|How does Airbus Business Compare with Boeing? |
|Jennifer Rose Prague |
|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 ...view middle of the document...
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.