Submittal - Industry Analysis - Boeing and Airbus Duoply PDF

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Boeing and Airbus have been dominating the commercial aircraft market for centuries. Now they are facing common challenges, in addition to their individual challenges. This article examines how Boeing and Airbus has formed the duopoly, and carries out SWOT analysis in order to figure out how they ar...

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Running head: Boeing Airbus Duopoly

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Where the Boeing-Airbus Duopoly Will Go CityU-UIBE March 22nd, 2020

Boeing Airbus Duopoly

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Boeing and Airbus have been dominating the commercial aircraft market for centuries. Now they are facing common challenges, in addition to their individual challenges. This article examines how Boeing and Airbus has formed the duopoly, and carries out SWOT analysis in order to figure out how they are positioned now. In particular, this article seeks to gain the insight about where the duopoly will go amid the short term challenges including COVID-19 outbreak and 737Max grounding (for Boeing), as well as long term challenge posed by the new comer, China COMAC. It forecasts that Boeing and Airbus will get through the hard times by taking short term measures, and will continue to lead the commercial aviation industry in long term, as COMAC still has a long way to go. Keywords: Boeing, Airbus, duopoly, COVID-19, COMAC.

Boeing Airbus Duopoly

3 Where the Boeing-Airbus Duopoly Will Go

Boeing and Airbus, the duopoly of the large commercial aircraft market, have been dominating the sky for centuries, with taking 99% of the commercial aircraft market share. (Sprague, 2019) Thanks to the healthy competition between the two great companies, the aviation industry has progressed significantly, which makes flying accessible to normal people, and consequently it improves the efficiency of the transportation, and makes the world a global village. Like many great companies, the two companies have gone through up-and-downs many times, and each time, they strived to recover. Today, Boeing has been suffering from the grounding of the 737Max, while Airbus has been tasting the bitterness of unsuccessful A380 jumbo program. Plus, the sudden COVID-19 coronavirus outbreak complicates the situation, and make it even harder for the two players. Where will the Boeing-Airbus duopoly go in the commercial aircraft market? The author is working in the aviation industry, and is trying the find an answer, as it will impact the future of the whole aviation industry. A Glance of the Duopoly Boeing was established in 1916. It was focusing on military aircraft at the beginning, and expanded to air transport sector in 1927, which leads to the establishment of the later United Airlines. Now, Boeing is the biggest aerospace company and its bandwidth covers commercial jetliners, defense, space and security systems, and aftermarket service and support. Boeing employs more than 153,000 people across the world, and headquartered in Chicago. (Boeing.com, 2020) Airbus was established in 1970, half century after Boeing’s establishment. It was formed by a few European aviation firms, respectively from France, UK, and West German, in order to

Boeing Airbus Duopoly

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compete with Boeing, McDonnell Douglas and Lockheed of America. Now Airbus’ spectrum covers commercial aircraft, space and defense, and helicopter business. With headquarter in Toulouse France, Airbus Group employs about $135,000 people worldwide. (Airbus.com, 2020) As Lockheed exited the commercial aircraft market in mid 1980s, while McDonnell Douglas was acquired by Boeing in 1997, the commercial aircraft market became an arena with the 2 major players, Boeing and Airbus. In 2003, Airbus caught up with its rivalry in market share, and it took only 33 years.

Figure 1 Large commercial aircraft manufacturer market shares 1995-2010 (ResearchGate.net, 2011) After that, the two players were competing fiercely. Both were keeping about the same pace until 2019, when Boeing 737Max was grounded, after 2 fatal crashes. Boeing experienced big drop in aircraft delivery and new orders in 2019, and this has not become better until now.

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Figure 2 2000 -2019 delivery net order (Reuters Graphics, 2020) Strategy Analysis The two rivalries share some similarities in their company strategies. They both keep a balance in commercial business and defense business; they both expand their portfolio through acquisition; and they both invest heavily in innovation. Despite above, below is the SWOT analysis of the two rivalries. Boeing SWOT Strengths Boeing has a long time track record of on-time delivery; It has a complete spectrum of commercial aircraft after Airbus announced stopping production of A380; It boasts the most complete freighter family, in which sector it has a market share of 90% (Boeing.com, 2020). Weaknesses The 737Max is still grounded when FAA is doing further investigation and no firm date has been announced for its returning to service. As of Jan 29, 2020, Boeing estimated the financial impact caused by 737Max grounding is $18.6 billion, which includes the concessions to customers and disruption to the 737Max production line which has been halted. (Flight Global, 2020). Please note this does not include the intangible cost, like potential

Boeing Airbus Duopoly cancellation or deferral of the 737Max order, and passengers’ confidence in this platform which will take long time to rebuild. Opportunities The opportunities lie in its freighter families and the new platform 777x. Freighter family. It is forecast that post coronavirus crisis, the passenger traffic will take a long time to resume, but cargo business will soon recover and even get stronger, while Boeing obviously has a good opportunity as it already takes 90% plus market share in cargo segment. 777X. The 777X platform will enter into service in 2021, which represents the latest technology and is expected to excel its competing platform A350 in every aspect. Threats The threats lie in 737Max grounding, COVID-19 coronavirus outbreak China COMAC. 737Max grounding. There is no firm schedule yet regarding when the 737Max will return to service. COVID-19 outbreak. Up to now, there are 275,596 confirmed cases and 13,311 deaths worldwide (Baidu.com, 2020), far more serious than SARS back in 2003 which hit heavily the aviation industry (see figure 3).

