Boeing vs. Airbus
INTRODUCTION & MOTIVATION
It is possible to fly without motors, but not without knowledge and skill”. The Wright brothers never hesitated to put an emphasis on the importance of constant knowledge when it came to technology and airplanes. The two are directly connected, as they rely on one another to produce the best possible product. The Wright Brothers were in fact brothers, that were dedicated to engineering and aviation. Their curiosity, knowledge and devotion is what lead them to build and fly the first successful airplane. Air transport has changed the world, as we know it. Air transport is defined as a form of travel including helicopters, airplanes, jets, or anything else that can sustain flight. It is a considerable amount of advantages that include but are not limited to Quick Service and High Speed. Quick Service is incredibly essential to quick travel as it provides both effective and efficient transportation for individuals. It allows people to get to their destination in the timeliest fashion. High Speed makes air travel extremely appealing to many, as it decreases the amount of time it takes to get from one location to the other. In fact, one can travel from California to New York in just under five hours, which is outstanding considering that the two are on opposite sides of the United States. As opposed to trains or buses, which take much longer and often times are even more dangerous than an airplane.
Although there are many advantages, the disadvantages should be considered as well. The Cost and Unreliability of Air transport are just a few. Flying is often the most expensive means of transportation. The price for tickets tend to increase for popular destinations, as well as during the holiday season. This can sway many customers away from buying a pricey ticket, and instead opt to pay for a twenty five dollar bus ticket as opposed to a three hundred dollar one way plane ticket. Unreliability refers to the possibility of the flight being delayed due to unforeseen circumstances and or weather. Being that you can’t always predict the weather, it can cause flights that were supposed to depart at a certain time to be pushed a few hours or in extreme circumstances until another day. This can be incredibly frustrating, as the individual opted for the plane ticket because they were certain that they would arrive a certain day, and at a certain time.
Believe it or not, there was a time when Air transport didn’t exist. Had it not existed, life as we know it would move much slower and take just a little bit longer. Individuals only options were to travel by car, ship, train, bus, or even in the most extreme situations by foot. This meant that there was little to no control on the arrival of one’s travel. In fact, there was no such thing as the ability of getting to another state “last minute”. The reason being that the time of travel was incredibly long, and exhausting. To put things into perspective, a bus from California to New York would take about four days, while driving took nearly forty hours. Due to the length of travel, many would opt out of travel completely or would end up missing pivotal occasions. Not only did the lack of air transport not allow many to physically be at a particular place at a desired time but it also had a negative impact on communication. Those that wished to communicate via mail delivery wouldn’t receive a letter response for weeks at a time. This meant that news would travel incredibly slow from one person to another. In addition, Business during this time wasn’t nearly as successful as it is today. Products and perishables didn’t have the ability to withstand long travel. Which lead to many companies to lose money, and not be able to expand their business any further than their own individual state.
Being that Air transport is incredibly safe, it makes flying as an option of travel to be appealing to consumers. It has been proven that flying as a means of transportation is the safest form. According to the United States government it is drastically safer to fly, as opposed to driving a motorized vehicle. The chances of being involved in a fatal plane crash is one in seven million. Meanwhile, last year the United States had over 40,000 car related deaths. Being that the safety of consumers are aviation companies top priority, they make sure that frequent testings and routine checks are constantly being done. A few of the major tests include but are not limited to Brake Testing and Temperature and Altitude testing. The break testing is performed for the purpose of making sure that the breaks work to the best of their ability. To test the breaks, the plane speeds up and right before it hits take off speed the brakes are then applied. Temperature and altitude testings are essential as during flight the plane experiences many different altitudes and temperatures. During such testing, the plane is exposed to extreme weather to ensure that all parts of the plane still can operate properly. Safety is a top priority when operating such machines, as time and technology advances so does the safety of these airplanes. To this day, airplanes are said to be the safest machines.
