Wednesday, 5 August 2009

On the wings of a pair

The maiden flight of Boeing’s new 787 aircraft has been delayed – again. It was meant to enter service in May 2008, but will not even get airborne for the first time at all this year, and now is unlikely to enter service before the end of 2010 – more than two years late.

If, dear WATMers, you think that this post is going to be a screed about Airbus’ superiority over Boeing, you’d be wrong. Airbus’ mega-jumbo A380 suffered similar delays, and the company’s delivery schedule has been paired down so that only 18 of the aircraft will be delivered to airlines in 2009 – a paltry number really.

This is very frustrating for airlines. Clearly aircraft acquisition is one of the major costs for an airline, and decisions are taken carefully and seriously. To make such decisions and then see the planning proved useless by delays in delivery causes huge inefficiencies in the air travel industry. It is also virtually impossible to switch suppliers as a result of such delays when airlines have committed to a fleet strategy and have committed serious cash to getting the job done.

Neither the airline business, nor the consumer, is well served by the effective Boing/Airbus duopoly. You want a medium-to-long-haul medium capacity airliner? Well you’ll be going for the B767 (or its newer replacement) or the A330 (or its newer replacement). While it is true there is fierce competition between the two manufacturers, there is almost no other company competing for that market, or for the large-capacity airliner market anywhere in the world. I’m going to go out on a limb and say that I don’t think Ilyushin or Tupolev will get many orders from the West any time soon.

Other American manufacturers like McDonnell Douglas and Lockheed used to be in the large civil airliner business too before they were bought up by Boeing, or gave up the passenger transport game respectively.

There are some pesky little irritants like Brazil’s Embraer who are just about competing with the A320 and B737 series at the larger end of their E-Jet series, and have had some success attracting airlines like LOT Polish, but they are very much at the periphery.

And there is a lot of competition between companies at the regional-jet end of the market where the big two choose not to operate.

Innovation, efficiency and customer service (for the client airlines) would all undoubtedly improve with a third or fourth competitor. In particular, efforts to make air travel less environmentally damaging could and should be massively improved. It is a shame that a new large aircraft manufacturer looks unlikely to emerge given the astoundingly difficult market entrant requirements.

However, a political prescription, and a practical policy which should emanate from this discussion, is that, given the relatively healthy market environment that these two firms operate in, there really is very little justification for the continued state support they both receive in terms of massive government contracts (although from whom else military transports could be bought is another question left unresolved) and direct grants as Airbus has had.

Boeing and Airbus are both interesting and innovative companies kept on their toes by the presence of the other. They would both be better still if their competition was broader, though.


Anonymous said...

Dear Rick,

You forgot to mention Bombardier (pronounced bombardeeay) which is the third largest commercial aerospace manufacturer in the world and based in Montreal, CANADA!

Also would it not be prudent for the government to consider the application of anti-monopoly legislation to break up these companies or at least stop them from their ever constant take-over of smaller competitors to prevent them from gaining significant independent marketshare?


RJT said...

Dearest Wes,

Actually, I had not forgotten about Bombardier, but they are not a competitor to the duopoly in that they only manufacture regional jets and turboprops. The CRJs are lovely, though.

I did mention that there is some competition in the RJ business and the Canadians are certainly part of that. BAe Systems and Fokker used to make good regional aircraft too but have given up recently which is a shame. The lower end of Embraer E-jet series is very exciting in that section of the market too.


Anonymous said...

Dearest Rick,

It is good that you recognize the importance of Canadian manufacturers in the aerospace industry. But I did notice that you skipped over the second point I made where I raised a question as to whether or not the government should consider breaking up these large duopolies or at least stop them from engaging in price-wars with or take-overs of smaller companies?


RJT said...

Boeing should not have been able to take over McDonnell Douglas, that's for sure. Breaking up already exisiting companies is another issue though.