Boeing Versus Airbus

We decided that there were no necessities for each to agree nanny one answer, and after completing the questions and responses, we believe the efferent pollen based answers best laid out our groups consensus as to the questions poised during this case study. 1 . Do you believe Airbus could have become viable competitor without subsidies? Participants: No, I believed that the subsidies initially given to Airbus during its infancy stages were warranted.

I also, believed that as Airbus grew too conglomerate type of aerospace organization, and no longer restricted to commercial airlines, but In all facets of aerospace, their tenure as an infant has passed. Participants: I believe that Airbus would have been at a distinct disadvantage and loud not have become a viable competitor without the subsidies. Boeing was the recipient of both direct and indirect subsidies which protected it at some levels from competition. The only way for Airbus to be competitive with such a large and well entrenched company was for the company to be subsidized. . Why do you think the four European governments agreed to subsidize the establishment of Airbus? Participants: The four governments needed to subsidize Airbus as an infant corporation, their initial market shares were not foreseen to amount to much, and as a newly formed company it needed a competitive advantage entering into a market place dominated by two major market holders. Participants: I think the four governments needed Airbus to be competitive. With a strong European company In the aircraft business they would have an opportunity to be a leader in the aerospace industry.

By subsidizing Airbus and helping ensure its success, the four governments now have a “say” and are major stakeholders in the aerospace industry, which will lead to economic expansion and increased Jobs an economic development in their respective countries. 3. Is Airbus’s position with regards to the long-running dispute over subsidies o believe they are concerned with the way in which Boeing and McDonnell Douglas have utilized their government funding lines to offset their commercial airline R;D. Participants: Reasonable is in the eye of the beholder. I view reasonable as what they would consider equitable.

Major government contract can be seen as indirect subsidies.

With the recent issues that were raised concerning Airbus vs.. Boeing in the recently awarded USAF tanker contract, the concern of a European built tanker aircraft taking away Jobs from the United States was a huge issue in the news. I know that the truth and actual numbers of Jobs created lie somewhere in the middle between the two companies positions, but, for it to raise such an issue and to be debated in DC for so long, it creates the perception that Boeing won the contract because it will create more Jobs in the US vs..

Overseas competitors.

This could be viewed by the international community as the US protecting (subsidizing) its home markets. 4. Do you think that the 1992 trade agreement was reasonable? Participants: According to the information found, this agreement was more of a truce. This truce was called via the 1992 CE-US Agreement on Trade in Large Civil Aircraft, under the agreement both sides promised to reduce government support and not to initiate countervailing duty or antiquating cases against the other country’s practices.

Participants: Truce is a very good word to describe my views on this issue also.

At the time, the rent seeking activities by both companies was beginning to take its toll. The 1992 agreement was a rest for them both to take a breather. 5. Why do you think that the U. S.

Industry reacted with caution to attempts by Laotians to reopen the trade dispute in 1993? Participants: The industrial backbone of our country, realized that the reopening of this dispute could be detrimental to market shares in other major aeronautical areas such as engines, electronics and other critical components utilized by all airline manufacturers equally.

The disputes between Boeing and Airbus could have spiraled our economy out of control and we could have lost a major portion of our FED. Participants: Yes, I believe the industry had a better grip and understanding of the international economic implications of tarring a trade war in the aerospace industry. Industry recognized that a battle on those grounds would have the long term effect of stifling trade and growth on both sides of the Atlantic and decided to let it stay a political issue vs..

An industry issue. . In an era of global competition, what is the case for antitrust authorities to permit the formation of large domestic firms through mergers and acquisitions? Participants: After reviewing the various websites I could (such as Antitrust Division of the U. S. Department of Justice) on antitrust laws and policies, The thought that most of the rent debate on the effect of globalization and antitrust involves the question of whether standardized antitrust laws should be adopted in all countries.

There needs to be a more standardization providing firms with lower transaction costs and a more predictable environment, but would reduce national autonomy in establishing antitrust policies.

Overall, one could say if globalization of the market allows one corporation to gain the market advantage that is in reality what “free-trade” is regardless of competition. Participants: I think the issue here is when you define monopoly, you have to look at the market, is it a global market or a domestic market. If you are worried about the domestic market, then you have many companies providing the services/goods in one domestic economy.

