Today the commercial aircraft market is dominated by the two major giants that is Airbus and Boeing (upto 98%). Have you ever wondered why this is so ? Why for such a long time and how only these two companies are enjoying the Duopoly in this market, why the big and developed countries like China and Russia are not successful in converting this duopoly into an oligopoly ? It is majorly not only because of the price, the resources or the expertise required in an aircraft development project but also because of the highly sensitive and regulated market which is controlled majorly by FAA (Federal Aviation Administration) and EASA (European Aviation Safety Agency).
Lets take a flashback
It all started when “Boeing” was founded by Mr.William Boeing in Seattle, Washington on July 15, 1916. With the on going World War I (1914 – 1918) Boeing got a boost in fields like development, marketing and stood great chance to develop healthy and fruitful relation with the US government.
As we all know the World War II (1939 – 1945) was the age when the aircraft’s use and development was at it’s peak and during this period Boeing gained more trust with the US government and was then considered to be part the government itself as data showed that US government had infused more than $ 100 billion into the Boeing Company during the World War II.
During the same period in Europe a number of countries tried to develop a different kind of aviation market for their people and to cater the needs of the war but eventually none were able to match the level of Boeing. So, eventually a consortium was formed among Germany, France and United Kingdom. The Government of these countries heavily funded the consortium so formed i.e. the “Airbus”.
So, it is clear from the above narration that both of these companies were strongly backed by their respective governments which eventually helped them in formulating marketing strategies, strong portfolio and large production. Which ultimately helped the companies in making profit for their respective countries and for themselves too.
Factors Helping the Duopoly
- Aircraft Development Cost: It is obvious that the over all development cost of an aircraft is so high that many companies would not prefer to take the risk at all. Still some players such as Bombardier, Embraer, etc have come which restricted there production to only a type of segment. Now if we look into the cost of development of an aircraft it comes around somewhere from $10 – $20 billion. This is just the cost of development there are other criterion such as approvals, testing, technology development, resource allocation and the most importantly marketing of the product, which make the aircraft manufacturing and development too cumbersome.
- Global Dominance of FAA and EASA: As we all know most of the countries still follow safety standards of FAA and EASA or for that matter are manipulated in some or the other ways to be under their command. “Since they are the leaders so they can….”
Suppressing the Blooming Ventures
- Airbus and Boeing never thought of developing small commercial aircraft (80-120 seater) as the profit margin in these cases is very less for the manufacturer as well as for the airline but with the advent of the concept of ‘LCC’ (low cost carriers) and ‘ULCC’ (ultra low cost carriers) ‘Small Jets’ started proving to be commercially more viable than other aircrafts. So then the Canadian Manufacturer “Bombardier” which was already there in this market making small aircrafts and locomotives sensed the need for the development of small jets and was eventually was successful in developing small jets with better engine efficiency before Airbus and Boeing could. The company had also taken pre orders in large numbers. This showed the two companies that Bombardier had opened a totally new segment which would be more demanding and could potentially enjoy the market share alone. To tackle this Boeing accused Bombardier that they are using “Penetration Pricing Strategy” to gain market share which was illegal. In answer to that US government imposed 300% import duty on Bombardier, which ultimately led to the downfall of this company. Later when Airbus pitched in and bought 50.1% stakes in Bombardier, it saved the Company from getting bankrupt but on the other hand the “Duopoly Won”.
- “Comac” (Commercial Aircraft Corporation of China) also tried to get into the market by developing narrow body aircrafts for this growing market. They developed three aircrafts 1. ARJ21 (70-105 seats) 2. C919 (150-190) 3. C929 (250-290) and also got great feedback from some aviation experts but seven years into the market this company managed to sell only 31 aircrafts.
- Embraer a Brazilian company also developed small aircrafts but here too Boeing with its tactics tried to bring down the market share of this company and finally Mitsubishi abbreviated MITAC, a Japanese company bought the company. Even after having a clean record for seven years FAA has not approved this brand but on the other hand the famous “Boeing 737 Max” the plane that crashed twice claiming many lives has got its approvals from FAA within one year from its grounding.
So readers what are your views on this duopoly in the aircraft manufacturing industry? And what in your opinion may be the ways in which other players fairly can step in?