Since the birth of flight in 1903, air travel has emerged as a crucial means of transportation for people and products. The hundred-plus years following the invention of the first aircraft have brought about a revolution in the way people travel. Air travel has allowed different societies to grow and prosper beyond measures, as well as, helped build strategic diplomat and trade ties and relationships among various nations. Needless to say, the airline business is a major industry; relied upon by millions not only for transportation but also as a way of making a living and building our country. We have decided to focus this paper on the research we have found dealing with the aviation industry. The vast industry of aviation is often never spoken about or studied; therefore, we have decided explore beyond the surface and deep dive into the world of flight. Currently there are two main companies that control the industry, Boeing and Airbus. We will explore both of these organizations and by recognizing their capabilities, strengths, weaknesses, market shares, and probability of growth we will be able to understand the industry and market.
Boeing, formerly known as Boeing Airplane Company, has origins that date back to 1916. William E. Boeing began building “flying boats”, which were used by the Navy in World War I. As the years progressed, the company grew and expanded into different sectors; they entered the airmail services and began manufacturing and airline operations. After 1930, Boeing began acquiring aircraft makers, such as Chance Vought, Avion, and Stearman Aircraft, and in 1931 they created United Airlines, which was four smaller airlines combined. However, in 1934 the Air Mail Act surfaced, which required aircraft manufacture and air transport be seperated. Due to this act surfacing, it lead to the merge of three companies. These three companies were Boeing Airplane Company, United Aircraft Corporation and United Technologies Corporation. The advent of World War II allowed for Boeing to showcase many of their aircrafts that increased their success and viability, such as their Model 247, a twin-engine monoplane, and the Model 307, the first airliner with a pressurized cabin. In an effort to remain relevant and innovative, Boeing began developing an airliner that could travel across the North Atlantic, which was powered turbojets; the 707, 737 trijet, and 727 twinjet were the first airliners to enter the market around 1964 and 1968. By 1970, Boeing developed the world’s first wide-body jetliner, the 747 “Jumbo Jet”, which nearly forced the company into bankruptcy. Nevertheless, the 747 propelled the world of travel into overdrive; it allowed airlines the ability to offer affordable long-range flights to the general public. From this Boeing was able to secure a monopoly position in the aviation industry. Over the next twenty years Boeing continued to grow and expand; they diversified into areas such as the manufacturing of helicopters, missile building, spacecrafts, marine craft, transit systems, energy production, and agriculture. For example, Boeing purchased Vertol Corporation, which was the world’s largest independent manufacturer of helicopters at the time. Boeing Helicopters focused on helicopters that were used by the military, the CH-47 Chinook and CH-46 Sea Knight. Another example within the space sector was the building of the Lunar Orbiters, which was NASA’s first spacecraft to orbit the Moon. Boeing continued work with NASA in a multitude of ways and in 1993 they were contracted to construct the International Space Station as well as integrating all information into the station. Through this growth, Boeing never lost sight of their main revenue-generator, aircrafts. In 1981, Boeing introduced its twin engine wide body, 767, and their twin-engine, single-aisle, 757, aircraft into the market for flight. They used the concept of structural commonality for many of their aircrafts because it allowed them to qualify and trained pilots more rapidly; if a pilot was trained on one plane they could also fly the other. The innovative and economic thinking did not stop there. It is quite clear that Boeing relied heavily upon technology, and had to advance along with technology so that they could produce the best possible airplanes. For instance, the surfacing of the CAM software was incredibly significant to Boeing. The reason being that this software allowed the structure, and details of the plane to be accessed on the computer. As opposed to having to access such information in real time. This saved the company much time, and allowed for them to make changes and edits whenever they saw necessary. In 1996, Boeing and Lockheed Martin were both contracted by the U.S. defense build competitive technology demonstrators for the Joint Strike Fighter, which was intended to help the armed service of the United States and Britain. Boeing expanded their partnership and network by joining the Sea Launch, a commercial launch services company that sent satellites into orbit from a platform in the Pacific Ocean, which included Ukraine, Russia, and the Anglo-Norwegians. The launches began in 1999 and Boeing acquired Hughes Electronics, a satellite business, in 2000. In 2003, Boeing began working on a mid-range jet that would match the speed of a wide-body long-range aircraft, but would need less fuel because of the new turbofan engine; it was known as the 787 Dreamliner. The 787 Dreamliner set a new standard for aircraft manufacturing; after it’s creation many airlines upgraded their fleets and ordered over a hundred new aircrafts. The Dreamliner made its debut in 2011, but in 2013 they all were grounded until the potential risk for battery fire. Today, Boeing is the world’s largest aerospace company and leading manufacturer of commercial jetliners, defense, and space and security systems. They employ more than 140,000 people across the United States within more than 65 countries. The organization is broken into three business units: Commercial Airplanes; Defense, Space & Security; and Boeing Global Services; all which surfaced in July of 2017.
