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|How does Airbus Business Compare with Boeing? |
|Jennifer Rose Prague |

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|Airbus has emerged as Boeing’s major competitor in the commercial jetliner industry. The company was a latecomer to the industry |
|being formed in the 1960’s, and its initial business structure proved to be a hindrance in many ways. The company has prevailed |
|through its challenges so that today Airbus and Boeing are the two largest plane manufacturers in the world. Airbus and Boeing are |
|close to even in their market share, although Boeing maintains a strong edge in the sales of military aircraft. Airbus has a few |
|stark differences when compared to Boeing. Airbus today has been plagued with front landing gear failures, on one of their planes |
|and fails to have a good market share in the jumbo jet market like Boeing has. |
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European based Airbus has emerged as Boeing’s major competitor in the commercial jetliner industry. The company was a latecomer to the industry being formed in the 1960’s, and its initial business structure proved to be a hindrance in many ways. The company also faced the challenges of an international market, trade regulation, and a fast paced, volatile political and economic atmosphere. The company has prevailed through its challenges so that today Airbus and Boeing are the two largest plane manufacturers in the world. Hoping to resurrect industry in Europe, Airbus was formed in the 1960’s as a joint effort of the British, French, and West German governments. Britain withdrew from the group in 1967 and in 1970 the company was reorganized as a French-German company under French law. Spain joined the group in 1971, acquiring a 4.2% share of Airbus, and in 1979 British influence on Airbus was restored when BAE Systems entered the group with a 20% share. The A-300-B was the first product offered by Airbus. This was replaced by the 250 seat A-300-B2. By 1975 Airbus earned 10% of the market share and that share rose to 26% by 1978. Influence from new partner BAE in 1979 lead to the introduction of the innovative A-310. This was the first commercial aircraft equipped with CRT displays instead of dial type gauges. By the early 1980’s the company faced problems financing new projects. The relatively new company was not making a profit yet. In addition, under the company structure, all partner governments had to approve programs and projects, a slow and sometimes impossible task. This made it hard for Airbus to fund new projects.

The company also faced international problems as market share grew and Boeing accused Airbus on the international forum of unfair business practices. Airbus was accused of receiving too much in government subsidies, making competition difficult. The US government brought a complaint against Airbus in the 1980’s at the General Agreement on Trade and Tariffs (GATT). Airbus was charged with receiving government funding from four European governments with no repayment. It was argued that this gave Airbus an unfair advantage that made it difficult for American companies like Mc Donnell Douglas and Boeing to compete. The disagreement ended in 1992 when it was agreed that Airbus could only receive 33% government funding for new projects which had to be paid back in 17 with interest. Airbus emerged from this dispute facing problems attracting funding. Under French law Airbus did not have to disclose financial information and records. The company still had to have agreement among all four funding countries for new projects. With each country interested in protecting its own interests, this remained a slow and uncertain process. The company was not attractive to investors and it was evident that had to restructure to remain competitive and attract investment. Restructuring would be further delay by differences in accounting standards among the partner countries. A few years would pass before Airbus was finally restructured under the control of BAE systems and European and Aeronautic Defense and Space (EADS). EADS would have an 80% share while BAE would retain a 20% share of the company.

The rejuvenated company was now in a better position to move ahead with its newest project, the A-380 that would compete directly with the Boeing 747. Completed two years later than originally projected, the plane first flew in 2006. Funding for the project was divided 40% from Saab, 30% government funding, and 30% company funds. The A-380 remains the world’s largest passenger jet. Today Airbus is Boeing’s most formidable competitor, with eight parts plants and three final assembly lines. Airbus and Boeing are close to even in their market share, although Boeing maintains a strong edge in the sales of military aircraft. Airbus has a few stark differences when compared to Boeing. The product line uses a consistent cockpit on all products. The advantages here are a reduction in pilot training costs. Once trained on an Airbus cockpit a pilot could operate any Airbus product with no additional training. This is an unprecedented innovation in the industry. Having a previously established product line, it would have been costly for Boeing to replicate the Airbus cockpit concept. Boeing can only market or promote specific cockpit features as an advantage over the Airbus design. The human resource circumstance at Airbus gives the company a clear advantage over Boeing. Even if Boeing tried to implement some of the same human resource programs that Airbus has they would be unable to. Union workers make up the Boeing workforce, as opposed to non union workers at Airbus. Union regulations, contracts, and bargaining can often hurt productivity and product development. Union rules may often require more personnel to perform tasks. This drives up costs and reduces productivity. Airbus is therefore producing planes at a lower cost. Planes are produced faster by significantly less workers. This allows planes to be sold at a lower cost while maintaining the same profit level as Boeing. Customer satisfaction is also better since planes are finished and delivered faster. The human resource structure of the company remains the strongest point for Airbus. Production costs are lower, products are produced faster, and worker morale is good in the absence of contract and bargaining disputes. Delivery of product is timely, and this helps to attract customers. The company does have the opportunity of capturing a larger portion of the jumbo jet market, since the A-380 is a significantly newer design than the Boeing 747. The plane is being produced faster and at a lower cost than the 747. Airbus is currently producing at a profitable level. Currently Airbus has numerous challenges to consider. The company may be at the point of offering too many products, with 13 offerings when compared to 9 from Boeing. More products mean more assembly lines, which increases operating costs. This was a flaw cited with the structure of General Motors, who offered too many products that in effect were no different. Early in its history, however, the wider product offering did help to attract new customers to Airbus. The company does face threats from a very weak European economy. The worldwide economic recession has its advantages as well. Emerging economies in China and India, where the government would favor industrial development, could develop their own aircraft and become a threat to Airbus. The current recession, however, makes this threat less likely, at least in the immediate future. Airbus is currently strong enough to weather a recession far better than any small, budding competitor.

In addition 911 effected airlines in turn affected airplane manufacturing companies like Airbus and Boeing dramatically. Airlines flight less times therefore needing less planes. In terms of competition, Boeing remains a formidable threat to market share for Airbus. The weak economy hurts orders for both companies, but Boeing remains strong and has the advantage of military contracts. While Airbus currently holds the market share advantage, the two companies are close enough in market share that one new or improved product offer could easily swing the market share pendulum back towards Boeing. In the aircraft industry it only takes one incident to make your product line look unattractive to customers. The A-320 has been plagued with front landing gear failures, which has prompted a current investigation by the FAA. The outcome of this investigation could be significant to Airbus in terms of new orders and once again market share. If it was my place to make decisions at Airbus, my first goal would be to resolve the landing gear issues on the A-320. I would then examine my human resources, and implement whatever was necessary to maintain the current atmosphere in my workforce. In terms of marketing I would reinforce the positive points of my product line, such as the consistent cockpit, and aggressively market the A-380 to increase this jumbo jets market share when compared to the 747. Complacency at the helm of Airbus could be dangerous, but with a little diligence the company has enough positive attributes to remain healthy for some time to come.

References

• Carpenter, M. A., & Sanders, W. G. (2009). Strategic management: A dynamic perspective : Concepts and cases. Upper Saddle River, NJ, NJ: Pearson Prentice Hall

• Hoffer, J. (2012, October 1). Investigation into Airbus landing gear. Eyewitness News. Retrieved October 6, 2012, from http://abclocal.go.com/wabc/story?section=news/investigators&id=8831585

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