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Boeing Vs Airbus

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Sarah Zimmermann

on 28 March 2013

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Transcript of Boeing Vs Airbus

Boeing vs Airbus The Debacle Founded: 1970 as Economic Interest Group (government initiative between European nations)
Fact: Over 12,300 aircraft ordered by international customers (including American Airlines, Delta Airlines & United Airlines)
CEO: Fabrice Bregier
COO: Gunter Butschek In the 1980's and early 1990's, both Boeing and McDonnell Douglas argued that Airbus had unfair competitive advantage due to government subsidies received from Great Britain, France, Germany, and Spain.

Support: US Department of Commerce said Airbus received more than $13.5 billion in government subsidies between 1970 and 1990. Founded in 1916 by William Boeing
Merged with McDonnell Douglas in 1997
Accounts for 75% of the worldwide fleet in service Vision: People working together as a global enterprise for aerospace leadership President & CEO: Walter James McNerney, Jr. In 1993, President Clinton repeatedly bashed the European Union for allowing subsidies of Airbus to continue and called for a renegotiation of the 1992 agreement. 1992 Bilateral EU-US Agreement
on Trade in Large Civil
Aircraft Allowed the EU and US to provide a certain level of support to their respective aircraft industries; including, repayment of loans with interest and R&D support. The Settlement Boeing Airbus Compliance period and compliance report
US failures
A request from the EU
The future? Sanctions? WTO overturns findings in support of EU
Other "actionable subsidies"?
A request from the US
Litigation continues . . . The Dispute Continues Missouri Senator John C. Donfourth and Montana Senator Max Baucus co-sponsored legislation requiring the U.S. government to launch a trade case against Airbus. They sponsored a bill to create an industry consortium called Aerotech. Why is Boeing Upset? Boeing put the combined value of all the subsidies Airbus received at $205 billion. Bob Novick: Airbus is abusing it's RLI, or "launch aid". It's success is due to the A380. The Feud Continues In 2005, the US & EU agreed to freeze direct subsidies. Even after this agreement, Airbus applied for more launch aid. The US then filed suit with the WTO with the EU following suit shortly thereafter. During WWI, mail planes were subsidized
During WWII, most plane production was subsidized.

Q: Why have subsidies still continued for Boeing?
Ex: B-17, B-29, B-47, B-52, K-1 35 In 1996, Boeing announced it would merge with rival McDonnell Douglas. It was expected that the anti-trust authorities would review the merger, because it would reduce the number of players in the commercial aerospace industry from three to two. Airbus was initially indifferent. Commissioner of the EU signaled that the EU would launch a probe of the merger.

Original concern was that there would be collusion between the companies.

Although he could not stop the merger, he could declare it illegal. European Commission Statement:
The merger would restrict competition in the commercial market, and government funding would be used inappropriately.

Boeing's response:
McDonnell Douglas accounted for only 3% of commercial airline sales. The issue was regulated by the trade agreement, and Boeing agreed it would not enforce the provisions in the
20 year contract. Boeing Also Received Aid The Merger The EU Responds A Decade of Trade Disputes Q: Based on what we know about new trade theory and first-mover advantage, could Airbus have become a viable competitor without government intervention (i.e. subsidies)?

Q: Considering the current position of the Airbus and Boeing disputes in the WTO what do you think is the future of the two companies? Airbus Fights Back Argued that Boeing continued to receive "lavish subsidies" - including up to $12 billion from NASA
Boeing would receive $3.2 billion tax breaks from Washington state where the new 787 would be assembled.
They would also receive $1 billion in loans from Japanese suppliers. 2004-2005 2004-2005 1996-1997 1980s-1992 1980s-1992 2005-present "We remain united in our determination that this dispute shall not affect our cooperation on wider bilateral and multilateral trade issues. We have worked together well so far, and intend to continue to do so." - Join EU-US Statement New Trade Theory (Krugman) 1. through impact on economies of scale, trade can increase variety of goods and decrease cost of production
2. global market may only be able to support a small number of enterprises
3. generates for government intervention and strategic trade policy
4. stresses the role of luck, entrepreneurship, and innovation (first-mover advantage) Ex: the aircraft industry State of the Art Technology
Systems For Flight Control

Marketing Efforts
Wide-bodied twin-engine aircraft
150-seat market
250-300 seat airliners Our Success Is Not Due to Subsidies 1980s-1992 Works Cited "Background Fact Sheet: WTO Disputes EU/US Large Civil Aircraft."
European Commission, 11 Oct. 2012. Web. 27 Mar. 2013. <http://trade.ec.europa.eu/doclib/docs/2010/september/tradoc_146486.pdf>

"European Communities - Measures Affecting Trade in Large Civil
Aircraft." WTO, 13 April 2012. Web. 27 Mar. 2013. <http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds316_e.htm>

"International Trade Theory." Global Business Today, 7th Ed.
McGraw-Hill. 2011. 27 Mar. 2013.

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