The aircraft industry is a capital intensive business sector with high entry barriers1 and hence only a handful of competing companies worldwide. If we narrow the scope down to the construction of large long haul aircraft, we could even speak of a global duopoly between the EADS subsidiary “Airbus” (headquarters in Toulouse, France) and Boeing’s subdivision “Boeing Commercial Airplanes” (headquarters in Renton, United States). However, the field of competition gets broader once we consider product such as private jets (Bombardier, Gulfstream, Dassault Aviation), air freighters or military aircraft (JSC United Aircraft, Lockheed Martin, Mitsubishi Heavy Industries, BAE Systems). Our study would like to focus mostly on the industry sector for large long haul aircraft, while still referring to all industries mentioned above and taking hence a comparative approach to some extent. We will try to consult materials of all mentioned companies for this research.
We however excluded the helicopter and the astronautic industry from this research, though we admit that these industries are highly related to our topic and often even represent subdivisions among the very companies we will analyze.
The aircraft, if seen as one kind of product, is still on its phase of growth. Both Boeing and Airbus expect the global number of airplanes in use to double within the upcoming 20 years.2 And it is an industry that has seen a huge concentration process through various mergers and acquisitions since the 1990s3, and in the recent years the trend towards outsourcing intensified. This led to complicated supply chains on a global scale, which we will introduce later in this analysis.
1.2 Competitive strategies
The aircraft industry is intensely competitive. These century following deregulation saw many attempts at innovation, some of which were adopted for a time, proved successful, and then were replaced by refinements and subsequent innovations. Evolutionary forces were driven by technological innovation, innovative business practices, and by changes in institutional policies toward air travel. There were a number of experiments with new business models, innovations that improved efficiency, and practices that led to the reshaping of market segments. The period saw business strategies designed to increase monopoly power (gate control), then other strategies that brought on competition and ultimately, undermined monopoly power. There was gradual change in some markets and disruptive change in others, and when seen as a mosaic of competitive evolution, few industries have undergone more change in less time. Looking back, it is possible to see these changes as phases, characterized by experiments with new business models, where the learning gained in one phase created conditions that brought on subsequent experiments and later change. For illustrative purposes, we group these phases into the initial deregulatory stage that led to the emergence of hub control, the deregulatory phase that saw the appearance of different approaches to low-cost service and the evolution of quality as a standard, and, finally, the erosion of hub control that placed previously-dominant legacy carriers in a precarious position, at the mercy of smaller, later entrants. Seen this way, the changes in airline industry offer generalizable insights into competitive evolution and industry development. What follows is at how the search for evolving advantage on the part of individual companies can contribute to innovation and economic progress.
Boeing's strongest argument is that the air-travel market is fragmenting. People want to travel direct to their long-haul destinations, not squeeze into huge planes before changing later to smaller ones at crowded hub airports in order to reach their final destination4.With this in mind, Boeing argues that there will be very little interest in developing aircraft that are bigger than the current 747.
