U. S. versus eu competition Policy: The Boeing-McDonnell Douglas Merger




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Competition Among Boeing, Airbus and McDonnell Douglas


Airbus took only 10 years to move from third to second in commercial aircraft production. For 1980 and 1981, it had 374 backlogged orders for the A300, A310 and A320, ahead of McDonnell Douglas’ 185 orders but still far behind Boeing’s 1,217.20 During the 1980s, the rivalry between Boeing and Airbus began to intensify, following the introduction in 1982 of the Boeing 767, the first direct competitor to the Airbus A310. Both the 767 and A310 fit into the high-capacity (about 220 passengers) medium-range (6,000-7,000 miles) category. In order to beat Boeing in this category, Airbus resorted to a “Silk Route Strategy,” campaigning intensively and successfully for sales in the Middle East, where political issues put U.S. manufacturers at a disadvantage.21
Airbus’ first venture into the narrow-body market, the A320, was at once a move into the longer-range narrow-body market niche and a move against the wildly successful Boeing 737. While both were built to accommodate about 150 passengers, the A320 had a range of 3,400 miles compared to the 737’s range of 2,000 to 3,000 miles. The new A320 would also be in direct competition with McDonnell Douglas’ MD-80 narrow-body, easily its best-selling aircraft overall since its introduction in 1980.
The subject of continuous contention between the United States and Europe in the coming years, the development of the A320 was heavily subsidized by the French and German governments, which chipped in 75 percent and 90 percent, respectively, of Aérospatiale’s and Deutsche Airbus’s development costs in the form of repayable loans.22 In doing so, much of the risk involved in developing the new model rested squarely on the shoulders of French and German taxpayers. European governments had also bankrolled development of the earlier A300 and guaranteed loans to provide generous financing to customers of the then-untested aircraft.
Between 1985 and 1990, Boeing’s market share of new orders was consistently around 50 percent – though down markedly from levels as high as 70 percent to 80 percent between 1975 and 1980 – while Airbus and McDonnell Douglas fought over the remaining half of the market.23 McDonnell Douglas, with the success of the MD-80, continued to book orders (575 in 1990) but was still far behind both Boeing (1,858) and Airbus (1,038).24
While Boeing maintained its position as the U.S. market leader during the 1990s, Airbus’ success came largely at the expense of McDonnell Douglas. By 1991, Airbus was booking 30 percent of all new aircraft orders internationally, while McDonnell Douglas’ share had declined to 14 percent.25 Increasingly, McDonnell Douglas was relying on defense contracts to remain financially viable. In the late 1980s, McDonnell Douglas had pinned its hopes on a new tri-engine wide-body it was developing called the MD-11. Much like Lockheed’s ill-fated L-1011, the MD-11 did not meet airlines’ expectations and was a financial disaster. Although 377 had been ordered in 1991, only 185 were delivered through 1998.26
The years leading up to Boeing’s merger announcement demonstrate that Airbus was indeed becoming a viable competitor in the commercial aircraft industry. Not only was Airbus taking one-third of all new orders in the period between 1993 and 1997, it was increasingly taking new orders from U.S. airlines – in Boeing’s backyard.

Market share for new orders worldwide, 1993-1997





1993

1994

1995

1996

1997




Orders

Share

Orders

Share

Orders

Share

Orders

Share

Orders

Share

Airbus

38

13.3

125

50.4

106

18.9

336

30.8

460

44.7

Boeing

247

86.7

120

48.4

346

61.6

717

65.7

551

53.6

McDonnell Douglas

0

0.0

3

1.2

110

19.6

38

3.5

17

1.7

Total World Orders

285




248




562




1091




1028




Source: Aerospace Industries Association

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