Those firms are at a disadvantage on the global market because their ability to grow and capitalize on economies of scale is limited. Domestic market providers that are allowed to grow to a monopoly or oligopoly state should be able to be more competitive on the global market is they take advantage of efficiencies at home. These companies may not be noninsured monopoly/oligopoly in the global market even though they are considered that in domestic markets.

6 Participants : One thing to think about is that maybe this particular industry is best left up to only a few large firms handling the production of aircraft.

The market on this product can fluctuate so much from year to year that it could be detrimental to lesser-known firms. For example, if there were several companies making these aircraft and more than half of them go out of business during a “bust” cycle, then the airline may be out of a manufacturer one year and deed to fill orders that another manufacturer doesn’t have the time or resources to produce. Maybe the antitrust authorities have decided that it is best to keep this sort of a product that encounters such a volatile market to Just a few large firms that can handle the demands of airlines. .

Was the threat by EX. Authorities to declare the Boeing-McDonnell Douglas merger illegal a violation of U. S. National sovereignty? Participants: I believe their wording was directed at Boeing and McDonnell positions in the international markets, however, they did appear to stem their arguments with the fact that Boeing had cocked supply contract with a number of major U. S. Air carriers for exclusive services.

In my opinion, if the U. S. Government did not find any fault in Boeing’s long-term contracts with these airlines it is not the concern of the ELI.

Participants: While I do not consider the statement a direct violation of US sovereignty, I do believe that the EX. Was definitely making the statement that the aerospace industry is a global market and as a major player in the global market place then the EX.

Has something to say about the merger. From a US based point of view on a sovereignty issue, I onto really care what the EX. Says that I as a nation can or cannot sanction in the world of economic mergers. However, the EX. Was a player/stakeholder and was needed as an ally in this issue vs..

An adversary.

Strategic economic policy dictated that the EX. Protect EX. Interests Just like US protects US interests. I believe this falls just shy of a US sovereignty issue. 8.

Do you think the EX. Commission had a strong case in its attempts to wring concessions from Boeing regarding the merger with McDonnell Douglas? Was Boeing right to make significant concessions to the EX.? What might have occurred if concessions were not made? Participants: No I do not believe the EX. Had any case against the merger, and were not entitled to concessions.

However, I believe Boeing conceded to ensure it was not shut-out so to speak from the EX.

Market place. Participants: I think they had a strong enough case to wring concessions, as as it is an issue which both sides leveraged what they had to effect an outcome that each side considered more favorable. Boeing wanted to participate in the EX. Market, as such, they needed to perform in a manner that protected their interest in that area. Not so much whether they had a right to, but, they had to position themselves in a way that allowed them to participate in the market and reap any benefits from that. .

Why did the U. S. Government decide to reopen the long-running trade dispute between Boeing and Airbus in 2004? Do you think the U. S. Position is reasonable? What about the US countermeasures? Are they reasonable? Participants: The U.

S. Decided to reopen this dispute, because the EX. Is still funding (subsidizing) Airbus as if it was an infant industry, and it has been around over 30 years. It can compete on TTS own, and does not need infancy capital. The U.

S position is the only one available in which to reopen the discussions.

I do not foresee any other position to be available to the U. S. WRIT this dispute. The EX. Could possibly have valid reasons concerning how Boeing is utilizing its government contract funding to offset R&D in other areas of its corporation.

Right or wrong, it is business. Participants: The US saw a way to try to increase their economies ability to prosper and they took the opportunity. I think this is called rent seeking behavior. As far as being reasonable, he proof in that is what happens during the debate.

If the EX.

Backs off funding and then US can be more competitive in the market, then it was reasonable, if not, then the companies must decide on whether the cost of doing business in EX. Is worth it. If not then they will not do business there and both economies will suffer until a concession is made. 10. Now that the dispute has gone to the World Trade Organization, what do you think would be a fair and equitable outcome? Participants: I think the WTFO will develop a compromising solution, not necessarily a fair and equitable, but one that ill allow either status-quo or movement away from competing in the same market environment.

Participants: With much gnashing of teeth and grinding of gears, the two economies will come to a compromising position. The only way I see for an equitable solution is full disclosure and categorization of capital in/outflows and a percentage base government monies that can enter the companies. I honestly believe that the WTFO will make it so painful for the two that they will reach a compromise on their own for how to do business… Which it what the need to do anyway.