Boeing Vs AirbusInternational Business Report

Submitted To

Tahir Ameen

Submitted By

Binte Zainab BT-08-17

Sundas Munir BT-08-22

Anum Fayaz BT-08-26

Iqra Butt BT-08-31

Ramsha Naeem BT-08-61

Table of Contents

Preface.............................................................................................................................................3

Acknowledement.............................................................................................................................4

Boeing vs. Airbus............................................................................................................................5

Company overview..........................................................................................................................5

BOEING..........................................................................................................................................5

Culture and values.......................................................................................................................8

Corporate Social Responsibility..................................................................................................8

AIRBUS.........................................................................................................................................11

Aircraft families.........................................................................................................................14

People & culture........................................................................................................................15

Corporate Social Responsibility................................................................................................16

Competition between Airbus and Boeing......................................................................................18

How did the battle begin?..........................................................................................................18

Controversies.............................................................................................................................22

The fight for flight.........................................................................................................................24

Conclusion.....................................................................................................................................27

References......................................................................................................................................29

Page 2

Preface

Page 3

Acknowledement

Page 4

Boeing vs. Airbus

Company overview

BOEING

Boeing is the world's largest aerospace company and leading manufacturer of commercial

jetliners and defense, space and security systems. A top U.S. exporter, the company supports

airlines and U.S. and allied government customers in 150 countries. Boeing products and tailored

services include commercial and military aircraft, satellites, weapons, electronic and defense

systems, launch systems, advanced information and communication systems, and performance-

based logistics and training.

Boeing has a long tradition of aerospace leadership and innovation. The company continues to

expand its product line and services to meet emerging customer needs. Its broad range of

capabilities includes creating new, more efficient members of its commercial airplane family;

integrating military platforms, defense systems and the warfighter through network-enabled

solutions; creating advanced technology solutions; and arranging innovative customer-financing

options.

With corporate offices in Chicago, Boeing employs more than 170,000 people across the United

States and in 70 countries. This represents one of the most diverse, talented and innovative

workforces anywhere. More than 140,000 employees hold college degrees -- including nearly

35,000 advanced degrees -- in virtually every business and technical field from approximately

2,700 colleges and universities worldwide. Our enterprise also leverages the talents of hundreds

of thousands more skilled people working for Boeing suppliers worldwide.

Boeing is organized into two business units: Boeing Commercial Airplanes and Boeing Defense,

Space & Security. Supporting these units are Boeing Capital Corporation, a global provider of

financing solutions; the Shared Services Group, which provides a broad range of services to

Boeing worldwide; and Boeing Engineering, Operations & Technology, which helps develop,

acquire, apply and protect innovative technologies and processes.

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Boeing Commercial Airplanes

Boeing has been the premier manufacturer of commercial jetliners for more than 40 years. With

the merger of Boeing and McDonnell Douglas in 1997, Boeing's leadership in commercial jets,

joined with the lineage of Douglas airplanes, gives the combined company a 70-year heritage of

leadership in commercial aviation. Today, the main commercial products are the 737, 747, 767

and 777 families of airplanes and the Boeing Business Jet. New product development efforts are

focused on the Boeing 787 Dreamliner, and the 747-8. The company has nearly 12,000

commercial jetliners in service worldwide, which is roughly 75 percent of the world fleet.

Through Boeing Commercial Aviation Services, the company provides unsurpassed, around-the-

clock technical support to help operators maintain their airplanes in peak operating condition.

Commercial Aviation Services offers a full range of world-class engineering, modification,

logistics and information services to its global customer base, which includes the world's

passenger and cargo airlines, as well as maintenance, repair and overhaul facilities. Boeing also

trains maintenance and flight crews in the 100-seat-and-above airliner market through Boeing

Training & Flight Services, the world's largest and most comprehensive provider of airline

training.

Boeing Defense, Space & Security

Boeing Defense, Space & Security (BDS) provides end-to-end services for large-scale systems

that enhance air-, land-, sea- and space-based platforms for global military, government and

commercial customers. In addition to designing, producing, modifying and supporting fighters,

bombers, transports, rotorcraft, aerial refuelers, missiles, munitions and spacecraft for military,

civil and commercial use, BDS is developing enhanced capabilities through network-enabled

solutions, communications and intelligence, surveillance and reconnaissance technologies. BDS

supports the U.S. government as a system integrator on several programs of national

significance, including NASA's International Space Station and, the Missile Defense Agency's

Ground-based Midcourse Defense program. BDS is also expanding into new markets and

adjacencies, including unmanned systems, cyber security, energy management, and support and

logistics.

Page 6

Boeing Capital Corporation

Boeing Capital Corporation is a global provider of financing solutions. Working closely with

Commercial Airplanes and Defense, Space & Security, Boeing Capital Corporation arranges

structures and provides financing to facilitate the sale and delivery of Boeing commercial and

military products. With a year end 2011 portfolio value at approximately $4.3 billion, Boeing

Capital Corporation combines Boeing's financial strength and global reach, detailed knowledge

of Boeing customers and equipment, and the expertise of a seasoned group of financial

professionals.

Engineering, operations and technology

EO&T enhances Boeing's growth and productivity by driving technical and functional excellence

across the enterprise. Its primary objectives are to support the company's business units by

delivering high-quality, low-cost technical services in information technology, research and

technology, and test and evaluation; integrated enterprise strategies that ensure technology is

ready when needed, competitively protected and environmentally progressive; and highly

disciplined and efficient engineering, operations and supplier management support that ensures

program success. The organization pays particular attention to ensuring the success of

development programs, and strives to attract, develop and retain a world-class technical and

functional work force.

