In today's Finshots we talk about the Airbus-Boeing duopoly and explain how it came to be

The Story

The Tata's are really upping their ambition in the aviation sector. First, they bought Air India. Then they decided to merge Vistara with Air India. And now it seems they're buying 500 jets from Airbus and Boeing in a deal that could be worth over $100 billion.

This got us thinking - Why is the jetliner market a duopoly with just two suppliers bossing the trade? How did just two entities come to own 99% of the market?

Well, to understand this, we need to go back in time.

The story begins all the way in 1916 when Boeing began its journey as an Aero Products Company. At first, they supplied military aircraft to meet the needs of World War I. They were also ferrying mail on the side since it was quite profitable. But in 1934, the Airmail Act took force and prevented companies from manufacturing planes and delivering mail at the same. So the company had to restructure. And the Boeing Airplane Company became just ‘Boeing’ while doubling down on manufacturing commercial planes.

At the time, companies like Douglas and Lockheed were also dabbling in commercial planes. But Boeing’s 707 changed the game. It was the best plane on the market. It was fast, cost-efficient and a reliable aircraft. It dominated the market soon enough and the competition fell by the wayside. Some tried to merge operations. Some got bought out by Boeing. Lockheed for instance quit the segment altogether and began focusing on defence.

Meanwhile, Airbus emerged on the other side of the ocean. In 1970, folks in Germany, France, Britain, and Spain realized that they didn’t have enough money individually to challenge the US monopoly brought on by Boeing. So they pooled their resources and teamed up to launch Airbus. It was a pan-European effort.

It wasn’t easy in the beginning. But in 1977 the company got its first big break with the A300. Orders flew in and Airbus established itself as a force to reckon with. This also decimated the competition in Europe. Regional aircraft manufacturers like Fokker and British Aerospace (now BAE Systems) couldn’t survive the onslaught. They withdrew from commercial airline manufacturing altogether.

And by the 1990s, commercial airline manufacturing had already become the duopoly that we know today.

But the big question is — why is the jet manufacturing industry so hard to break into?

Well, let’s just say that the barriers to entry are very high. It isn’t like manufacturing cigarettes and biscuits. These are large machines that fly. And they have to fly reliably. So manufacturing companies spend billions in Research & Development alone, making sure they have everything right. Then they spend billions more in building the aircraft and perfecting it. This takes time.

A lot of time!

For instance, Airbus announced its A350 ultra-long-range flight way back in 2004. But it only launched in 2018!

And as we’ve already noted, all it takes is a big win with a new aircraft to own the market. Everybody follows the lead. And it’s hard to make a mark when there’s only one aircraft flying off the shelf.

Well, technically flying off the shelf isn’t an appropriate term. These aren’t mass-produced. Airbus and Boeing wait for orders and then start putting the planes together. They also need to set up massive manufacturing facilities to meet the growing needs of commercial aviation. For instance, despite all its experience, Airbus took over 10 years to get to a point where it could reliably produce 30 A320 jets monthly. So yeah, it’s not easy.

Also, it’s not like manufacturers can simply walk away after delivery. These are complex machines that need 24/7 support throughout their lifecycle. Remember the fanfare with which Boeing launched its 787 Dreamliner series a decade or so ago? It was supposed to change the way people flew. But then, the airline regulator discovered manufacturing defects. It asked Boeing to fix things. And that alone cost the company $2 billion.

Think about it — How many companies can invest such ludicrous sums of money and spend decades putting together an aircraft?

It’s a risky proposition and not many people want to dabble in this thing.

And you also have to remember that the large players in the industry, Airbus and Boeing, have a proven track record. Airlines trust these companies despite the odd hiccups. Sure, they don’t have many alternatives anyway, but it's always a better bet to go with an old dog as opposed to a newcomer. Especially since people’s lives are at stake every time an aircraft takes to the skies.

So it’s damn impossible for you to get a presale if you don’t already have a proven jet.

In a nutshell, you need deep, deep pockets to break into aircraft manufacturing.

But to be fair, not all this money came from their own coffers. Governments in the US and the EU have doled out plenty of subsidies to Boeing and Airbus too. They wanted their own companies to do well. And the World Trade Organization even had to look into these subsidies and make sure it wasn’t in contravention of international trade practices.

Okay, that’s all well. But duopolies aren’t great for business and competition, right? For instance, Airbus and Boeing can collude and fix prices if they really wanted to. And remember the ill-fated Boeing 737 MAX? Two aircraft crashed in late 2018 and early 2019. It killed nearly 350 people. And many people were wondering if the lack of competition had any role to play in all this.

So maybe the time is ripe for someone with deep pockets to break this duopoly.

And it seems the primary competitor is emerging from China.

After more than 10 years of working on the project and with billions of dollars of financial support, China’s very own passenger jet, manufactured by aerospace company COMAC, is ready to take to the skies. And considering the Chinese aviation market is set to become the world’s largest within the next decade, maybe they could make a dent.

As Guillaume Faury, Airbus’ CEO said and we quote, “We will probably go from a duopoly to a triopoly, at least on the single-aisle, by the end of the decade.”

Will it actually happen?

We will just have to wait and see.

Until then…

Don't forget to share this article on WhatsApp, LinkedIn and Twitter

Merry Christmas from Finshots!!!

This holiday season, we want to do something very special for you.

Finshots is doing an exclusive 5-day Christmas Giveaway — where we giveaway an exciting gift hamper to one lucky winner, for each day leading up to Christmas!

Welcome to Day 3 of our special giveaway — today, you could win a ₹2000 Amazon voucher so you can treat yourself to a little Christmas gift from us and of course, a giveaway isn’t complete without our exclusive Finshots Mug.

To enter the giveaway and get a chance to win, head to this link right now to participate. All you need to do is follow 3 easy steps!

So what are you waiting for? Grab your chance now!

P.S Don’t forget that this is only Day 3! We have 2 more super exciting hampers for you to win — so stay tuned and keep your eyes peeled!