Boeing and Airbus, the new ‘super duopoly’
sfgate.com
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Simply put, to each respective party, having the domestic aircraft company have a leg up over the other is paramount, while they waffle over the other's grocery stores [1] or delivery companies [2].
[1] https://www.ftc.gov/enforcement/cases-proceedings/151-0175/k... [2] https://www.nytimes.com/2018/02/26/business/dealbook/ups-tnt...
There was a brief period of competition in the late 70s / 80s when Airbus and Lockheed were trying to be different. Order was soon restored, then came the 90s with the regional jet fad and the rise of Embraer and Bombardier.
But now we're back to a big duopoly. Ilyushin are still around but only Cuba still buys from them. The next shake-up will come from China; once their civil aviation designs reach the sophistication of their military aircraft they'll start earning orders across Asia, then Europe..
China feels almost like a first world nation at this point (albeit a weird one).
India, even in the most prosperous/developed city is still essentially a crappy 3rd world place.
I don't think India will naturally follow the progress China has made, and I definitely don't think amazing manufacturing will suddenly spring up from nowhere in India.
(Just paraphrased what he said, I've never been in India).
Having friends here now I want to see them succeed but at this point most of them that can figure out how to leave here, do.
As an Indian, I would say you are right. India is attempting to skip several cycles of progress and arrive at the end result. There are also deep socio-economic problems to solve.
A more important problem is that quality of Human resources. Things like infrastructure are easier to fix compared to building a educated, civilized and highly trained workforce.
>>I don't think India will naturally follow the progress China has made
The Chinese kind of politics is impossible in a country as diverse as India. If you force through you only end up breaking the country. So we will never have a single party, single flavor rule in India.
And as mentioned in a comment above the first-world sections are mainly the large cities, the countryside is still essentially third-world conditions.
Plus recently it seems China has become very increasingly anti-Western, this man has lived there 12 years and has said recently a strong anti-Western vibe has begun to be noticeable.
The biggest problem is that india has a mindset problem. They, especially their leaders, academics, etc do not see themselves as a major nation. It's why india is still part of the british commonwealth.
> The Chinese kind of politics is impossible in a country as diverse as India. If you force through you only end up breaking the country.
That's the mindset I was speaking of. Indians themselves see progress as impossible. Also, China is a diverse nation as well, that hasn't prevent them from organizing and progressing.
What india needs is a healthy dose of nationalism and learn to stand on her own. But that will never happen as long as india is subservient to britain. India has a world of potential and none of the execution. All because of the mindset of the leadership and the people. It's tragic.
Boeing made an strategic offer to acquire Embraer this year, before Embraer makes a dent on their market, but since it's a government controlled company there's a good chance it won't take the offer.
Though the most recent news on this says the deal is in advanced stages (according to Estadão). Apparently, it's likely to happen, given the appointment of a government representative to the board of the newly-formed company.
[0]:https://en.wikipedia.org/wiki/Sukhoi_Superjet_100
[1]: https://en.wikipedia.org/wiki/2012_Mount_Salak_Sukhoi_Superj...
China's AICC is also buying the rights to produce An-225s, including the tooling and training, supposedly in order to jump forward a bit more on engine tech (the C919 will use CFM Leap engines built overseas.
Russia and China have a bit more leverage to get their airlines to buy home-grown aircraft.
What is the reason for it, corruption or incompetence?
Anti-trust laws are there to prevent exactly such kind of outcomes, yet they seem to be mostly broken.
I do know that the US government did side with Bombardier (CA) from a Boeing (US) lawsuit: https://www.cnbc.com/2018/01/26/boeing-loses-trade-case-over...
So it seems anti-trust is at least a "threat-in-being".
For every new airplane manufacturer, there are huge additional fixed costs. Why does the world need two very similar planes, such as the Boeing 737 and the Airbus A320? If there was only one plane manufacturer, the plane development costs would roughly halve. And of course, if there is to be a third manufacturer that produced a 737/A320 competitor, the worldwide total plane development costs would increase by 50%!
To put some example numbers here: say there is a total demand for 100 planes to be bought, and it costs $1000 for Boeing and Airbus each to develop their own plane. That means the total fixed development costs per plane are $1000 * 2 / 100 = $20. Now let's say a third manufacturer enters the market, and each company will get 33.3 of the 100 plane orders. Now fixed development costs per plane are $1000 * 3 / 100 = $30. The fixed cost per plane actually increased 50% with a new competitor!
I'm not saying that we should only have one airplane company - as market forces usually not work well with monopolies. I'm only saying that increasing competition is not always good for consumers.
More info: https://www.investopedia.com/terms/n/natural_monopoly.asp
Commercial jets are not indistinguishable commodities, there is a ton of variation in design and mission ideologies (control systems, materials, hub-and-spoke vs point-to-point, etc.)
The type of goods and barriers to entry are more similar to e.g. car manufacturing than to utilities like ISPs.
If Boeing and Airbus weren't artificially inflating administrative barriers to entry we'd definitely have more competition, and consumers would benefit, not suffer.
From the article: "For Bombardier, development of its new C-Series of planes took more time and more money - $6 billion in all - than it had anticipated, requiring what amounted to a bailout from the governments of Canada and Quebec."
Stop and parse that for a second.
Basically, there is no evil doing in being a leader. This is clearly not the case for Boeing and Airbus because both have ties with military and state actors, but maybe in a free-market scenario it wouldn't be so different to what we have today.