Shared Services Group

Shared Services Group allows business units to focus on profitable growth by providing the

infrastructure services required to run their global operations. The group provides a broad range

of services worldwide, including facilities services, employee benefits and services, staffing,

recruitment, wellness programs, security, fire protection, site operations, disaster preparedness,

construction, reclamation, conservation programs, virtual workplace, creative services,

transportation, business continuity and the purchase of all non-production goods and services. It

also offers comprehensive travel services to Boeing employees and manages the sale and

acquisition of all leased and owned property for Boeing. By integrating services, Shared Services

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Group delivers greater value, creates "lean" processes and operations, leverages buying power

and simplifies access to services for all of Boeing.

Culture and values

Boeing is a company of amazing people working in one of the most exciting industries in the

world. When you consider our many accomplishments -- from designing and building the earliest

biplanes to creating and supporting today's supersonic aircraft and spacecraft -- you might think

we would be content with how far we've come. But a company of our size and scope doesn't

succeed by resting on its laurels; we are constantly re-examining our capabilities and processes

to ensure that our company is as strong and vital as our heritage. In fact, our culture mirrors the

heritage of aviation itself, built on a foundation of innovation, aspiration and imagination.

Value

At Boeing, we are committed to a set of core values that not only define who we are, but

also serve as guideposts to help us become the company we would like to be. We truly

live these values every day.

Vision

The Boeing Vision is: People working together as a global enterprise for aerospace

leadership. How will we get there?

o Run healthy core businesses

o Leverage our strengths into new products and services

o Open new frontiers

Corporate Social Responsibility

Boeing has a responsibility to its stakeholders - including the communities where its employees

live and work, and globally where its products are used - to be a good "corporate citizen" and

lead by example. Corporate social responsibility at Boeing means creating positive changes in all

we do - through the products and services they provide and the way they operate their business in

the interconnected world in which they live.

Page 8

Commitment to employees

Employment

Employment by Group

Commercial Airplanes 81,031

Defense, Space & Security 61,620

Corporate

Engineering, Operations & Technology 19,019

Shared Services Group 7,877

Other 2,639

Total Company 172,186

Safety & Health @ Work

Boeing is committed to fostering a safe and healthy workplace for its employees.

Through the rigorous application of preventative and corrective measures, the company

has reduced lost work days from injuries sustained on the job and has received numerous

awards recognizing its commitment to safety and health in the workplace.

Diversity

Diversity and inclusion are part of Boeing's values at the highest level. Having diverse

employees, business partners and community relationships is vital to creating advanced

aerospace products and services for our diverse customers around the world. The

company's commitment to diversity means providing a work environment for all

employees that is welcoming, respectful and engaging, with opportunities for personal

and professional development. This in turn increases productivity, quality, creativity and

innovation.

University Relations

Boeing works closely with selected colleges and universities to enhance undergraduate

curricula, support continuing education of Boeing employees, recruit for internships and

employment, and collaborate on research that benefits the long-term needs of our

businesses.

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Global Corporate Citizenship

The simple description of a corporation implies three elements: products/services,

business practices; and community engagement. Our core competencies direct us to a

systems approach to citizenship that challenges us to constantly seek ways to channel our

resources for greater impact. GCC partners with our business units and functions like

Global Diversity, Environment Health and Safety, Ethics, Government Operations and

Human Resources to integrate our corporate citizenship profile.

Boeing in the States

Boeing in the States 2011: The Boeing Company and its subsidiaries had over 151,000

employees working in 48 states as of December 31, 2010. In the past 12 months, Boeing

paid over $32 billion to more than 22,000 businesses, supporting an additional 1.2 million

supplier-related jobs across the country. These businesses include production suppliers

and non-production vendors, as well as subsidiaries of companies to which Boeing made

other payments. In the past year, The Boeing Company contributed over $89 million to

U.S. nonprofit organizations. In addition, Boeing employees contributed $51 million to

their Employees Community Fund.

The way they govern their business:

Ethics

The purpose of the Ethics and Business Conduct program is to:

o Communicate the Boeing Values and standards of ethical business conduct to

employees

o Inform employees of company policies and procedures regarding ethical business

conduct

o Establish companywide processes to assist employees in obtaining guidance and

resolving questions regarding compliance with the company's standards of

conduct and the Boeing Values

o Establish companywide criteria for ethics education and awareness programs

Page 10

Governance

The Boeing Company's business is conducted by its employees, managers and corporate

officers led by the chief executive officer, with oversight from the Board of Directors.

The Board's Governance, Organization and Nominating Committee periodically reviews

the Company's corporate governance principles and current practices

Code of Basic Working Conditions

This Code of Basic Working Conditions and Human Rights represents the commitment

of The Boeing Company to fundamental standards that make Boeing a good place to

work. People are Boeing's most vital asset. The individual and collective contributions of

Boeing people at all levels are essential to the success of the company. In recognition of

this, Boeing has developed policies and practices designed to assure that our employees

enjoy the protections afforded by the concepts set forth in this Code. Boeing is committed

to the protection and advancement of human rights in its worldwide operations, and the

concepts in this Code are generally derived from Boeing policies and practices already in

place, but which have not previously been summarized in a single document. While parts

of this Code reflect our review of working standards and human rights concepts advanced

by other groups, such as the International Labor Organization, the Universal Declaration

of Human Rights, and the Global Sullivan Principles, this Code represents Boeing's

statement of its own standards on these subjects, rather than those of a third party.

