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Chapter 2: External Analysis: The Identification of Opportunities and Threats Closing Case The Market for Large Commercial Aircraft
Book Title: Strategic Management: An Integrated Approach Theory & Cases
Printed By: Preeti Mutiara Binti Yacob (preetimutiaray@tarc.edu.my)
© 2017 Cengage Learning, Cengage Learning

Chapter Review
Closing Case The Market for Large Commercial Aircraft

Two companies, Boeing and Airbus, have long dominated the market for large commercial
jet aircraft. Today Boeing planes account for 50% of the world’s fleet of commercial jet
aircraft, and Airbus planes account for 31%. The reminder of the global market is split
between several smaller players, including Embraer of Brazil and Bombardier of Canada,
both of which have a 7% share. Embraer and Bombardier, however, have to date focused
primarily on the regional jet market, building planes of less than 100 seats. The market for
aircraft with more than 100 seats has been totally dominated by Boeing and Airbus.

The overall market is large and growing. In 2014, Boeing delivered 723 aircraft and Airbus
delivered 620 aircraft. Demand for new aircraft is driven primarily by demand for air travel,
which has grown at 5% per annum compounded since 1980. Looking forward, Boeing
predicts that over the next 20 years the world economy will grow at 3.2% per annum, and
airline traffic will continue to grow at 5% per annum as more and more people from the
world’s emerging economies take to the air for business and pleasure trips. Given the
anticipated growth in demand, Boeing believes the world’s airlines will need 37,000 new
aircraft between 2013 and 2033 with a market value of $5.2 trillion dollars in today’s prices.

Clearly, the scale of future demand creates an enormous profit opportunity for the two main
incumbents, Boeing and Airbus. Given this, many observers wonder if the industry will see
new entries. Historically, it has been assumed that the high development cost associated
with bringing new commercial jet aircraft to market, and the need to realize substantial
economies of scale to cover those costs, has worked as a very effective deterrent to new
entries. For example, estimates suggest that it cost Boeing some $18 to $20 billion to
develop its latest aircraft, the wide bodied Boeing 787, and that the company will have to
sell 1,100 787s to break even, which will take 10 years. Given the costs, risks, and long time
horizon here, it has been argued that only Boeing and Airbus can afford to develop new
large commercial jet aircraft.

However, in the last few years, three new entrants have appeared. All three are building
smaller narrow-bodied jets with a seat capacity between 100 and 190. Boeing’s 737 and the
Airbus A320 currently dominate the narrow-bodied segment. The Commercial Aircraft
Corporation of China (Comac) is building a 170- to 190-seat narrow-bodied jet, scheduled
for introduction in 2018. To date, Comac has 430 firm orders for the aircraft, mostly from
Chinese domestic airlines. Bombardier is developing a 100- to 150-seat plane that will bring
it into direct competition with Boeing and Airbus for the first time. Scheduled for introduction
in late 2015, Bombardier has 243 firm orders and another 100 commitments for these
aircraft. Embraer too, has developed a 108- to 125-seat plane to compete in the narrow-
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bodied segment, the E-190/195. It has taken orders for 720 of these aircraft, 640 of which
had been delivered by late 2014. The new entry is occurring because all three producers
believe that the market for narrow-bodied aircraft is now large enough to support more than
Boeing and Airbus. Bombardier and Embraer can leverage the knowhow they developed
manufacturing regional jets to help them move upmarket. For its part, Comac can count on
orders from Chinese airlines and the tacit support of the Chinese government to help it get
off the ground.

In response to these competitive threats, Boeing and Airbus are developing new, more fuel-
efficient versions of their own narrow-bodied planes, the 737 and A320. Although they hope
their new offerings will keep entrants in check, one thing seems clear: with potentially five
producers rather than two in the market, it seems likely that competition will become more
intense in the narrow-bodied segment of the industry, which could well drive prices and
profits down for the big two incumbent producers.

Sources: R. Marowits, “Bombardier’s C Series Drought Ends,” The Montreal Gazette,

December 20, 2012; D. Gates, “Boeing Projects Break-Even on 787 Manufacturing in 10
Years,” Seattle Times, October 26, 2011; Boeing Corporation, “Current Market Outlook
2014–2033,” www.boeing.com/commercial/cmo/; D. Cameron, “Boeing delivers record
number of jets in 2014,” The Wall Street Journal, January 6, 2015.

Case Discussion Questions

1. Explain why the wide-bodied segment of the large commercial jet aircraft
industry can only profitably support two players at present. What are the
implications of your answer for barriers to entry into this segment?

2. Are entry barriers into the narrow-bodied segment the same as those into the
wide-bodied segment? Explain your answer?

3. Given future projections for demand, how do you think the industry as a whole
will do over the next twenty years? How might your forecast differ for the wide-
bodied and narrow-bodied segments?

4. If you were a new entrant into the bottom part of the narrow-bodied industry,
as are Comac and Bombardier, what would be your long- term development
strategy?

5. What can Boeing and Airbus do to deter further entry into this industry, and/or
keep new entrants boxed into the bottom end of the market (that is, smaller,
narrow-bodied jets)?

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Chapter 2: External Analysis: The Identification of Opportunities and Threats Closing Case The Market for Large Commercial Aircraft
Book Title: Strategic Management: An Integrated Approach Theory & Cases
Printed By: Preeti Mutiara Binti Yacob (preetimutiaray@tarc.edu.my)
© 2017 Cengage Learning, Cengage Learning

© 2019 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means -
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