Thirty-five years ago, seven manufacturers, with such storied names as Arospatiale, Boeing, Douglas, Lockheed, De Havilland, Hawker Siddeley and Vickers competed in the world's commercial aircraft market. The Anglo-French supersonic Concorde had made its first flight just a year before, in 1969, as had Boeing's 747.
The major competitors now number just two, with long dominant Boeing Co. likely again this year to be bested in aircraft deliveries by Airbus SAS, a commercial aircraft maker that did not exist until 1970. Airbus and Boeing are in a battle for survival, agrees Marty Rose, an aviation expert and partner in the Dallas law firm of Rose Walker LLP. "It is a battle that both need to win for the public's sake," he asserts. "If we don't have at least two manufacturers out there competing, we're going to get lousy aircraft and no innovation at all."
The outcome of the battle, however, is very much up in the air. The outcome depends on the extent to which Airbus can continue its design and marketing successes and be profitable and to the extent to which Boeing can recover past commercial aircraft glory, improve production practices and get past recent corporate ethics and governance problems.
How did Airbus and Boeing get to this point in the commercial air wars? People who've closely watched them tell a manufacturing tale of market vision and customer closeness, of seized and missed opportunities, of technology lead and loss, and, controversially, of government development and production subsidies. And in the process, the experts beat up a lot on Boeing.
"Boeing, for one reason or another, decided to abandon their commercial aircraft business," believes Aaron Altman, an assistant professor of mechanical and aeronautical engineering at the University of Dayton in Ohio. "They missed some golden opportunities . . . to introduce new designs. Either they thought the marketplace wasn't there [or] they were worried about financing -- I don't know. But they didn't go through and find the right design for their customers. [And] Airbus has done it."
Even the 787, an advanced designer commercial jet formerly known as the 7E7 and slated for its first flight in 2007, could be a bad dream for Boeing, he suggests. Boeing, he says, waited "so long" on its launch that it gave Airbus an opportunity to counter the design with the A350 passenger jet. Focused on its quarterly financials, Boeing doesn't have a long-term vision and isn't the risk taker in commercial aviation that it once was, judges Altman. "With the 747, they took such a tremendous risk and look at what it gave them: 25 or 30 years of dominance. But the willingness to take that risk is gone."
In contrast, Airbus, for years a loose British, French, Spanish and German consortium and only recently a corporate entity with some sort of need to pay attention to its bottom line, has the long-term vision, says Altman. "There is nobody calling them [Airbus] on what's happening this quarter. And that makes a huge difference, because their decisions are then based on a longer-term vision." He says Airbus is taking an "enormous" risk -- equal to Boeing's risk in launching the 747 some 36 years ago -- with its A380 555-passenger, double-deck jumbo jet that was formally introduced to the public Jan. 18 and is slated to begin flight testing in March.
Commercial Aircraft Delivered
That said, there is a possibility that an innovative third commercial aircraft producer could become a major player in the market even as Airbus and Boeing continue to battle for business. "What if somebody comes along and figures out how to do this without all the capital?" rhetorically asks Sandra Kearney, the lead consultant on aerospace and defense for IBM Business Consulting Services. For instance, a company that has a lower cost structure than Airbus or Boeing and is good at leveraging design and production expertise around the globe will "stand a chance of moving quickly and swiftly into the market -- at which point the two dominators are extremely vulnerable," she suggests without naming which airframe manufacturer it might be. "A new player entering the market could aggressively change the game."
That new player could be Brazil's Embraer-Empresa Brasileira de Aeronautica SA, a company probably best known now for its regional passenger jet aircraft. "I wouldn't be surprised if a third major international [commercial aircraft] competitor comes into the game," says UNC's Kasarda. "Maybe somebody like an Embraer will notch up. They're already trying to do it with their [EMB]170 aircraft, which seats over 100 passengers."
Nevertheless, both Airbus and Boeing will be around five years from now, Kasarda believes. "The 21st century is going to be the aviation century. . . . The orders in China itself will be remarkable over the next 10 to 20 years," he states. "More people will be going by air. Aircraft seats are becoming affordable to people of all social-economic groups. They are becoming commodities, for the most part. And that [economic] elasticity is going to generate huge booms. The last three years [of lower levels of air travel] have been an exception."
The Battle Over Subsidies
Until Jan. 11, the commercial aviation battle between Airbus SAS and the Boeing Co. was not taking place only in the air. It was also underway in the Geneva, Switzerland-based World Trade Organization (WTO), where the U.S. and the EU, home respectively to Boeing and Airbus, were challenging each other. In simplest terms, Boeing contended government subsidies -- including launch aid for the brand-new A380 superjumbo passenger jet -- had let Airbus develop a family of aircraft without incurring full commercial risk. Airbus asserted that Boeing's defense business subsidized its commercial aircraft business through technology transfer.
But on Jan. 11 the U.S. and EU announced they had agreed on terms for negotiations to end subsidies for large commercial aircraft. They gave themselves three months to reach an accord -- and pledged not to institute new subsidies or pursue dispute resolution through the WTO during the bilateral negotiations.