Boeing's worldwide operations take place in an increasingly diverse universe, so

circumstances can arise where legal, regulatory or other requirements may necessitate

applying or interpreting this Code in ways that assure compliance with applicable local

law. In any event, however, we believe that the concepts in this Code represent important

fundamental values that should underlie all aspects of the employment relationship.

AIRBUSAirbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company.

Based in Blagnac, France, a suburb of Toulouse and with significant activity across Europe, the

company produces more than half of the world's jet airliners.

Airbus began as a consortium of aerospace manufacturers, Airbus Industry. Consolidation of

European defense and aerospace companies in 1999 and 2000 allowed the establishment of a

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simplified joint-stock company in 2001, owned by EADS (80%) and BAE Systems (20%). After

a protracted sales process BAE sold its shareholding to EADS on 13 October 2006.

Airbus employs around 52,000 people at sixteen sites in four European Union countries: France,

Germany, the United Kingdom and Spain. Final assembly production is at Toulouse (France),

Hamburg (Germany), Seville (Spain) and, since 2009, Tianjin (People's Republic of China).

Airbus has subsidiaries in the United States, Japan, China and India. The Company produced and

markets the first commercially viable fly-by-wire airliner, the Airbus A320, and the world's

largest airliner, the A380.

A challenging environment for a high-performing company

Headquartered in Toulouse, Airbus is owned by EADS, a global leader in aerospace, defense and

related services. This group – which is comprised of Astrium, Cassidian and Eurocopter, in

addition to Airbus – has a presence on every continent, and employs a total workforce of more

than 119,000.

Airbus itself is a truly global enterprise of some 55,000 employees, with fully-owned

subsidiaries in the United States, China, and Japan and in the Middle East, spare parts centers in

Hamburg, Frankfurt, Washington, Beijing and Singapore, training centers in Toulouse, Miami,

Hamburg and Beijing and more than 150 field service offices around the world.

Airbus also relies on industrial co-operation and partnerships with major companies all over the

world, and a network of some 1,500 suppliers in 30 countries. Airbus today consistently captures

about half of all commercial airliner orders.

Quality and safety first

Delivering aircraft on time on cost and on quality – getting it right first time – drives Airbus policy with safety as number one priority in the design, building and performance of its aircraft.

Striving for the highest standards

Airbus’ customers expect quality in the aircraft they buy. Safety, reliability, comfort and maintenance costs are key areas where quality is crucial in an airline’s judgment of an aircraft.

Page 12

To achieve the very highest standards in these and other aspects of an aircraft’s facets and

performance the question of quality is addressed by Airbus at every stage from design to final

assembly and beyond. Repeated checks are made. Tests are applied. Airbus ensures every

supplier of parts meets the strictest standards on quality. Defective work, parts and materials are

rejected. Delivering aircraft on time, on cost and on quality – getting it right first time – is the

goal Airbus continually strives for.

Airbus has a network of key employees who identify problems at various stages of design,

production and assembly and recommend action to eradicate them, pre-empting possibly costly

delays at a later point. These employees also ensure continuous improvement in standards and

efficiency by pinpointing ways in which people could work better or where tools and materials

could be improved.

As it ramps up production of both single-aisle and long-range aircraft, including the A380, to

meet demand, Airbus knows setting even higher standards in quality is critical to maintaining its

success.

The constant focus on safe operations

Around 500 million passengers fly in Airbus aircraft each year. They trust the airlines to get

them safely to their destinations. In turn the airlines and other operators trust Airbus. The Airbus

name means reliability, quality, and performance. But above all it means safety, the first priority

for Airbus. At every point in the design, manufacturing and assembly process Airbus ensures its

work complies with certification targets laid down by the European Aviation Safety Authority

and the US Federal Aviation Administration.

Before an aircraft achieves its final type certificate it must undergo around 1,200 hours of test

flying. But Airbus also works continually in the most effective way to improve the safety of its

aircraft: by pro-actively identifying areas and events from which knowledge can be gained.

Airbus works with air safety organizations around the world to find new ways of improving

standards. Safety is not a matter of competition in the aviation industry. Airbus shares its know-

how with others to improve safety for everyone.

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Aircraft families

Airbus’ highly successful jetliner product line ranges in size from the 107-seat single-aisle A318

to the double-deck A380 wide body, which is the world’s largest commercial aircraft in service

today.

Passenger aircraft

Airbus jetliners have become the aircraft of choice for operators worldwide – from low-

cost carriers to full-service airlines flying many of the longest routes around the globe.

The company’s product line of passenger aircraft is characterized by high comfort,

unmatched economics and versatility. Airbus’ A320 Family is the undisputed leader in

the single-aisle category; while its A330/A340 families of twin-engine and four-engine

aircraft cover all long-range requirements.

At the top of Airbus’ product range, the double-deck A380 has introduced an entirely

new way of travelling, leveraging a variety of key innovations. Airbus’ 30 years of

experience and expertise are being applied to the new-generation A350 XWB, which

once again will shape the future of air travel by offering a new-generation aircraft family

that meets market requirements for size, range, revenue generation, passenger comfort

and the environment.

