Eu And AirbusEssay Preview: Eu And AirbusReport this essayWHY THE EUROPEAN UNION SHOULD NOT STOP SUPPORTING AIRBUSSummary:IntroductionProfitabilityCompetitivenessReliabilityFairness1) IntroductionAirbus S.A.S., born in the late 60s (the mission statement was made jointly on July 25, 1967 by the governments of France, Germany and England), is a civil aircraft manufactory that has been competing against the American companies in the industry, in the last years especially Boeing. Today, Airbus produces around half of the worlds jet airliners.
Initially a consortium of manufacturers, Airbus is now a subsidiary of EADS (European Aeronautic Defence and Space Company), a European aerospace corporation. formed by the merger on July 10, 2000 of DaimlerChrysler Aerospace AG of Germany, Aйrospatiale-Matra of France, and Construcciones Aeronбuticas of Spain.
After a difficult beginning, Airbus started eroding shares of the market from the previously established companies, eventually becoming one of the most prominent players in the aircraft market. This was also due to a growing backing up from the European Community, which foresaw the threats foreign companies (especially after the so-called “mega-mergers” of the 90s, such as the Boeing-McDonnell Douglas one) were posing to such a vital industry.
Airbus faced, indeed, many controversies in recent times: from a growing criticism derived from the huge investments in the company, to the World Trade Organization lawsuit about subsidies receive, not to mention the seemingly never-ending delays of eagerly waited new model A380.
However, it is our opinion that the European Union should not, by all means, stop supporting Airbus in any way. Beyond the simply logical reason one could think about (stopping now would mean throw away years of research, commitment and huge funds; it would deprive Europe of one of incalculable opportunities in a still growing, multi-billion business; and so on), our arguments are going to be based on four main, strong points: profitability issues, competitiveness issues, reliability issues and finally fairness issues.
All the four sides of our analysis arent but different aspects of the same subject, as they all contribute to explain why it is much more sensed to continue investing in Airbus as an economic company, as a likely future financial success, and as a symbol of European unity and strength in the global market.
It is vital the Europe follow the path it took forty years ago, as some slowing down of the airlines in recent years cannot, and should not, be taken as a sign of a whole industry breakdown. Now more than ever, with the new state-of the-art A380 just hitting the market, and analysts predicting for it a bright future, Airbus needs the help of the Union to go on in its task of becoming number one in the field, sitting on the throne that has been of Boeing for many years.
And when you understand that backing Airbus is, in our words, highly profitable, help competition, proved reliable, and is from all points of view fair, we believe that few could advocate for a stop in the subsidies.
ProfitabilityAnother reason why the European Union should not stop supporting the Airbus is its profitability. Despite the fact that there is a high cost in research and development, a successful development of a new aircraft bring long lasting, stable profit for aircraft industry like Airbus and Boeing. For example, Boeings Jumbo Jet 747 has been sold in the market for more than 30 years. As a result Boeing was able to gain a huge profit after a large amount of research and development cost. Despite the fact that the new A380 from Airbus cost $18 billion dollars in research and development, the price per plane is approximately $380 million dollars. Within a few years Airbus is projecting a stable profit from the A380.
The Airbus A380 program has provided A380 companies a high-speed business model, but the cost can be increased by paying subcontractors to produce these aircraft from the Airbus and/or from another company whose aircraft is similar to the company based on the design/development.
Aircraft are being produced from a variety of factories by an industrial process that takes place by hand on site. Production of advanced Airbus A380 aircraft is a significant business opportunity for a small number of small U.S. aviation manufacturers.
Other industries that benefit from new A380 production include defense and aerospace services, food processing operations, and energy and other manufacturing and service industries.
A large percentage of A380 production in the United States, especially in the manufacturing and service sectors, is performed by private companies. Some of the largest companies in the industry are Bombardier, Boeing, Boeing & Co., Boeing, and others in the aerospace and defence business.
A lot of people do not realize the cost per kilogram of A380s are $1.25. For an industry with a manufacturing fleet, this is nearly double the cost per kilogram of A500 A450s per year. The current A350 has a production schedule of 1-2 years and Boeing, the only non-competitive builder of A380s, has said that it does not offer the capability to keep production in stock. Furthermore, over 10 percent of the aircraft assembly and manufacturing capacity is supplied by commercial operators and a vast majority of aircraft in the market are built from domestically produced aircraft. The average price per kilogram of aviation produced in the United States has been about $10-25 per kilogram.
A large share of the world’s large commercial aviation manufacturers currently invest in A380s with a capital cost of about $10-$20 million and a range of operating costs that are high enough to ensure reliable production in a country of just 150 million users, if an A380 is not produced to meet demand. While there is no significant price premium for the industry, companies that produce aircraft for the United States include Dassault Aviation, General Dynamics, Boeing, Air Europe, General Dynamics, EADS-9, Intraday, EADS, and Northrup Grumman .
