University of Dhaka

Faculty of Business Studies

Department of Management
International Business (EM - 501)
Spring 2019

CASE STUDY: GOVERNMENT INTERVENTION: AIRBUS AND BOEING

Submitted to:

Dr. Syed Golam Maola

Professor
Department of Management
University of Dhaka
Submitted by:

Anik Alam

ID: 3-18-39-004

Date of Submission: Tuesday, 12th March, 2019

1.Highlights of the Case in 100 Words.
Answer: This paper examines international competition in the commercial aircraft industry. I
estimate a discrete choice, differentiated products demand system for wide-body aircraft and
examine the Airbus–Boeing rivalry under various assumptions on firm conduct. I then use this
structure to evaluate two trade disputes between the United States and European Union. My
results suggest that aircraft prices increased by about 3.7% after the 1992 US–EU agreement on
trade in civil aircraft that limits subsidies. This price hike is consistent with a 5% increase in
firms' marginal costs after the subsidy cuts. I also simulate the impact of the future entry of the
Airbus A-380 super-jumbo aircraft on the demand for other wide-bodied aircraft, notably the
Boeing 747. I find that the A-380 could reduce the market share of the 747 by up to 14.8
percentage points in the long-range wide-body market segment (depending upon the discounts
offered on the A-380), but would reduce the market for Airbus's existing wide-bodies by an even
greater margin.

2. Lesson for a company/manager in 100 Words.

Answer: The lessons for a company/manager from this case are following:

a) Barrier to entry: High barriers to entry, help understand the risks involved in operating
in the aircraft industry.
b) Initial Capital Requirements: Huge initial development period and very high
investment costs, tooling costs, and WIP are necessary even before the company starts
producing and selling aircrafts.
c) Economies of Scale: Company must have a substantial amount of orders in order to earn
economies of scale.
d) Government Role: Government should consider as an important stakeholder for the
aircraft business.
e) Learning Curve: The learning curve is very steep. Companies learn from year by year’s
development and by internalizing the lessons learned.
f) Technology innovation: Company should carefully analyze the market to evaluate the
trends in the airline industry .
g) Government Support: Company may seek government intervention.