Corporate jets

Airbus offers the most modern and comprehensive corporate jet family in the world,

giving customers the greatest choice of the widest and most spacious cabins. The

company’s corporate jets range from the Airbus ACJ318 all the way to the double-deck

ACJ380, allowing customers to select the comfort they want in the size that they need.

Freighter aircraft

Airbus builds highly capable freighters to fulfill a full range of cargo lift requirements.

The A330-200F is the only new-generation cargo aircraft available today that meets

operations’ needs in the mid-size, long-haul segment. For A330s that have completed

their useful operational service as passenger jetliners, the A330P2F freighter conversion

option offers a solution that is both cost effective and highly efficient.

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In the very large freighter category, the A380F is based on Airbus’ 21st century A380

flagship and is designed to haul more cargo, over farther distances, and at lower cost than

its nearest competitor. For the airlift of oversized cargo loads, Airbus operates a fleet of

A300-600ST Super Transporters that support its own manufacturing flow within the

company’s European production network – with these aircraft also available for third-

party charter through the Airbus Transport International affiliate.

Military aircraft

Airbus’ highly capable family of military aircraft covers a full range of airlift and support

missions, from the C212, CN235 and C295 tactical transports to the A330-based Multi

Role Tanker Transport (MRTT) and the A400M multi-role airlifter.

People & culture

Airbus takes pride in the diversity of its employees, and values the special experience and

expertise that come from more than 80 nationalities represented among its 55,000 employees.

The company thrives on the mix of ideas, vision and knowledge such a combination of cultures

creates. At the same time, Airbus encourages its employees to develop individual talents and to

be proud of their heritage. Diversity is the essence of Airbus. With its global presence growing

Airbus is now an even bigger international family.

For an Airbus employee it is usual to work side by side with people from a range of cultures.

Career advancement within the company can take an employee not just to another floor or

another building – but to another country.

Airbus takes pride in the diversity of its employees, valuing the special experience and expertise

people from different backgrounds bring to the industry. The company thrives on the mix of

ideas, vision and knowledge such a combination of cultures creates. At the same time, it

encourages employees to develop their individual talents and experience and to be proud of their

roots.

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But diversity is not just about nationality. An increasing number of Airbus employees are

women, who are working in a full range of jobs and responsibilities – including those considered

as traditional male roles.

In addition to its many sites around Europe, Airbus has subsidiaries in North America, China and

Japan, an engineering center in India, and a joint engineering venture in Russia. As a result, the

pool of talent from which Airbus selects its employees has truly become global.

Corporate Social Responsibility

As a responsible corporate citizen and industry leader, Airbus’ day-to-day operations are guided

by a strong commitment to the highest ethical standards – ensuring integrity, transparency and

professionalism across its operations.

Support and development

Day after day, social responsibility plays a vital role in how Airbus conducts its business, makes

decisions and sets priorities. This initiative takes many forms at Airbus, including employee

development, building strong supplier partnerships and maximum safety for all its workers.

Airbus is an active corporate citizen, and believes in contributing to the communities where its

employees live and work. In 2008, the company created the Airbus Corporate Foundation –

which manages all of its charitable activities around the world, and brings together the

international employee network with associations and other international organizations.

Building on existing Airbus charitable projects, the Foundation emphasizes and focuses its

support on three key themes: youth development, humanitarian and community support, and the

environment.

Creating value with less environmental impact

From the very beginning, Airbus has put the highest priority on environmental performance.

Over the course of its 40-plus-year history, the company has adhered to a philosophy of

increasing the number of passengers (or amount of freight) per flight, while reducing overall

emissions, energy consumption and perceived noise.

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To meet its environmental targets, Airbus continually invests in improvements for its in-service

jetliners, and applies cutting-edge technologies to enhance new aircraft throughout their

lifecycle.

This company-wide effort extends to Airbus’ production sites, all of which have received

International Organization for Standardization (ISO) 14001 certification – recognizing Airbus’

achievements in monitoring and minimizing the effect its operations have on the environment.

Airbus Corporate Foundation

Social responsibility, coupled with a greater responsibility to protect the environment, has been

at the heart of Airbus’ business activities for many years.

The Airbus Corporate Foundation was created to facilitate the company’s worldwide charitable

activities by placing them within one organization that brings together the resources of Airbus’

international employee network with associations and international organizations.

Created in December 2008, the Foundation’s purpose is to support programs and projects in

which Airbus employees are involved, and it focuses its support on three themes: youth

development, humanitarian and community support, and the environment.

Airbus President and CEO Tom Enders serves as the Foundation’s President of the Board of

Directors, which has secured the support of four international members that bring specific

experience and know-how: Kriss Akabusi, Marcel Rufo, Manuel Toharia Cortes and Henning

Voscherau.

“We invest our time and expertise, and focus our resources on projects where we can really make

a difference. We all at Airbus want to help making the world a better place.”

Tom Enders, Airbus CEO and President of the Airbus Corporate Foundation Board of Directors

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Competition between Airbus and Boeing

How did the battle begin?

Competition between Airbus and Boeing is a result of both companies' domination of the large

jet airliner market since the 1990s, a consequence of mergers within the global aerospace

industry over the years. Airbus began as a consortium from Europe, whereas the American

Boeing took over its former arch-rival, McDonnell Douglas, when the latter became defunct and

merged with the former in 1997. Other manufacturers, such as Lockheed Martin and Convair in

the United States and British Aerospace, Dornier and Fokker in Europe, have pulled out of the

civil aviation market after economic problems and declining sales.