"There is no evidence of the "natural-monopoly" story ever having been carried out — of one producer achieving lower long-run average total costs than everyone else in the industry and thereby establishing a permanent monopoly."
The vast majority of economists agree that natural monopolies exist, and economic theory from Adam Smith on describes how they form. To believe that the "entire economics profession" has failed to find a single historical example implies not only that the vast majority are wrong, but they're willfully ignoring the evidence (presumably because they hate freedom).
Additionally, the fact that nobody has shown a monopoly that didn't involve government somewhere along the line isn't evidence that monopolies don't exist without government, because governments have been involved in every private company ever created. It's like assuming "people would live forever if they never drank water, because everyone who ever drinks water eventually dies".
Norfolk Southern from a cursory look at its Wikipedia page may have a local monopoly on rail transport of coal on North Anerica’s East Coast. This will enable it to charge slightly higher than competitive prices. It will not enable it to charge profit maximising monopolist prices because other companies can build their own rail lines and coal can be transported by truck. Local monopolies are contestable. You may have no actual competition but the price you can charge is limited by the fact that if you charge enough potential competition will become actual competition.
The concept of natural monopoly does not depend on government or private companies. It depends on minimum efficient scale being more than half of a market. If even the monopoly on violence, the core characteristic of a state, is not a natural monopoly, what is?
The evidence that no one has successfully contested Norfolk Southern is evidence that it's a natural monopoly. The burden is on you to show that it's possible and there's some other reason it hasn't happened (and why it's okay that the free market is allowing a monopoly to exist).
>If even the monopoly on violence, the core characteristic of a state
Not sure why you brought this up. Can you explain how this relates to your argument?
If you search for Norfolk Southern competitors the following names come up, Union Pacific, Canadian National Railway Company, CSX Corp, Canadian Pacific Railway and Kansas City Southern[0]. Whatever that is it isn’t a natural monopoly.
Violence has high fixed costs and relatively low marginal costs. If the efficient number of states, violence monopolists, is so much greater than one why would we expect anything else to be a natural monopoly?
[0]http://financials.morningstar.com/competitors/industry-peer....
traditional economist answer: without competing market forces, there would be no pressure for innovation? the high efficiency engines that customers have pressed for from the engine manufacturers, and other improvements which resulted in the 737MAX and a320NEO would not exist if there was a single monopoly small airplane. If there was a single monopoly small airplane people would probably be still flying around in a level of technology/fuel efficiency similar to a legacy 737-400.
Here's his essay where he expands on it: https://www.wsj.com/articles/peter-thiel-competition-is-for-...
Innovations and new discoveries somehow bring down the cost despite an increase of competitors. Having multiple competitors provide an alternative when one company chooses a design that has unforeseen problems: https://www.reuters.com/article/us-rolls-royce-hldg-engines/...
The "second-to-market" might also learn from the mistakes of the "first-to-market". This happened when IBM entered the PC industry in the early-80s. Compaq and DELL later when on to find ways to sell PCs cheaper than IBM.
Boeing is having trouble with some of the engines of the 787 (Dreamliner). It might have something to do with the bleedless air system they chose. While Airbus went a different direction with their A350. Boeing chose to use composite materials to save on weight and allow for more air pressure and humidity. Airbus followed up with the A350 because of the Dreamliner popularity, but chose a more conservative design in some areas.
Either way, the airlines that buy (ie finance) either one will save on fuel costs compared to previous models. With the "increased cost" of more than one competitor, airlines have a choice to help them deal with risks of a new design... and adapt to changing market conditions.
(Disclaimer: I am not an engineer or economist.)
Soviet Union bureaucrats also thought like this: Too many competitors is inefficient. We will save resources if we just have one shoe provider. Cut to the future: Russians notice how tiny Japan can build a better television than the might of the entire Soviet Union: http://articles.latimes.com/1987-02-01/local/me-580_1_televi...
if you really want to see "new engine trouble", compare the following engines' sales and recalls:
shitty engine, skip down to the engine removals section: https://en.wikipedia.org/wiki/Pratt_%26_Whitney_PW1000G
non shitty engine: https://en.wikipedia.org/wiki/CFM_International_LEAP
the CFM1000 has been a nearly unmitigated disaster for PW. Massive defects and removals from aircraft/recalls. It's reflected in its sales numbers compared to the LEAP as well.
So what you are saying is, the 787 engine problems isn't as bad as they seem compared to these other engines?
Any thoughts of the Rolls-Royce Trent XWB compared to the 787 engines?
If you're an airline and you want a 787 from Boeing, they'll offer you a choice of engines: you can get either the Rolls-Royce Trent 1000, or the General Electric GEnx.
The current issue is corrosion and fatigue in the blades of RR Trent 1000 engines, which has nothing to do with the bleed-air versus bleedless thing. And isn't the first time Rolls-Royce engines have had problems in recent years. The Qantas incident in 2010 involved an uncontained engine failure of a RR Trent 900 on an Airbus A380, and similarly triggered a massive surprise maintenance burden for A380s fitted with Rolls-Royce engines. That's what 787 operators who chose Rolls-Royce are facing now, though the majority of 787s delivered have had GE engines.
1. about 40% of direct flight costs, which are 50% of overall costs: https://www.icao.int/MID/Documents/2017/Aviation%20Data%20an...
...But even if you considered all of that 10% profit margin comes from the powers the duopoloy affords them, then that's only 2% of airline costs (10% Boeing profit * 20% of airline cost).
> The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.
Oh.
It's more a case of resource distribution and inter-national bridge-building.