In 1965, the Airbus program surfaced when the French and German governments began talks about forming a consortium designed to build European transport. Soon after, the governments, with the help of the British, announced that Sud Aviation, based in France, Arge Airbus, aerospace companies based in Germany, and Hawker Siddeley Aviation, located in Great Britain, would spend time studying and strategizing ways to develop a 300-seat airliner. However, after 3 years in, the British government decided to drop out of the program; this encouraged France and Germany to sign formal articles to proceed with the plan. In 1970, the group became the Airbus Industrie management company as a GIE (Grouping of Mutual Economic Interest), a partnership created in French law in 1967. Until about 1971 when Spain joined, the funding was split, 50 percent came from France’s Aerospatiale, and 50 percent came from Germany’s Deutsche Airbus. Over the next 10 years, many groups joined and became shareholders within Airbus, including British Aerospace. In 2000, the European Aeronautic Defense and Space Company (EADS) acquired an 80 percent share of Airbus and that following year the GIE was replaced by a single enterprise. During these structural changes, the A300, a short – to medium range aircraft was developed; it made its first appearance in 1972 as a prototype and in 1974 it entered commercial service with the airline Air France. The performance of the A300 was outstanding; however, the sales did not reflect that. Airlines were hesitant to purchase the aircraft because they were concerned about its new and unproven manufacturer. However, a U.S. carrier, Eastern Air Lines, entered a leasing arrangement with Airbus, which increased the trust and the reputation of their organization. A couple of years later, in 1978, Airbus began developing a medium range plane, A310. The A310 took its first flight in 1982 and finally entered the market in 1985. Similar to Boeing’s 700 series, Airbus’s A300 and A310 had common parts, which allowed pilots to just need to be trained one; saving time and money. In 1984, the next program that surfaced, Airbus strived to design a narrow-body, short- to medium- range aircraft that was filled with technological innovations. The A320 was the first of this kind; it was equipped with computer based flight controls and fly-by-wire, electric links. A320 officially entered the marketplace in 1988 and due to its overt success three more jetliners were created and joined the family, A321, A319, and A318. Airbus knew they had to begin developing wide-body aircrafts to remain relevant in the industry because many airlines saw those type of planes as cost effective. A340, a four-engine aircraft, and A330, a twin engine aircraft, were developed from 1987 to 1993 and both entered service by 1994. Each aircraft brought Airbus revenue, attracting over 30 orders, and propelled their overall position among their competitors. Soon after Airbus made another innovative move by creating the A300-600 Freighter, which was delivered to the Federal Express for use. Airbus relied heavily on their ability to forecast trends in the market before developing another aircraft; however, the events that occured on September 11, 2001 couldn’t have been predicted by anyone. After, the number of people wanting to fly dropped quickly and airlines had to find ways to cut their lost; similar to the aftermath that followed the first Gulf War in 1991. However, in Europe there was rapid growth of low-cost airlines. For example, easyJet utilized the A320-Family to execute their short-haul routes. In 2007, Airbus developed the world’s largest airliner, A380, it entered the market as a aircraft with “ultralong-range”. The A380 had two passenger deck, giving it the ability to have a maximum capacity of 853 passengers. Following in Boeing footsteps, Airbus finished the creation of A350 in 2007; it was designed to fly long distance with minimal damage to the environment. It was able to do this because the two-engines were a product of Rolls-Royce, which had new fuel-efficiency features, and the body of the plane was made of titanium, aluminum, and carbon-fibre-reinforced plastic. Airbus set a company record in 2009 with 498 aircraft deliveries and they continued to break through barriers in terms of orders, production, and overall efficiency. In 2011, they totaled 1,419 and net orders for the year reached 1,608. Going into 2012 their combined list price value estimated $588 billion. Airbus never became stagnant; they used their past success and growth as motivation to keep striving to be the best they could be. Today, Airbus is maintaining their commercial aircraft market leadership; this year alone they introduced over five new aircrafts. Airbus Industrie employs over 50,000 people; aircrafts are manufactured in France, Germany, Spain, the United Kingdom, and China, but different services/jobs are offered around the world. The organization has more than 1,500 suppliers and numerous cooperative agreements worldwide.
