This case inspects international competition in the commercial aircraft industry.
One of the disputes between the United States and European countries concerns the competition between Airbus and Boeing, the world's largest commercial aircraft manufacturers, in the market for body-wide aircraft. In the face of increasing competition from Airbus, Boeing complained that Airbus benefited from unfair subsidies and had an ability to mobilize political influence and pressures. This was not the first time when European consortium was accused of unfair competition through price-cutting or political interference.
The aerospace industry combines the capital and labor requirements of heavy manufacturing with the research and development capabilities of a high technology industry. The risks involved in launching a new aircraft are heavy. Also, aircraft manufacturers need a complete family of aircraft to make an impact in the market. The launch of a new plane involves development costs running into billions of dollars. From the time of conception to delivery, it takes several years.
Therefore, entry barriers are high. Airbus became Boeing's main competitor in the global aircraft industry. Organized as a consortium, without a corporate structure, Airbus has come a long way since its inception about 30 years back. The great advantage that Airbus has over the competition is government subsidies allowing Airbus to operate in the red. Thus, Airbus can afford to develop new technologies without having to worry about passing on the costs to the customers and can price their aircraft very competitively to lure away airlines from Boeing. It would be virtually impossible for Airbus to become a viable competitor without subsidies since the prices that Airbus was offering to its buyers would not cover its high launch costs.
In the mid 1960s, the national aerospace industries in Europe were struggling and on the verge of becoming unviable. Britain, France and...