Boeing and Airbus: A Duopoly Market

The aerospace industry is a driving force of technology and innovation. At the top of this industry, at least in the field of airplane manufacturers, are Boeing and Airbus, headquartered in the US and the UK respectively. These two companies create a duopoly model, each competing with the other fiercely to manufacture planes that carry passengers all around the world. For decades, these rivals have stayed neck in neck with each other, manufacturing very similar airplanes, both trying to stay on the cutting edge of fuel efficiency and passenger safety. In general, Boeing supplies most of the United States’ airlines with their planes, and Airbus supplies most of the UK’s airlines with their planes. But both companies fly planes in each other’s territory and Boeing and Airbus compete fiercely with each other in foreign markets.

Both companies have had strong safety records, and for a long time Boeing and Airbus’s aircraft have been virtually indistinguishable from each other. But, a recent controversy has shaken up this long standing balance of safety and efficiency for Boeing. On March 10, an Ethiopia Airlines flight crashed in Ethiopia killing 157 people (including 21 United Nations officials). The plane that crashed was a new Boeing 737 MAX 8 model.

This crash is significant because the Boeing 737 MAX 8 is the same plane model that crashed in Jakarta Indonesia six months ago, killing 189 people. In both crashes, the Boeing 737 MAX 8 planes were practically brand new.

As a result of two very similar crashes in a relatively short time span involving the same model of plane, Boeing has taken very bad press over the past three days. As of writing this article, China, the UK, France, Germany, Australia, Singapore, Indonesia, Malaysia, and Oman. have grounded all Boeing 737 MAX 8 planes. Additionally, the United States FAA has announced that after an investigation, it may also decide to ground all Boeing 737 MAX 8 planes.

This is a huge development, because the Boeing 737 is the world’s best selling plane, and the MAX 8 model will make up nearly 90 percent of 737’s produced in 2019, according to Boeing, with nearly 4,700 737 MAX series planes having been ordered thus far.

As a result of this new crash and the planes no longer being allowed to take off in several countries, Boeing’s stock decreased 14% on March 11(and hasn’t recovered since then). This is the first time in a long time that there has been distinguishable difference between Boeing and Airbus. The common ground that each company had was their safety record, and with Boeing’s planes becoming considered less safe, there is an opportunity for Airbus to capitalize and grow its portion of the market share.

It is possible that this will just be a bad blip in the history of Boeing’s safety record, and the duopoly between Airbus and Boeing will continue. But, if investigations reveal that Boeing’s aircraft are unsafe, there could be a major market shift towards Airbus, which would mean a monopoly market could form.

Since the aerospace industry is such a driving force of technological innovation, competition is crucial. In a monopoly market without competition to drive innovation, Airbus can rely on economies of scale to keep would-be rivals from entering the industry and forcing Airbus to innovate. For the good of aerospace innovation and good old fashioned competitive markets, let’s all hope Boeing’s planes are proven to be as safe as their reputation has led us to believe they are.

About David Shireman

David is a third year economics major at the University of Puget Sound.

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