Boeing Versus Airbus :Two

decades of trade disputes
Group No. 7
IB
Introduction
• This case deals with the trade disputes between
two leading commercial aircraft manufacturers
• Boeing & McDonnell Douglas accounted for 2/3
rd

of the world’s market share between 1980s till
mid 1990s
• Boeing was the largest net contributor to the
balance of trade, largest exporter and employed
a large amount of americans.
• Airbus industrie – Consortium of 4 European
aircraft manufacturers
Industry Competitive Dynamics
• Key factor which drives competitive dynamics in
the commercial aircraft industry is the cost of
developing (Boeing’s 777 v/s Airbus’s A380)
• Long period of time incurred to break even as
well as swelled up volume of sales required
• Significance of experience curves
• Boom & bust cycles of commercial airlines
business – Volatile Sales
• Market can support only two to three major
producers


Trade Frictions Before 1992
• Allegations of unfair Competitive advantage
garnered by Airbus through subsidies by GB-F-
G-S
• Airbus’s response – good product & strategy
• Boeing’s US govt. support (DoD , NASA)
• Boeing rejects claims of the European
Commission report.

The 1992 Agreement
• 1992 pact – overseen by EU - limited direct govt.
subsidies to 33% - repaid with interest within 17
years – 3-4% indirect subsidies
• In 1993, President Clinton criticized EU for
allowing subsidies – but the US industry did not
react
• Engines and avionics of Airbus was sourced from
the US
• Danforth & Baucus’s launch of a trade case
against Airbus & aerospace consortium
“Aerotech” fail to materialize

The Boeing-McDonnell Douglas
Merger
• Merger between Boeing & ailing McDonnell Douglas

• US FTC & Competition Commission of EU

• Karl Van Miert and objections laid by CC of EU
- Restriction of competition in commercial jet aircrafts
- Reverting Defence funds to commercial jet aircrafts
- Supplier agreements with American Airlines, Delta &
Continental

• FTC locks horns with European Commission

• Boeing bends its knees to Van Miert
Back to the Future : 2005
• The late 1990s were turbulent to Boeing, but by 2000s
it slowly started getting back on track
• Boeing introduces 787s
• Airbus introduces A380
• Robert Zoellick renounces the 1992 pact
• Boeing & Airbus starts lashing out on each other again
and finally the problem is taken to the WTO
• US’s request to WTO states to resolve the issue
• EU files a countersuit claiming that US’s aid to Boeing
exceeded the limit prescribed in the 1992 agreement.