The 1990s changes in the Eastern Bloc and the former Soviet Union has put its aircraft industry

in a disadvantaged position, although Antonov, Ilyushin, Irkut, Sukhoi, Tupolev, Yakovlev and

the newly merged United Aircraft Corporation develop and produce several new passenger

aircraft and have an increasing but currently small market share. The Chinese aviation industry is

currently developing and producing two jet- (state owned merge Comac) and several turboprop-

powered airliners in increasing but still small quantities, also two wide-bodies are proposed.

Airbus and Boeing since the end of the 1990s possess a duopoly in the global market for large

commercial jets comprising narrow-body aircraft, wide-body aircraft and jumbo jets. However,

Embraer has gained market share with their narrow-body aircraft in the Embraer E-jets series.

There is also a similar competition in regional jet manufacturing between Bombardier Aerospace

and Embraer .

In the last 10 years Airbus has received 7,181 orders while delivering 4,218, Boeing won 6,360

orders while delivering 3,871. Competition is intense; each company regularly accuses the other

of receiving unfair state aid from their respective governments.

Competition by product

Though both manufacturers have a broad product range varying from single-aisle to wide-body,

they do not always compete head-to-head. As listed below they respond with slightly different

models.

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The Airbus A380, for example, is substantially larger than the Boeing 747.

The Airbus A350 competes with the high end of the Boeing 787 Dreamliner and the

Boeing 777.

The Airbus A320 is larger than the Boeing 737-700 but smaller than the 737-800.

The Airbus A321 is larger than the Boeing 737-900 but smaller than the previous Boeing

757-200.

The Airbus A330-200 competes with the similar Boeing 767-400ER.

Airlines benefit from this competition as they get an array of diversified products ranging

from 100-500 seats, than if both companies offered identical aircraft.

Competition by outsourcing

Because many of the world’s airlines are wholly or partially government owned, aircraft

procurement decisions are often taken according to political and commercial criteria. Boeing and

Airbus seek to exploit this by subcontracting production of aircraft components or assemblies to

manufacturers in countries of strategic importance in order to gain a competitive advantage.

For example, Boeing has offered longstanding relationships with Japanese suppliers including

Mitsubishi Heavy Industries and Kawasaki Heavy Industries by which these companies have had

increasing involvement on successive Boeing jet programs, a process which has helped Boeing

achieve almost total dominance of the Japanese market for commercial jets. Outsourcing was

extended on the 787 to the extent that Boeing’s own involvement was reduced to little more than

project management, design, assembly and test operation, outsourcing most of the actual

manufacturing all around the world. Boeing has since stated that it "outsourced too much" and

that future airplane projects will depend far more on Boeing's own engineering and production

personnel.

Partly because of its origins as a consortium of European companies, Airbus has had fewer

opportunities to outsource significant parts of its production beyond its own European plants.

However, in 2009 Airbus has opened an assembly plant in Tianjin, China for production of its

A320 series airliners.

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Competition through use of technology

Airbus sought to compete with the well-established Boeing in the 1970s through its introduction

of advanced technology. For example, the A300 made the most extensive use of composite

materials yet seen in an aircraft of that era, and by automating the flight engineer's functions, was

the first large commercial jet to have a two-man flight crew. In the 1980s Airbus was the first to

introduce digital Fly-by-wire controls into an airliner (the A320).

Since then Airbus has established itself as a viable competitor to Boeing, both companies use

advanced technology to seek performance advantages in their products. For example, the Boeing

787 Dreamliner is the first large airliner to use composites for most of its construction.

Competition through provision of engine choices

The competitive strength in the market of any airliner is considerably influenced by the choice(s)

of engine available. In general, airlines prefer to have a choice of at least two engines from the

major manufacturers General Electric, Rolls-Royce and Pratt & Whitney. However engine

manufacturers prefer to be single source, and often succeed in striking commercial deals with

Boeing and Airbus to achieve their objective. Several notable aircraft have only provided a

single engine offering: the Boeing 737-300 series onwards (CFM56), the Airbus A340-500 &

600 (Rolls-Royce Trent 500), the Airbus A350 (Rolls-Royce Trent XWB - so far) the Boeing

747-8 (GEnx-2B67), and the Boeing 777-300ER/200LR/F (General Electric GE90).

Effect of currency on competition

Boeing's production costs are mostly in United States dollars, while Airbus' production costs are

mostly in euros. When the dollar appreciates against the euro the cost of producing a Boeing

aircraft rises relative to the cost of producing an Airbus aircraft, and conversely when the dollar

falls relative to the euro it is an advantage for Boeing. There are also possible currency risks and

benefits involved in the way aircraft are sold. Boeing typically prices its aircraft only in dollars,

while Airbus, although pricing most aircraft sales in dollars, has been known to be more flexible

and has priced some aircraft sales in Asia and the Middle East in multiple currencies. Depending

on currency fluctuations between the acceptance of the order and the delivery of the aircraft this

can result in an extra profit or extra expense - assuming Airbus has not purchased insurance

against such fluctuations.

