The WTO Dispute of Boeing and Airbus

Table of contents

Executive summary

List of abbreviations

List of tables

1 Introduction

2 The large civil aircraft market
2.1 Boeing
2.2 Airbus
2.3 Comparing Airbus and Boeing

3 The competition between Airbus and Boeing
3.1 The history
3.2 Economic characteristic of the aircraft industrie

4 The Airbus and Boeing dispute in the WTO
4.1 The WTO and the General Agreement on Tariffs and Trade
4.2 The lawsuit
4.3 Current situation

5 Results and conclusion

List of literature

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of tables

List of tables

Table 1: Airbus and Boeing by comparison

Executive summary

This assignment gives a general overview of the large civil aircraft market, by presenting the leaders: Airbus and Boeing. Further, the historical backgrounds were analyzed: The dispute has begun since Airbus was created in 1965, specifically to drive the US competitor Boeing out of the market.

Based on this thesis, the assignment examines the duopoly-position considering the economic backgrounds. A number of key issues arise especially from Boeing’s side. Boeing lost his dominant role on the market. Furthermore, Airbus delivered very high innovative technological standards, by keeping the costs low. It did not take long time until Boeing has responded by blaming Airbus to get subsidies from the government.

All this led to the biggest dispute in history and has been a particular challenge for the World Trade Organization (WTO).

The results of this assignment point out, that there are new entrants on the aircraft market, for example China and Russia. Instead of negotiating for years about subsidies, Airbus and Boeing should concentrate on improving their technological standards. Another idea of the author is to start a cooperation between the parties. The exchange of the Know-How would lead the companies to the top and no competitor could ever overcome the high barriers to entry of the aircraft market.

The best way to summing up, is to say, that it is not a competition between aircraft industries, it is a competition between the world’s largest governments: The European Union and the United States.

1 INTRODUCTION

For many years Airbus and Boeing compete for supremacy. Considering that Airbus and Boeing were the largest companies on the Large Civil Aircraft (LCA) market, the competition became national and government-affiliated. This was the beginning of the dispute between the European Communities and the United States over subsidiaries given to the particular organizations.

The first chapter of the assignment gives an overview of the aircraft companies Airbus and Boeing as well as of the LCA market, in order to place the companies in the further context.

The next part of this assignment examines the history of the companies at issue and how competition within the LCA industry brought about the dispute. The author decided to have a closer look on the economic effect of the competition between Airbus and Boeing on the LCA market, assuming it might be one of the reasons for the big dispute.

Chapter 4 introduces the international agreements relevant to the WTO - dispute as well as current negotiations in the WTO concerning the compliance over subsidies.

The main target of this assignment is to figure out why the WTO dispute last for years and why there is no prospect of an end. Further information on potential solutions is given in chapter 5, in the conclusion-part of the assignment.

2 THE LARGE CIVIL AIRCRAFT MARKET

In 1975 all airlines became largely free to buy from any producer, consequently the large civil aircraft market expanded to a worldwide basis. The aforementioned market includes only passenger aircraft for use by airlines. There is also military aircraft, small aircraft, helicopters and others, but the main aircraft in the aerospace market are jets.¹ It is interesting to consider that only two large companies are competing on this market: The Boeing Company and The Airbus Group. The following two chapters give a closer look on these companies.

2.1 BOEING

Founded in 1916 in the Puget Sound region of Washington State, Boeing became a leading producer of military and commercial aircraft. Boeing’s largest success came with the jet age. In 1959 Boeing received aid by military resources and technology, which was developed under favorable contracts for the Pentagon.²After the big merger with McDonnell Douglas in 1997 and other acquisitions with small companies, Boeing became the world’s leading aerospace company.

In present times, Boeing is headquartered in Chicago and employs more than 165,000 people across the United States and in more than sixty-five countries. Boeing’s customers include airlines and allied government customers. The company is designing, assembling and supporting two business units:

1. Boeing Commercial Airplanes
2. Boeing Defense, Space & Security

It is interesting to consider, that more than ten thousand Boeing-built commercial jetliners are in service worldwide, which is nearly forty-eight percent of the world fleet.³

In the year 2014, Boeing generated the revenue of 90,8 bn US dollars, 42,3 bn US dollars derived solely from commercial aircraft. Historically, seventy percent of commercial airplane revenue historically comes from customers outside the United States.

2.2 AIRBUS

Founded in 1965 Airbus has never stopped to improve its enormous product line, which is comprised of families of aircraft ranging from hundred to more than five hundred seats. Airbus’ family aircraft breaks down in three types: The passenger aircraft, Airbus corporate jets and freighter aircraft. Considering the fact, that the Airbus is the producer and marketer of the largest airplane worldwide, the A380, the company is also the second largest commercial aircraft worldwide.⁴

The aircraft manufacturing company Airbus SAS is the subsidiary of the Airbus Group SE, originally formed as the European Aeronomic Defence and Space Company (EADS), which is a European multinational aerospace and defense corporation. The company employs more than 73,000 people. While headquartered in Toulouse, France, Airbus has expanded upon its strong European roots to move forward on an international scale with subsidiaries in the USA, China, Japan, India and the Middle East. Final assembly production is based at Toulouse, France; Hamburg, Germany; Seville, Spain and since 2008, as a joint venture in Tianjin, China.⁵

In the year of 2014, the Airbus Group generated the highest revenue from activities in Asia / Pacific with 19,379 million euro, followed by North America with a revenue of 9,731 million euro.⁶

[...]

¹ William G. Shepherd and Joanna M. Shepherd, The Economics of Industrial Organization (Illinois: Waveland Press, Inc., 2004), 296.

²Ibid.

³ “Boeing in Brief,“ Boeing, accessed May 26, 2015, http://www.boeing.com/company/general- info/index.page#/overview.

⁴“Making Flight possible,”Airbus,accessed June 1, 2015, http://www.airbus.com/company/.

⁵Ibid.

⁶ „Investors & Shareholders,“ Airbus Group, accessed May 24, 2015, http://www.airbusgroup.com/int/en/investors-shareholders.html.