Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
THE PRESENT ENVIRONMENT 43 for purchase of new aircraft usually falls on the aircraft manufacturers. It has become apparent that the ability to offer a financing package, if one can afford it, is an essential marketing tool. The change in route structure resulting from deregulation created an active demand for aircraft from the regional carriers, which currently represent a growing segment of the potential U.S. aircraft market. Some of the problems of low traffic and unsatisfactory yield that are prevalent among the larger carriers are also present with the regionals. Part of their poor performance, however, is due to the fact that the aircraft they are currently operating are not cost-effective for the routes served. Thus, if financing can be secured, there is a market for new existing or advanced aircraft. It is anticipated that as the economy improves, demand for the smaller transport aircraft will pick up before the demand for larger transports. The key is financing, which depends on long-term assurance of economic stability. EMERGENCE OF FOREIGN COMPETITION Large Transports All nations are concerned with their balance of trade. The industrialized nations have evidenced a desire to participate in higher-technology, higher- visibility items such as jet transports. They recognize the advantages in exports, domestic employment, technology, sophisticated manufacturing, and prestige. Furthermore, they perceive the need to balance trade and national security by producing as much as possible of their military equipment needs domestically. Not surprisingly, the Europeans have tried repeatedly to create a viable air transport manufacturing industry. The jet transport era was, in fact, launched with the British Comet and de Havilland Ghost turbojet engine in 1952. Over the next 15 years a succession of European firms and consortia built eight additional models of commercial jet aircraft, but with little commercial success. United States manufacturers addressed the interests of a diverse range of large, strong domestic customers and foreign airlines in their design deliberations. Thus, their aircraft matched the requirements of the United States and most international markets as well. Until recently, the combination of a large domestic market base, attractive products, and aggressive marketing and product support worldwide enabled U.S. manufacturers to dominate the large civil transport aircraft industry.
THE PRESENT ENVIRONMENT 44 The European efforts were characterized by competing national, political, and economic interests, by lack of experience with customer-focused product planning, and by a narrower view of market requirements based on European experience. As they turned to multinational consortia to undertake development, the Europeans also encountered a lack of experience in managing such undertakingsâa lack shared by U.S. manufacturers, and one they did not have to address until later. Despite the early European failures, those efforts provided many valuable lessons from which the present consortia have gained. In December 1970, in response to the advent of the wide-bodied jets, the European transport aircraft industry was rationalized with the creation of a major European marketing projectâAirbus Industrieâwhich draws on the aircraft manufacturers in a number of European countries.6 The Airbus program, starting with the A300 airplane, has a strong market orientation that seeks to serve not only the European, but also the Asian, African, and South American markets, and specifically the large North American market. In contrast to the competitive adjustments and structural realignment that have been occurring in the U.S. aircraft manufacturing industry over the past decade without specific government guidance, European governments for many years have had a strong hand in encouraging industrial realignments by nationalizing and combining firms within countries and by intergovernmental agreements for intra-European cooperation. The Airbus A300 series of aircraft (twin-engined, wide-bodied jets) are technically proficient airplanes that have been more successful commercially than most earlier European developments. Their success has resulted in part from government financial support of design, development, manufacturing, marketing, and sales. In part, it also reflects the fact that the A300 addressed a market segment not well covered by U.S. aircraft. Until Boeing was able to deliver the 767 beginning in 1982, Airbus had the only advanced twin-engine, wide-bodied airplanes on the market. As can be seen in Table 2-5 Airbus has managed to achieve much more effective market penetration than the Europeans ever achieved in narrow-bodied jets. Although Airbus achieved virtually no market penetration until 1975, it has been a powerful factor in the market since that time. Airbus obtained 49 percent of the orders in 1980 and has obtained 36 percent of all orders since 1978, the year it began to demonstrate strong market acceptance. Unfortunately, data are not available on the financial performance of Airbus Industrie or on the level of investments or the criteria applied for evaluating performance and requiring payback to the various governments that are partners in Airbus. However, the investment is estimated to be about $5 billion. It is
THE PRESENT ENVIRONMENT 45 known that Airbus survived for five years with only 10 orders after its announcementâsomething no U.S. company could do and remain in the businessâand that it has built unsold aircraft ("white tails" worth $1.25 billion) to be placed in inventory during the recession, again something no U.S. company could finance. The competitive threat of such action is demonstrated in the recent sale of some of the "white tails" to Pan American. It is of course true that the overall program objectives and evaluation of success are quite different for Airbus, with job creation holding a high place. The advent of deregulation, with the concomitant changes it has generated in route structures and service, has increased the importance in the U.S. of the market segment that Airbus serves. This market segment (moderate-range, high- density) has been served historically with many hundreds of early model BAC-111s, DC-9s, B-737s, and B-727s. Many of these aircraft, due to age alone, not to mention problems with fuel efficiency and noise, are candidates for replacement. Nevertheless, Airbus has had little success since deregulation in penetrating this U.S. market. Airbus Industrie has been particularly successful in establishing a foothold in the band of countries from the Middle East to South and Southeast Asia and to Australia, a region forecast to have the highest rate of growth in air transport over the next two decades. Airbus Industrie, according to its own public pronounce