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Effect of competition on product plans

The A320 has been selected by 222 operators (Dec. 2008), among these several low-cost

operators, gaining ground against the previously well-established 737 in this sector; many full-

service airlines also have selected it as a replacement for 727s and aging 737s, such as United

Airlines and Lufthansa; and after 40 years the A380 now challenges the Boeing 747s dominance

of the very large aircraft market. The Boeing 747-8 is a stretched and updated version of the

venerable 747-400 and will offer greater capacity, fuel efficiency and longer range. Frequent

delays to the Airbus A380 program caused several customers to consider cancelling their orders

in favor of the refreshed 747-8,[36] although none have done so and some have even placed

repeat orders for the A380. However, all A380F orders have been canceled. To date, Boeing has

secured orders for 78 747-8F and 28 747-8I with first deliveries originally scheduled for 2010

and 2011 respectively now, after certification the 747-8F, revised to 2011 and 2012 as the 747-8I

is still (as of August 2011) being test-flown, while Airbus has orders for 234 A380s, the first of

which entered service in 2007 and has delivered a total of 67 to customers (as of January 2012).

Several Boeing projects were pursued and then canceled, like the Sonic Cruiser, launched in

2001. Boeing is now focused on the Boeing 787 Dreamliner as a platform of total fleet

rejuvenation, which uses technology from the Sonic Cruiser concept. The 787's rapid sales

success and pressure from potential customers forced Airbus to revise the design of its

competing A350 .

Boeing first ruled out producing a re-engine version of its 737 to compete with the A320neo

launch in 2016 saying it did not believe airlines would be willing to pay 10% more for only a

few percentage gained in fuel efficiency, instead airlines would be looking towards the next

major redesign and a 30% fuel saving. The company is facing airline pressure to offer a direct re-

engine competitor including from Southwest Airlines who use the 737 for their entire fleet (680

in service or on order) saying they were not prepared to wait 20 years or more for a new 737

model and threatening to convert to Airbus. Industry sources believe that a re-engine of the 737

would be considerably more expensive for Boeing than it was for Airbus A320 due to the 737's

design. Boeing eventually bowed to pressure in the summer of 2011 agreeing to supply a large

quantity of a new version called the 737 MAX for one customer and the following quarter made

the new product available to other customers .

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Safety

Both aircraft manufacturers have good safety records on recently manufactured aircraft. By

convention, both companies tend to avoid safety comparisons when selling their aircraft to

airlines. Most aircraft dominating the companies' aircraft sales, such as the Boeing 737-NG and

Airbus A320 families (as well as both companies' wide-body offerings) have good safety records

as well. Older model aircraft such as the Boeing 727, the original Boeing 737s and 747s, Airbus

A300 and Airbus A310, which were respectively first flown during the 1960s, 1970s, and 1980s,

have had higher rates of fatal accidents.

ControversiesSubsidies

Boeing has continually protested over launch aid in the form of credits to Airbus, while Airbus

has argued that Boeing receives illegal subsidies through military and research contracts and tax

breaks. In July 2004 Harry Stonecipher (then-Boeing CEO) accused Airbus of abusing a 1992

bilateral EU-US agreement providing for disciplines for large civil aircraft support from

governments. Airbus is given reimbursable launch investment (RLI, called "launch aid" by the

US) from European governments with the money being paid back with interest, plus indefinite

royalties if the aircraft is a commercial success. Airbus contends that this system is fully

compliant with the 1992 agreement and WTO rules. The agreement allows up to 33 per cent of

the program cost to be met through government loans which are to be fully repaid within 17

years with interest and royalties. These loans are held at a minimum interest rate equal to the cost

of government borrowing plus 0.25%, which would be below market rates available to Airbus

without government support. Airbus claims that since the signing of the EU-U.S. agreement in

1992, it has repaid European governments more than U.S. $6.7 billion and that this is 40% more

than it has received .

Airbus argues that the pork barrel military contracts awarded to Boeing (the second largest U.S.

defense contractor) are in effect a form of subsidy (see the Boeing KC-767 vs. EADS (Airbus)

KC-45 military contracting controversy). The significant U.S. government support of technology

development via NASA also provides significant support to Boeing, as does the large tax breaks

offered to Boeing which some claim are in violation of the 1992 agreement and WTO rules. In

its recent products such as the 787, Boeing has also been offered substantial support from local

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and state governments. However, Airbus' parent, EADS, itself is a military contractor, and is

paid to develop and build projects such as the Airbus A400M transport and various other military

aircraft.

In January 2005, the European Union and United States trade representatives, Peter Mandelson

and Robert Zoellick (since replaced by Rob Portman, and then Susan Schwab, and the present

office holder, Ron Kirk) respectively, agreed to talks aimed at resolving the increasing tensions.

These talks were not successful with the dispute becoming more acrimonious rather than

approaching a settlement.

In September 2009, the New York Times and Wall Street Journal reported that the World Trade

Organization would likely rule against Airbus on most, but not all, of Boeing's complaints; the

practical effect of this ruling would likely be blunted by the large number of international

partners engaged by both plane makers as well as the expected delay of several years of appeals.

For example, 35% of the Boeing 787 Dreamliner is manufactured in Japan. Thus, some experts

are advocating a negotiated settlement. In addition, the heavy government subsidies offered to

automobile manufacturers in the United States have changed the political environment; the

subsidies offered to Chrysler and General Motors dwarf the amounts involved in the Airbus-

Boeing dispute.

World Trade Organization litigation

On 31 May 2005 the United States filed a case against the European Union for providing

allegedly illegal subsidies to Airbus. Twenty-four hours later the European Union filed a

complaint against the United States protesting support for Boeing.

