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The Creation of Airbus

Airbus was founded in 1970 as a consortium of four European aircraft manufacturers.

British (20%), France (37.9%), Germany (37.9%), Spain (4.2%) In 2000 , Airbus made the transition from a consortium to a fully functioning private entity known as European Aeronautic Defense & Space Company (EADS).

Boeing And McDonnell Douglas

Until 1980, they dominated the market.
Boeing acquired McDonnell Douglas for $13.3 billion.

It is the largest US exporter and contributes enormously in US employment.

Cost of developing a new airliner are enormous.

Company must capture a significant share of world

demand to break even.

Unit cost disadvantage. Demand for aircraft is highly volatile. High fuel cost.

Industry can support only a few major players.

Boeing profit were poor during the late 1990s and

early 2000s.

Trade Frictions Before 1992

Boeing and McDonnell argued that Airbus sets

unrealistic low prices, offer concessions, due to subsidies it receive from governments of Britain, France, Germany, Spain. Subsidies were in the form of loans at below market interest rates, tax breaks etc. Airbus argued that Boeing and McDonnell benefited from US govt. as planes built during world wars were highly subsidized.

1992 Agreement
Direct Govt. subsidies were limited to of total cost of developing a new aircraft. Indirect Govt. subsidies were limited to 3% of countrys annual commercial aerospace revenue. In the year 1993, Bill Clinton wanted to renegotiate the 1992 agreement because he thought that this was creating job losses in the US. US remained silent because airbus equips its aircrafts with avionics from US companies.

Two US Senators John C. Danforth & Max Baucus attempted to reopen the trade dispute with the suggestion of two bills. A case on Airbus on the charges of unfair subsidies. Formation of Aero Tech (half funds from the govt. & half from the industry) US Vice president said this is an Administration Priority. Both the bills ( charging a case & creation of Aero Tech) failed in the committee hearings

Boeing McDonnell Douglas Merger

Boeing announced it would merge with rival McDonnell Douglas.

Merger was driven by Boeing.

Douglas had been losing market share. U.S Federal Trade Commission (FTC) & Competition Commission of the European Union Investigate the merger. Boeing McDonnell Douglas combination was

necessary to create a strong U.S. competitor in a competitive global marketplace.

In justifying the probe, EUs concern was of the competitive market situation. European Commission stated that merger raised 3 principal concerns : Restrict competition for large commercial jet aircraft. McDonnell Douglass extensive defense and space activities.

Sole supplier agreements with 3 major U.S. based airlines restricted competition.

Federal Trade Commission issued its own ruling on the merger. 4- to-1 decision, FTC panel recommended to give the merger unconditional approval. FTC, concluded McDonnell Douglas was no longer a viable competitor.

Boeing stated that it would not enforce provisions in the 20yr supplier contracts.
On July 23, Van Miert announced that the

European Commission would now approve the merger.

Post Merger
Boeing went through a period of financial turmoil as it tried to rapidly ramp up deliveries. It came up with a model 787, built using composite material & super efficient jet engines which are ideal for long haul point-point

flights. Airbus came up with super jumbo jet A380, wherein passengers will fly through hubs. Robert Zoellick, US Trade Representative, called up for an end to launch subsidies in 1992 agreement.

He claimed that Airbus receive $3.7 billion in launch aid and $2.8 billion in indirect subsidies. Airbus shot back that Boeing enjoy lavish subsidies like $12 billion from NASA, tax breaks, loans from Japanese Govt. In 2005, US and EU agreed to freeze direct subsidies.

Thank You
Nidhi Jakhar Komal Chaudhary Payal Chauhan Komal Nayyar Nandini Maheshwari