Airbus and Boeing are premier aviation companies that have products in many, similar, sectors. Each company has a unique history and background that makes them who they are and what they stand for, but both have never allowed minor setbacks or failure impact their growth and success.
Relevant Market Models
Boeing has seen constant growth over the past eight years; more people are using air as their method of travel than before. Boeing has a commercial market outlook team that tasked with using economic, airline, travel, and fleet data to forecast the future of the next twenty years of the industry, which assists the company in figuring out their next design and step; they developed many graphics.
Global deliveries are what have allowed Boeing to expand across borders. Based on projections, by 2037 Boeing will need more than 42,000 new airplanes and over 70% of them being single aisle ones. Figure 1.1 shows the market value in connection with the deliveries; Boeing’s value is set to raise to about 6.3 trillion.
As stated before, the industry has exceeded trend expectations; last year operational efficiency reached a record high of 81 percent. Figure 1.2 shows that the air travel market is forecasted to grow 2.5 times larger in the next twenty years.
Boeing has operations all over the world, but I decided to look specifically at North America because that region is home to all of us. North American operators have increased their global industry profitability by more than 50 percent in the last five years. In figure 1.3, you can see that this region’s capacity growth is outpacing fleet growth, due to single aisle aircraft cabin densification. The single aisle aircraft expanded to 9 percent and is expected to exceed 67 percent within the next 20 years.
Airbus, like Boeing, assembled a global market forecast team that is tasked with understanding and presenting on where the company will be in about 20 years. They anticipate that air traffic will grow at 4.4 per cent annually , which will require Airbus to develop new commercial aircrafts and dedicated freighter aircrafts that have a value of $5.8 trillion over the next twenty years. The team categorized the aircrafts into Small, Medium, Large, and Extra Large, which allowed them to better understand the use of aircrafts within and between market segments.
When looking towards the future, Airbus focused on their global networks and global citizens because each goes hand-and-hand. Figure 1.4 shows the connection between the two, beginning with the production of the aircrafts to their delivery to the economic outlook of Airbus and concluding with private consumption. Over the next 20 years, Airbus is projected to have over 37,000 new delivers, 830 freighters delivers, and a market value of $5.8 trillion.
The competition between Airbus and Boeing has been characterised as a duopoly in the large jet airliner market since the 1990s. This resulted from a series of mergers within the global aerospace industry, with Airbus beginning as a European consortium while the American Boeing absorbed its former arch-rival, McDonnell Douglas, in 1997. Other manufacturers, such as Lockheed Martin and Convair in the United States, and British Aerospace (now BAE Systems) and Fokker in Europe, were no longer able to compete and effectively withdrew from this market.In the 10 years from 2007 to 2016, Airbus has received 9,985 orders while delivering 5,644, and Boeing has received 8,978 orders while delivering 5,718. In the midst of their intense competition, each company regularly accuses the other of receiving unfair state aid from their respective governments.
Airbus and Boeing have wide product ranges including single-aisle and wide-body aircraft covering a variety of combinations of capacity and range. Flight Global fleet forecasts 26,860 single aisle deliveries for a $1,360 Bn value at a compound annual growth rate of 5% for the 2016-2035 period, with a 45% market share for Airbus (12090), 43% for Boeing (11550), 5% for Bombardier Aerospace (1340), 4% for COMAC (1070) and 3% for Irkut Corporation (810) ; Airbus predicts 23,531 and Boeing 28,140. Single aisles generates a vast majority of profits for both, followed by legacy twin aisles like the A330 and B777: Kevin Michaels of AeroDynamic Advisory estimates the 737 have a 30% profit margin and the 777 classic 20%.Flight Global fleet forecasts 7,960 twin aisle deliveries for a $1,284 Bn value for the 2016-2035 period. They predict the B787 taking 31% of the market share, followed by the A350 with 27% and the 777 with 21%, then the A330 and A380 each taking 7%. In June 2017, The order book was for 1038 Airbus (41%) and 1,514 Boeing's (59%).