Increased tensions, due to the support for the Airbus A380, escalated toward a potential trade

war as the launch of the Airbus A350 neared. Airbus would prefer the A350 program to be

launched with the help of state loans covering a third of the development costs although it has

stated it will launch without these loans if required. The A350 will compete with Boeing's most

successful project in recent years, the 787 Dreamliner. EU trade officials questioned the nature of

the funding provided by NASA, the Department of Defense, and in particular the form of R&D

contracts that benefit Boeing; as well as funding from US states such as the State of Washington,

Kansas, and Illinois, for the development and launch of Boeing aircraft, in particular the 787.An

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interim report of the WTO investigation into the claims made by both sides was made in

September 2009.

In March 2010, the WTO ruled that European governments unfairly financed Airbus.[51] In

September 2010, a preliminary report of the WTO found unfair Boeing payments broke WTO

rules and should be withdrawn. In two separate findings issued in May 2011, the WTO found,

firstly, that the US defense budget and NASA research grants could not be used as vehicles to

subsidies the civilian aerospace industry and that Boeing must repay $5.3 billion of illegal

subsidies. Secondly, the WTO Appellate Body partly overturned an earlier ruling that European

Governments launch aid constituted unfair subsidy, agreeing with the point of principle that the

support was not aimed at boosting exports and some forms of public-private partnership could

continue. Part of the $18bn in low interest loans received would have to be repaid eventually;

however, there was no immediate need for it to be repaid and the exact value to be repaid would

be set at a future date. Both parties claimed victory in what is the world's largest trade dispute .

On the first of December 2011 Airbus reported that it had fulfilled its obligations created by the

WTO findings and called upon Boeing to do likewise in the coming year.On the first of

December 2011 Airbus reported that it had fulfilled its obligations created by the WTO findings

and called upon Boeing to do likewise in the coming year .

On the 12 March 2012 the appellate body of the WTO released its findings confirming the

illegality of subsidies to Boeing whilst confirming the legality of repayable loans made to

Airbus. The WTO stated that Boeing had received at least $5.3 billion in illegal cash subsidies at

an estimated cost to Airbus of $45 billion. A further $2 billion in state and local subsidies that

Boeing is set to receive have also been declared illegal. Boeing and the US government have six

months to change the way government support for Boeing is handled. Noncompliance will result

in extensive sanctions being imposed by the WTO .

The fight for flight

According to Fortune Magazine July 5, 2011, the record number of orders for the Airbus

A320neo aircraft at Le Bourget shows the European aircraft maker's success in bringing its

current airline customers back on board. But while it was an impressive showing, Airbus failed

to make any meaningful inroads into Boeing's core customer base, leaving in place a deadlock

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between the two aircraft makers in the heavily competitive and extremely profitable single-aisle

jet market.

For now, it looks like Boeing's customers are waiting it out to see what the aircraft maker will do

with its aging single-aisle workhorse, the Boeing 737. But Boeing shouldn't make them wait too

long. Airbus, along with a new crop of foreign competitors, namely the Chinese, is aggressively

pitching Boeing's anchor customers. Boeing may need to act fast or it could find that even its

most loyal airline clients, like American Airlines and Europe's Ryanair, sign big multi-billion

dollar contracts with a competitor.

The single-aisle jet market hardly grabs the headlines, but it is the most important profit center

for jet makers. So while Airbus' superjumbo A380 and Boeing's futuristic 787 are important, the

truth is, they aren't the big money makers. Boeing's 737 aircraft accounts for around 40% of the

jet maker's commercial aviation revenue and well over half of its profits. Meanwhile Airbus still

hasn't made a profit from selling its new superjumbo A380.

What keeps these aircraft industry going are the small jets that whisk people several times a day

from New York to Houston or from London to Madrid -- not the big transatlantic jets. The cash

flow generated by those projects allow the jet makers to splurge on research and development

and roll out sexy new products. That's not to say that bigger jets aren't important to the bottom

line, they just aren't the backbone of the industry.

For the last few years all the attention at the Paris Airshow has focused on the sexy new projects.

This year, though, it was all about the workhorse. Airbus offered up for sale its latest version of

the A320, the A320neo, which stands for "new engine option." As the name suggests, the jet

really isn't a major redesign, it simply has a new engine. Airbus is selling the new plane as an

"efficiency improvement package," over older models with improvements including a 15%

reduction in fuel consumption allowing it to go farther and hold more cargo. Airbus clearly didn't

reinvent the wheel here.

But Airbus customers went gaga over the new jet, which won't even be ready to enter service

until the fall of 2015. There was a whopping 667 orders for the new jet at the show, worth

around $60.9 billion at market-list prices. Airbus now has 1,029 orders for the new jet, making it

the most popular model in civil aviation history.

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The sheer number of orders at the show shocked analysts, who were expecting around half that.

Leading the way were several Asian airlines, like Malaysia-based AirAsia with 200 orders.

Garuda, the Indonesia flag carrier, also got in on the action ordering 15 jets.

Most of the other orders came from long-standing Airbus champions, like JetBlue, which

ordered 40 of the new jets. Analysts and insiders believe that the only real hit to Boeing was

Garuda's 15 plane order, as the flag carrier had been staunchly Boeing for decades.

A 737 tune-up?

The potential loss of Garuda as a core customer doesn't seem to be worrying Boeing's

management in Chicago. Nor does the fact they received just 71 new orders for its latest 737

models, the -800 and -900ER, at the air show. Boeing hasn't introduced a radically different

version of its 737 in some time, so it was expected to do poorly in the final tallies. Big aircraft

orders usually come when there is a new model, and Boeing hasn't rolled out a new version of its

737 workhorse in six years.

