If you are one of the 4 billion air-travelers who flew last year, chances are you either flew on an Airbus or a Boeing aircraft. Surprised? Don’t be. The Airbus-Boeing duopoly dominates the already under competitive manufacturing industry. Today we are going to Are smaller competitors giving them a run for their money? Or they are just getting scooped up and acquired?
Let’s start with how we got to a place where just 2 companies dominate the Air.
Boeing has always been a big player in the aviation field for more than 100 years. The Boeing company was created in 1916. The company sold its planes to the Navy during the first World War. It continued selling its aircraft in 1920 and 1930s to the US Military. During this time, Boeing also entered in Airmail services. With the development of Turbo Jets, Boeing-707 was introduced to people in 1958, and the public loved it. Smoother rides and shorter flight time paved the way for the future of flying.
A challenge to “Boeing Monopoly” – Welcome, Airbus!
In 1967, Germany, France, and Britain drew a plan for a short-haul European Airbus that would accommodate people’s desire to fly more for less. Plans were made to construct the A-300. In October of 1972, the A-300 completed its first flight. By 1984 Airbus received 411 orders and had 282 aircraft in active service. The persistence paid off in the long run. In 2018, Airbus has delivered 800 aircraft; an 11% growth from the previous year.
Airbus A320 in picture
Boeing business is thriving as well. In 2018; the company set a record for most delivered Airplane Deliveries with 806 commercial jets, a 5.6% growth from 2017
The success of both these companies is well reflected in their stocks. Both these companies have significantly outperformed S&P 500 over the last 10 years.
What keeps the Airbus-Boeing duopoly control the Airline industry?
- Capital requirement in building these airplanes is HUGE!!
A single plane can run into millions of dollars of construction fees. A single plane is made of hundreds and thousands of components. say a Boeing 747 alone is made up of 6 million parts. But materials are not the only thing that cost the aviation companies BIG.
- Safety comes with a Hefty Price Tag.
There is no doubt that Aviation is a strict and well-regulated industry. Airlines today carry 3 billion passengers fly a year and the less than 500 people lose their lives to it. Reaching that level of safety requires a great expense. Both of these massive companies have a lot of money.
- Massive Subsidies and Support from the respective Government
Both these companies spend a lot of money to keep their relations strong with their Government. Boeing spends more on lobbying than any other company in the USA, other than General Electric. It was the second largest govt contractor in 2017 bringing 23 Billion Dollars.
- Logistical Requirements
Airline Manufacturing business is a tough business to break into. Any new player challenging these 2 would require thousands of experts all top in their fields, billions of dollars in facility and equipment. On top of it, they would need to purchase thousands of patents or make their own, prepare huge management documentation and safety structure to meet FAA requirements. Despite all these requirements, it would take them 5 to 10 years before they start making money.
- Consistency within Airlines
Airlines like to operate aircraft by the same manufacturer. It simplifies the maintenance process and pilot training. A completely new aircraft calls for additional maintenance for a new type of aircraft. Therefore, Airlines tend to lean towards homogenous fleets as it keeps their costs down.
Where is the competition? Is there any?
It is clear that Airbus and Boeing make the main domestic and international airspace. Canadian Bombardier and Brazilian Embraer have resort to making only small planes, something which both the Giants are not focused upon and these 2 regional players do not get anywhere near to the size of these 2 giants. Bombardier – Embraer share is too small to challenge the duopoly. They tried but the eventually ran out of cash.
The overhead for Aviation Manufacturing business can be crushing. Regional Aviation manufactures like Bombardier could not shoulder the cost. In 2017, Airbus announced that it would acquire a majority stake in Bombardier C series. Airbus rebranded the series as new A-220 and sold 120 Jets to US Airline companies in 2018.
Boeing bought 80% of Embraer’s commercial aviation business for 4.2 Billion dollars. The reality was that these smaller companies weren’t really competing. In 2016, regional Airplane deliveries were less than 7% of the Airplane Market by value.
International competition – The Chinese Dragon
Russia and China have been trying hard to become a prominent player in the Airline Manufacturing industry, but they have not been able to create a dent. China has the potential to emerge as a serious competitor and challenge the duopoly. It has the largest market in the world, unlimited talent, resources and billions of dollars for capital infusion.
Boeing has admitted that “China commercial aviation sector represents a major customer, an important partner, and a potent competition. China is on track to become the largest commercial airplane market in the world over the next few years”
When asked Airbus, they had similar views “The Airbus-Boeing duopoly isn’t likely to last forever. In general, we see China as the next competitor in some 10 to 20 years from now. The Chinese market is large enough for more than 2 competitors. Airbus believes that competition is good for the development of the Aviation industry”.
The Future of Aircraft Manufacturing Industry
The future of Aircraft Manufacturing Business remains unclear. But one thing is clear, the multi-billion Dollar industry will continue to grow as millions of people around the world enter the middle class. The International Air Transport Association expects the number of Air-traveler to double to 8.2 Billion by 2037 and Airbus-Boeing Monopoly is only going to thrive.