In terms of sales, while the Boeing 737 Next Generation outsold the Airbus A320 family since its introduction in 1988, it is still lagging overall with 7,033 orders against 7,940 in January 2016. Airbus received 4,471 orders since the A320neo family launch in December 2010, while the 737 MAX got 3,072 from August 2011 till January 2016. In the same timeframe, the neo had 3,355 orders. Through August, Airbus have a 59.4% market share of the re-engined single aisle market, while Boeing had 40.6%; Boeing has doubts on over-ordered A320 neos by new operators and expects to narrow the gap with replacements not already ordered. In July 2017, Airbus still had sold 1,350 more A320neos than Boeing had sold 737 MAXs. In terms of deliveries, Boeing has shipped 9,522 aircraft of the 737 family since late 1967, with 8,016 of those deliveries since March 1, 1988, and has a further 4,430 on firm order as of May 2017. In comparison, Airbus has delivered 7,610 A320 series aircraft since their certification/first delivery in early 1988, with another 5,501 on firm order (as of May 2017).
While Boeing ramp-up 737 monthly production from 47 in 2017 to 57 in 2019 and Airbus from 46 to 60, both consider accelerating further despite supplier strain.By September 2018, there were 7,251 A320 family ceo aircraft in service versus 6,757 737NGs, while Airbus should deliver 3,174 A320neos compared with 2,999 Boeing 737 MAX through 2022. Airbus sold well the A320 to low-cost startups and offering a choice of engines could make them more attractive to airlines and lessors than the single sourced 737, but CFM engines are extremely reliable. The six month head-start of the A320neo allowed Airbus to rack up 1,000 orders before Boeing announced the MAX. The A321 has outsold the 737-900 three to one, as the A321neo is again dominating the 737-9 MAX, to be joined by the 737-10 MAX. In November 2017, for its chief Willie Walsh, International Airlines Group budget carrier Level benefits more from its two A330-200 lower cost of ownership than its 6t higher fuel burn ($3,500) on a Barcelona-Los Angeles flight: it will introduce three more as there aren't enough B787 pilots. In early 2018, of the 2673 twin-aisle orders excluding the Airbus A330CEO and quad engine planes (the A380 and B747-8), Boeing had 1603 (60%) and Airbus 1070 (40%). The ultra-long-range variants of new types enable new routes between far away city pairs: the 9,700 nmi Airbus A350-900 ULR should start in 2018 and the 8,700 to 9,100 nmi Boeing 777-8 in 2022. Singapore Airlines plans to introduce the world’s longest flight between Singapore and New York (8,285 nmi) in 2018 with an A350-900 ULR, Qantas hopes to fly from Sydney to New York (8,650 nmi) or London (9,200 nmi) within four years for the Project Sunrise and Air New Zealand wish to operate to the U.S. East Coast: Auckland and New York are 7,670 nmi apart. The Singapore-New York A350-900ULR will have a low density premium-focused configuration with only 161 seats: 94 premium economy and 67 business.