That's quite a long stretch to go without a gussied up new aircraft. The company seems to have

focused all its energy in the last few years in launching its much-delayed mid-sized 787 aircraft,

which finally enters service at the end of the summer.

Boeing understands that it is time to roll out a new 737, but it hasn't decided if it should totally

redesign the aircraft, possibly constructing it from the same futuristic composite materials used

in the 787, or just slap a new set of fuel-efficient engines to its old aluminum body and calling it

a day. It could take an estimated $15 billion or more to redesign the aircraft, Carter Copeland, the

aerospace analyst at Barclays Capital, told Fortune. He argues that since the 737 is already so

efficient in its current form, it may not be cost-effective for Boeing to make such a big capital

expenditure to redesign the aircraft.

"Frankly, there is a lot of financial and technical risk associated with doing a new airplane and

Boeing need to be very comfortable with this because these are 'bet the company' type projects,"

Copeland says.

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This is at the root of why Boeing has yet to make a decision. Copeland feels that Boeing has up

to a year to make the decision, but that may be too late. There are signs that some of Boeing's

most loyal customers have started talking to the other side.

Boeing's core customers are still the big U.S. airlines. American Airlines has been a loyal Boeing

and McDonnell Douglas (acquired by Boeing in 1996) customer for decades. While it has bought

non-Boeing planes for its American eagle regional jet fleet, American, as its name suggests,

prefers American-made aircrafts for its mainline fleet.

The company is now moving to totally revamp its fleet as it moves to retire the dozens of old

MD-80 jets it acquired in the 80s and early 90s. The airline at one point had 300 MD-80's up in

the sky. But since 2008, the airline has moved to replace them with new 737s, ordering around

119 new 737-800s in 2009 and 2010.

American's fleet is still in need of a major upgrade. But the Dallas-based carrier isn't just looking

at Boeing. The new, more fuel-efficient A320neo has caught the eye of management, according

to a person briefed on the matter. Airbus is pushing hard, offering steep discounts to get

American to sign on, this person said.

American was expected to announce a large order at the Paris Airshow, but it never came. The

company is reportedly in heated negotiations with both Airbus and Boeing at this time with plans

to order 250 planes worth around $15 billion. Grabbing American would be a coup for Airbus

and would put a seal of approval on the A320neo. That could influence other U.S. carriers to

follow its lead. The other mainline U.S. carriers -- US Airways, United Airlines and Delta

Airlines already operate a mix of Airbus and Boeing jets. All of them are in need of an upgrade

and finally have some money to put down a deposit -- thanks, in part, to all those new revenue

streams, like baggage fees.

Conclusion

The disputes that have arisen periodically in the aircraft industry between Boeing and Airbus

have only lead to adverse effects on both these companies. The long drawn out and complicated

litigation, with accusation and counter-accusations being field in the WTO, have led to an

unnecessary waste of resources that have harmed the company’s profits and performance. For

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example, one of the reasons why the shares of the Boeing Company took a downward turn after

its merger with McDonnell Douglas was the dispute it had to settle with the EU before the

merger could come through.

It is in the best interests of everyone concerned to bring an end to these disputes. The company

that loses litigation has measures such as fines imposed upon them by other members of the

WTO, which raise their costs substantially. This impacts not only the company itself, but also

airlines that buy their planes, manufacturers of components, and ultimate the traveller as well. It

is in everyone’s interest to avoid disputes as far as possible, and the only way in which this can

be achieved is to reduce the number of subsidies granted in direct or indirect ways, and finally

wipe them out entirely. This would increase the levels of competition between Airbus and

Boeing, which would ultimately benefit the taxpayers, since subsidies are paid out through the

taxpayers’ money.

While the argument in favor of subsidies is that the industry is often unable to remain viable on

its own, instead of support from the government, other measures may be sought out. For

example, in the production of the newest model, the 7E7, Boeing has shared the risk with the

manufacturers who have contracts on the various parts of the airplane. By seeking alternatives,

government subsidies could perhaps not lead to costly trade wars in which each company tries to

outdo each other in terms of the subsidies received.

It has been seen through the example of Airbus and Boeing that the level of competition in a

duopoly are very high, and often lead to unfair trade practices which violate of existing norms

and agreements. Government usually ever since Airbus outdid Boeing for the first time in 2003.

The question of subsidies has been an especially contentious one since then, since Boeing claims

that Airbus is now healthy enough to survive on its own without government support. It levies

these accusations at Airbus while being granted enormous subsidies on it latest project, the 7E7.

If the situation continued in this manner, the international civil aircraft industry would never be

free from disputes.

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References

Aris, S. (2004). Close to the sun: how Airbus challenged America's domination of the skies, Agate B2.

Campos, L. M. B. C. (2001). "On the competition between Airbus and Boeing." Air & Space Europe 3(1-2): 11-14.

Esty, B. and P. Ghemawat (2002). "Airbus vs. Boeing in superjumbos: A case of failed preemption." HBS Strategy Unit Working Paper No. 02-061, HBS Finance Working Paper No. 02-061.

Garten, J. E. (2005). "The Big Blowout: Why the Airbus-Boeing case could wreck the WTO, and how to stop it." Newsweek International, April 4.

Irwin, D. A. and N. Pavcnik (2004). "Airbus versus Boeing revisited: international competition in the aircraft market." Journal of International Economics 64(2): 223-245.

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