The duopoly of Airbus and Boeing: Why it’s time it was broken

It hasn’t been a good year for Boeing—with its 737 Max fleet grounded since mid-March—until now, that is. The Paris Air Show on Tuesday, June 18, brought some major relief for the aircraft giant—it signed a letter of intent of purchase of its problem-child airplanes. International Airlines Group, which owns major carriers, such as British Airways, has announced that it intends to buy 200 737 Max aircraft.

And then there’s Airbus; not to be left behind, the other aviation heavyweight, on Tuesday, revealed its designs for the longest-range narrow body airplanes—A321XLR.

These developments pose a question: why do just two companies dominate a $13-trillion market?

The dual takeover

Until a few years ago, the civil aviation manufacturing industry could easily be divided into two categories—25- to 50-seater private jets along with 40- to 100-seater smaller regional ones and the commercial passenger planes in various sizes with 150+ seats.

Quebec-based Bombardier and Brazil-based Embraer dominated the small private jet segment; Airbus and Boeing dominated the bigger and the more lucrative one.

According to Steve Pearlstein in a Washington Post article, in 2016, US-based Delta Air Lines shocked the industry by snubbing the home-grown Boeing planes for Bombardier regional jets, which had just started to encroach on Boeing and Airbus’s territory by producing smaller 140-seater jets, thus eating into their revenues.

The Delta deal was a multi-million dollar one involving 75 jets. Boeing was so desperate to stop Bombardier from entering the US market that it filed a suit against Bombardier, suggesting that the company was dumping its government subsidised technology. The court ruling was in favour of Boeing, and 300% tariff was levied on Bombardier.

It couldn’t sustain the heavy cost of developing the planes as well as the lawsuit and had to take a bailout from the Canadian government and investment from outside. This is where Airbus stepped in and took over Bombardier’s C series with a majority stake.

To stop Airbus from getting ahead in this game, Boeing then acquired the only available player in the market—Embraer—in a $4.2 billion deal.

And thus, began the Airbus-Boeing duopoly of the aviation sector.

The kings of the skies

Aircraft manufacturing is a hugely expensive game. Billions of dollars have to be invested in to build the necessary facilities; and in terms of working capital, too, one needs to invest heavily, as one 737 Max costs around $120 million.

According to the official website of Airbus, Airbus was founded to challenge the rising dominance of Boeing. The capital requirements were such that multiple countries had to pool in their resources.

The official statement reads: “At a meeting in July 1967, ministers from France, Germany, and Britain agreed, for the purpose of strengthening European cooperation in the field of aviation technology and, thereby, promoting economic and technological progress in Europe, to take appropriate measures for the joint development and production of an airbus.”

Politics and government ties are potent weapons in the arsenals of both companies; this helps them to rule decisions in their favour and heavily influence the aircraft import policies of major markets across the world.

It is not as if, over the years, no one has tried forcing their way into the market. Russia and Japan did with Sukhoi and Mitsubishi, respectively. However, both companies have failed spectacularly. Mitsubishi’s regional jet hasn’t secured a single order over the last three years, while Sukhoi’s superjet was forced to scale back its operations over contract annulments with Adria Airways and a series of crashes.

Rising threat of China and safety concerns

Nonetheless, threats loom on the horizon to break up this happy duopoly; the biggest comes from Chinese government-backed Commercial Aircraft Corporation of China (COMAC). It is expected to give heavy competition to Airbus and Boeing, having developed a wide range of planes, right from single-aisle regional jets to double-aisle commercial narrow-body aircraft.

In fact, on Tuesday, COMAC took a major step when it displayed its CBJ business model for the first time at the Paris Air Show.

According to Simple Flying, Boeing’s poor handling of the 737 Max and the negativity surrounding it could force buyers to look at options other than the usual suspects, and this is where COMAC comes in.

Boeing and Airbus have empirically been accused of not keeping passenger safety in mind while designing airplanes just to cut costs. Boeing’s 737 Max 8 was a prime target of such accusations—last October, a Lion Air flight crashed in the Java Sea, killing all 189 people on board, and this March, an Ethiopian Airlines flight carrying 157 on board was involved in a fatal crash.

According to a report in The Guardian, many pilots have also complained that Boeing’s fleet of Dreamliners has malfunctioned a small number of times while trying to extinguish engine fires.

Airbus is not in the clear either. According to Business Today, last month, IndiGo decided to move away from Airbus’s A320neo aircraft due to engine malfunctions.

Experts think it’s a good idea for China to enter the business as it is expected that in 20 years China alone will need 9,000 aircraft. This is in addition to the lucrative Asian market where there is a population boom.

China has been quietly developing C919, which is virtually indistinguishable from Boeing 737 and Airbus A320. The whole airplane has been outsourced, which indicates how desperate China is to penetrate the market. It is also speculated that it would be priced aggressively to gain market share.

Why it matters

With every passing day, air travel is transitioning itself from a luxury to a necessity in every corner of the world. The duopoly of Airbus and Boeing is a unique situation that no industry can come to even mimic.

It is welcome to have competition in the market as it’s dangerous to leave the safety and technological advancements in the industry to just two companies with even market share and who offer identical products. You never know, some day, they might mutually decide to take advantage by raising the prices of their aircraft proportionately, to rake in more profit.

And with passenger safety paramount, it’s only fair that whichever of them—the veterans or the new entrants—can offer a safe flight should get to rule the skies.

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Hemant Agarwal is a Writing Analyst at Qrius