling to maintain it. (Taylor & tillman, 2002) Airbus Airbus is a subsidiary of EADS, European Aeronautic Defense and Space Company. (Airbus, 2011) It was a government initiative by France, Germany and UK in 1967. It started off as a consortium of aerospace manufacturers, Airbus Industry. The combination of the European defense and aerospace companies in 2000 led to a company being established in 2001. BAE Systems and EADS transferred their assets to Airbus SAS, for ownership in that company. EADS owned 80% and BAE Systems 20%. (BBC News, 2000) In October 2006, BAE sold its ownership to EADS. Airbus Industry was officially recognized in December 1970. It is believed that Airbus has only been successful due to protection used by the European countries and a large launch aid. WTO reached a decision in August 2010 and May 2011 that Airbus had indeed received unacceptable government subsidies from several European countries which resulted in lower sales of Boeing aircrafts. (New York Times, 2011) Airbus’ market share has been steadily increasing sine its share of 46% in 2002. (Taylor & tillman, 2002) Product Development Boeing Boeing has approximately 12,000 commercial aircrafts in use globally, which constitutes around 75 percent of the world fleet. Through Boeing Training & Flight Services, it trains maintenance and flight staff in the 100-seat-and-above airliner market. Boeing has over 159000 employees, working in 71 countries (The telegraph, 2011). Through this diverse workforce and extensive training, the company’s product development ability has increased. In aircraft manufacturing, focus has always been on developing low cost, high quality aircrafts. Hence, approximately half of the current commercial aircrafts will be replaced in the next 20 years due to technological obsolescence and inefficiencies. This will increase the demand for new ones. Approximately 1,362 commercial aircraft orders were placed in 2010, greater than twice the amount placed in 2009. (Bombardier Commercial Aircraft, 2011) Emphasis is also on fuel efficient and environmentally friendly productions. Boeing, together with Air New Zealand has undertaken research on sustainable alternatives to conventional fuel. (Boeing, 2011) Extensive and expensive research allows better versions of existing aircrafts to be developed and new aircrafts to be launched in this oligopolistic market. Boeing has also resorted to outsourcing its production to Japanese suppliers including Mitsubishi Heavy Industries and Kawasaki Heavy Industries. The use of advanced technology has allowed Boeing to enhance its production capabilities. (Reuters, 2011) Airbus An internal air transportation system is used to airlift ...Download file to see next pagesRead More
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