Airbus vs. Boeing

1
Airbus vs. Boeing

• A Defence of Airbus
• New Trade Theories and Observed Benefits

2
International Trade The Economic Models

• Neo-Classical Model
• markets are perfectly competitive
• comparative advantage determines trade flows
• trade flows should follow north-south pattern
• gains for all more jobs higher wages

• Strategic Trade Policy
• markets are NOT perfect
• industries are different
• they may create higher value
• higher rents
• economic externalities
• strategic externalities
• private sector unable to capture value

Subsidies Detrimental
Subsidies NEEDED!
3
The Airbus Case

• Was there a need to protect the European Airline
  Industry?
• Industry had knowledge technology, however, US
  had achieved economies of scale beforewhy?...was
  it fair?
• Industry small and fragmented. Under increasing
  threat from bankruptcy or US takeover.
• Industry consolidation occurring naturally highly
  unlikely.
• High risk of industry disappearing and with it
• Higher paying jobs lost
• Highly skilled labor lost
• Knowledge and technologies lost
• Positive economic externalities lost
• Strategic considerations defense, politics,
  national prestige.
• Industry needed government support for
  investments to obtain necessary economies of
  scale and force consolidation.

4
Observable Benefits From Airbus Existence

• Regardless of your position on neoclassical vs.
  new trade theory debate
• Estimates show Boeing makes 45m profit for its
  monopoly sales of 747s
• Would you prefer to have an all powerful FAT
  CAT Boeing?

Retrospective penalties on Airbus would not be
appropriate Would merely cripple the company
that is providing a counterbalance to Boeing
5
Evidence of the Benefits

• Strength of neoclassical economic theory was its
  identification of the benefits of
  competitionCUSTOMER BENEFITS
• Low Prices (arising from allocative
  distributive efficiency)
• More Customer Choice
• Such benefits have been clear in the rapidly
  consolidating airline industry thanks to
  competitive dynamic generated by Airbus
• Decreasing costs of aircraft to airlines
• Reflected by decreasing ticket prices
• A wider range of aircraft is available
• Reflected by diversity of routes catered for
• Similarly, the view for the future is far rosier
  given the presence of Airbus in addition to
  Boeing
• Airbus is developing the A380 super jumbo, on
  premise of continued hub--spoke system
• Boeing is developing a fast jet (just below speed
  of sound) suited to point-to-point traffic

Benefits Regardless of View of Future