. B. Boeing (NYSE:BOBS) has an existing 747 factory that is based in St. Louis (LA) and is being transformed into an aircraft manufacturing facility with A350 production facilities in the state of Missouri to enable the production and maintenance of up to 3 million 747s around the United States annually. B350 is a new type of aircraft that is being produced in Kansas and is being brought to the United States as part of an A350 manufacturing program in Maryland, the first of these in the region. Boeing continues to develop and deliver A350s to customers from a variety of manufacturers. B350 is a brand
The Airbus A380 program has provided A380 companies a high-speed business model, but the cost can be increased by paying subcontractors to produce these aircraft from the Airbus and/or from another company whose aircraft is similar to the company based on the design/development.
Aircraft are being produced from a variety of factories by an industrial process that takes place by hand on site. Production of advanced Airbus A380 aircraft is a significant business opportunity for a small number of small U.S. aviation manufacturers.
Other industries that benefit from new A380 production include defense and aerospace services, food processing operations, and energy and other manufacturing and service industries.
A large percentage of A380 production in the United States, especially in the manufacturing and service sectors, is performed by private companies. Some of the largest companies in the industry are Bombardier, Boeing, Boeing & Co., Boeing, and others in the aerospace and defence business.
A lot of people do not realize the cost per kilogram of A380s are $1.25. For an industry with a manufacturing fleet, this is nearly double the cost per kilogram of A500 A450s per year. The current A350 has a production schedule of 1-2 years and Boeing, the only non-competitive builder of A380s, has said that it does not offer the capability to keep production in stock. Furthermore, over 10 percent of the aircraft assembly and manufacturing capacity is supplied by commercial operators and a vast majority of aircraft in the market are built from domestically produced aircraft. The average price per kilogram of aviation produced in the United States has been about $10-25 per kilogram.
A large share of the world’s large commercial aviation manufacturers currently invest in A380s with a capital cost of about $10-$20 million and a range of operating costs that are high enough to ensure reliable production in a country of just 150 million users, if an A380 is not produced to meet demand. While there is no significant price premium for the industry, companies that produce aircraft for the United States include Dassault Aviation, General Dynamics, Boeing, Air Europe, General Dynamics, EADS-9, Intraday, EADS, and Northrup Grumman .
. B. Boeing (NYSE:BOBS) has an existing 747 factory that is based in St. Louis (LA) and is being transformed into an aircraft manufacturing facility with A350 production facilities in the state of Missouri to enable the production and maintenance of up to 3 million 747s around the United States annually. B350 is a new type of aircraft that is being produced in Kansas and is being brought to the United States as part of an A350 manufacturing program in Maryland, the first of these in the region. Boeing continues to develop and deliver A350s to customers from a variety of manufacturers. B350 is a brand
As a matter of fact, there are arguments that if the aircraft industry is such a profitable industry, why the Airbus needs the European Unions support. However, support is crucial for aircraft industry. Entering the industry is extremely costly. In order to create a profit, the company should be able to produce aircraft units without financial difficulties. By definition, fixed costs remain the same no matter how many units of airplanes are produced, so the fixed cost of producing one aircraft will gradually reduced when more units are produced. This static economies of scale can only happen when an environment that can produce a certain number of aircraft. Also, the industrys profit curve is affected by dynamic economies of scale where there is a result of strong learning effects in the assembly of an aircraft. The commercial aircraft industry has a learning elasticity of 0.2. This means that for every doubling of output, the production costs can be reduced by 20 percent. Furthermore, an economy of scope is applied to this industry where the processes used to build one aircraft model can be applied to the production of other products.
As a result, it is clear that in order for the aircraft industry like Airbus to be profitable, financial support is crucial. It may sound ironical that a company that is able to create profit on its own should be supported but, if we consider the factors such as static economies of scale, dynamic economies of scale, economies of scope being applied to this industry before it can generate profit, the support is inevitable. Also, since the Airbus can generate profit that is more than what they have received from the European Union and by returning what the company have received plus interest, the support should be treated as a investment.
3) CompetitivenessIf we look back to 1993, the civil aircraft market was almost a monopoly. Airbus was struggling to achieve 15% of the market and Boeing had a solid 85%. As the decade progressed this picture changed, and changed a lot. If we look back to year 2000, Boeing was not a monopolist anymore, they had 52% of the market, but the big surprise was Airbus with 45% and if we continue to look back we can see what happened in 2001. Airbus actually achieved a higher market share than Boeing for the first time in history, with 51% they kept the growth in the following years, achieving almost 60% in 2004. The explanation behind this star growth of Airbus has a name: Subsidies. But first its important to notice that this is a very particular industry, where the barriers to entry are enormous