Too Big to Fail?

The commercial aircraft manufacturing industry is dominated by Boeing and Airbus.  Until recently, not much thought may have been given to potential unintended consequences of this dominance .  That perhaps is changing.  Airbus bet on plane—A-380 that no one wants to fly and Boeing bet on one—737 Max—that no one wants to fly.

Perhaps the current situation is just a temporary bump in the road. But in a rapidly changing world, it could also be that Boeing and Airbus suffer from holding too much of the market captive, from too cozy relationships with government, and from the unintended consequences of being too big.

The following chart shows the significant concentration in the current aircraft manufacturing industry.

This data can be slightly misleading since it includes all sizes of commercial aircraft.  When it comes to large commercial planes—seating capacity of 140 or more, Boeing and Airbus control over 90% of the market.  Both firms have worked hard to achieve their current dominance which is aided by their activities in the pollical market place.  The latter pays off handsomely. Boeing, for example, receives about 40% of Export-Import Bank funding. 

In addition, economics makes it difficult for competitors to gain inroads. Beyond, the high cost of developing a new plane, airlines have incurred large sunk costs for maintenance facilities, training, and parts.  Changing from one manufacturer to another is very expensive which make airlines reluctant to do so.

The cost of bringing an aircraft to market and the time required to develop one represent a significant market barrier.  Given the challenge of predicting the market and consumer tastes, investors have little incentive to commit billions to develop a new aircraft. There are a few exceptions.  One of which is projected shifts in passenger demand.  The International Air Transport Association estimates that over the next few decades, half of new passengers will live in Asia.  This represents a potential opening for the Chinese and perhaps the Russians to gain a substantial foothold in emerging markets.  In addition, regional jet manufacturers Bombardier and Embraer are moving into the large commercial aircraft market. While both are likely to occupy only a small share of the global market in the short run, if their new aircraft prove to be as cost efficient as promised and Boeing and Airbus continue to stumble, they can become strong competitors in the large commercial jet segment.

Boeing’s problems are not limited to the 737 Max, it is also experiencing problems in the manufacture of the Dreamliner.  It could be that the Airbus-Boeing duopoly along with substantial barriers to entry may have led to complacency, hubris and carelessness in manufacturing quality.  If that is the case, changes in the market place and a loss of confidence by the flying public may significantly weaken Boeing’s market share.


Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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