During the 1990s both companies researched the feasibility of a passenger aircraft larger than the Boeing 747, which was then the largest airliner in operation. Airbus subsequently launched a full-length double-deck aircraft, the A380, a decade later while Boeing decided the project would not be commercially viable and developed the third generation 747, Boeing 747-8, instead. The Airbus A380 and the Boeing 747-8 are therefore placed in direct competition on long-haul routes.Rival performance claims by Airbus and Boeing appear to be contradictory, their methodologies unclear and neither are validated by a third party source. Boeing claims the 747-8I to be over 10% lighter per seat and have 11% less fuel consumption per passenger, with a trip-cost reduction of 21% and a seat-mile cost reduction of more than 6%, compared to the A380. The 747-8F's empty weight is expected to be 80 tonnes (88 tons) lighter and 24% lower fuel burnt per ton with 21% lower trip costs and 23% lower ton-mile costs than the A380F. On the other hand, Airbus claims the A380 to have 8% less fuel consumption per passenger than the 747-8I and in 2007 Singapore Airlines CEO Chew Choong Seng stated the A380 was performing better than both the airline and Airbus had anticipated, burning 20% less fuel per passenger than the airline's 747-400 fleet. Emirates' Tim Clark also claims that the A380 is more fuel economic at Mach 0.86 than at 0.83. One independent, industry analysis shows fuel consumption in litres per seat per 100 kilometres flown (L/seat/100 km) as 3.27 for the A380 and 3.35 for the B747-8I, or a fuel cost per seat mile of $0.055 and $0.057 respectively.[dubious – discuss] A possible, as yet uncommitted, re-engined A380neo is expected to achieve 2.82 or 2.65 L/seat/100 km depending on the options taken. Airbus emphasises the longer range of the A380 while using up to 17% shorter runways. The A380-800 has 478 square metres (5,145.1 sq ft) of cabin floor space, 49% more than the 747-8, while commentators noted the "downright eerie" lack of engine noise, with the A380 being 50% quieter than a 747-400 on takeoff. Airbus delivered the 100th A380 on 14 March 2013. From 2012, Airbus will offer, as an option, a variant with improved maximum take-off weight allowing for better payload/range performance. The precise increase in maximum take-off weight is still unknown. British Airways and Emirates will be the first customers to take this offer. As of December 2015, Airbus has 319 orders for the passenger version of the A380 and is not currently offering the A380-800 freighter. Production of the A380F has been suspended until the A380 production lines have settled with no firm availability date. A number of original A380F orders were cancelled following delays to the A380 program in October 2006, notably FedEx and the United Parcel Service. Some A380 launch customers converted their A380F orders to the passenger version or switched to the 747-8F or 777F aircraft. At Farnborough in July 2016, Airbus announced that in a "prudent, proactive step," starting in 2018 it expects to deliver 12 A380 aircraft per year, down from 27 deliveries in 2015. The firm also warned production might slip back into red ink on each aircraft produced at that time, though it anticipates production will remain in the black for 2016 and 2017. The firm expects that healthy demand for its other aircraft would allow it to avoid job losses from the cuts. As of June 2014, Boeing has 51 orders for the 747-8I passenger version and 69 for the 747-8F freighter.
The announcement in March 2008 that Boeing had lost a US$40 billion refuelling aircraft contract to Northrop Grumman and Airbus for the EADS/Northrop Grumman KC-45 with the United States Air Force drew angry protests in the United States Congress. Upon review of Boeing's protest, the Government Accountability Office ruled in favour of Boeing and ordered the USAF to recompete the contract. Later, the entire call for aircraft was rescheduled, then cancelled, with a new call decided upon in March 2010 as a fixed-price contract.Boeing later won the contest against Airbus (Northrop having withdrawn) and US Aerospace/Antonov (disqualified), with a lower price, on February 24, 2011. The price was so low some in the media believe Boeing would take a loss on the deal; they also speculated that the company could perhaps break even with maintenance and spare parts contracts. In July 2011, it was revealed that projected development costs rose $1.4bn and will exceed the $4.9bn contract cap by $300m. For the first $1bn increase (from the award price to the cap), the U.S. government would be responsible for $600m under a 60/40 government/Boeing split. With Boeing being wholly responsible for the additional $300m ceiling breach, Boeing would be responsible for a total of $700m of the additional cost.
In October 2017, Airbus took a 50.01% stake in the Bombardier CSeries programme In December 2017, Boeing confirmed that it was holding discussions with Embraer for its airliner business. Airbus took control of the CSeries on 1 July 2018 and renamed it Airbus A220. On July 5, 2018, a Boeing-Embraer joint venture was announced for Embraer's airliners, valued at $4.75 billion, for which Boeing will invest $3.8 billion for 80%, approval is expected by the end of 2019. The Embraer E-Jet E2 family competes with the Airbus A220.
The aviation industry is one that is ever-changing, much of that is due to technology, customer appeal, and economic trends. When looking at Airbus and Boeing, we want to know about their history, what makes each company unique because as we know they are both players in the same arena. We also want to understand each company’s position in the marketplace and how they plan to maintain or strengthen that position, essentially gaining a sense of their predictions and forecasting plans. Next, we want to analyze Airbus and Boeing using the Stackelberg Duopoly method. Finally, we want to know what is the future of the aviation industry and how will technology impact how we travel?
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