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Figure 3 Impact of virus outbreaks on aviation, revenue-passenger km (Economist.com, 2020) COMAC. COMAC represents a long term threat to Boeing, who has announced 815 orders for C919 (comac.cc, 2020), a direct competing platform of 737Max. Airbus SWOT Strengths. Airbus’ strengths lie in its momentum and the acquisition of majority stake in Bombardier’s C Series. Momentum Airbus was established half century later than Boeing, but it soon caught up and even sometimes got ahead of its competitor. This momentum, backed by its high efficiency, high morale, and responsiveness to the market demand, is a valued asset of Airbus. Acquisition of C Series. Airbus acquired majority stake of Bombardier’s C Series in 2017. The C Series, ranging from 125 seats to 165 seats, is a perfect complement to Airbus’ earlier single aisle aircraft portfolio. This was followed by a “Me too” action from Boeing, who

Boeing Airbus Duopoly was seeking to acquire majority stake of the Embraer’s commercial aircraft business, which is put in uncertainty due to the coronavirus crisis. (Hapher, Rochabrun, Johnson, 2020) Weaknesses. Airbus was hit by its failure of A380 jumbo for which it only received 123 orders in total. Airbus announced its plan of stopping production of A380 in early 2019, and Airbus lost €202 million for a single year of 2019. (Bailey, 2020). This makes Airbus lose its position in the segment of 400+ seat market.

Figure 4 Airbus: The most complete product line (airbus.com, 2014) Opportunities With 737Max grounding, while COMAC C919 has not entered into service, Airbus now has good opportunity to sell its single aisle aircraft, A320 series. Threats Like Boeing, Airbus also faces the threats of reduced demand due to the impact of the COVID-19 outbreak, as well as the emerging of China COMAC, where C919 is a direct competing platform of A320 series. From the above, we know that Boeing and Airbus are both facing short term and long term challenges. To address these challenges, the author of this article suggests the below:

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1. Take immediate actions to cut cost and seek government bailout to get through the short-term hard times. As the top exporter in the US and Europe respectively, Boeing and Airbus are both too big to fail. 2. Cooperate with China COMAC. COMAC has a big advantage in China market due to the strong government involvement, while China represents 7630 commercial aircraft demand through 2019-2038 (CAN News, 2019). The only way to keep in the game in China arena is to cooperate with COMAC. 3. Keep investing in innovation. Only by innovation, Boeing and Airbus could keep their leading position in the aviation industry. Forecast Boeing and Airbus are going through a hard time, while Boeing is particular stressed due to its 737Max crisis. Only by taking immediate short term measures, Boeing and Airbus could get through the hard times. Sooner or later, the coronavirus pandemic will end and the commercial aviation will boom again. Boeing and Airbus will resume their business, and Airbus is expected to resume sooner as it is better shaped, while Boeing will have a bright future for freighter business, and will be better shaped after 737Max returns to service and 777X enters into service. For long term, the Boeing-Airbus duopoly will continue to lead the commercial aviation industry, as they are always seeking to gain an edge by innovation, while it takes time for the new comer, COMAC, to catch up.

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References Sprague, Kate (2019) Why the Airbus-Boeing duopoly dominate 99% of the large plane market Retrieved from www.cnbc.com/amp/2019/01/25/why-the-airbus-boeing-companies-dominate99percent-of-the-large-plane-market.html Hemmerdinger, Jon (2020) Boeing estimates 737 Max crisis will cost $18.6 billion, Retrieved from https://www.flightglobal.com/air-transport/boeing-estimates-737-max-crisis-will-cost-186billion/136429.article Hepher Tim, Rochabrun, Johnson Eric (2020) Boeing-Embraer deal on knife-edge as markets tumble Retrieved from http://mobile.reuters.com/article/amp/idUSKBN216036 Bailey, Joanna (2020) Airbus lost €202 million last year with the A380 program Retrieved from https://www.google.com/amp/s/simpleflying.com/airbus-a380-loss/amp/ CAN News (2019) Commercial Aircraft Demand Forecast has been released in Xi’an Symposium, Retrieved from http://www.cannews.com.cn/2019/1115/205013.shtml...