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How do they do it?

Airbus and Boeing have held a duopoly on the worldwide large commercial aircraft (LCA) market, which includes narrow-body aircraft, wide-body aircraft, and jumbo jets, since the 1990s. Both companies have effectively used outsourcing, government loans/contract/subsidies, technology, currency, tax breaks, and even the selection of engine manufacturers to gain a competitive advantage.

Many of the world’s airlines are still wholly or partially owned by their respective governments; and, in general, these governments are more likely to pony up cash for new aircraft when components of those aircraft are produced in (and bring jobs and more to) that country. A strategic advantage is gained, then, when an aircraft manufacturer issues subcontracts for aircraft components or opens facilities in particular countries.

A fine example of that practice centers on Boeing’s 787 Dreamliner, the major components and assemblies of which were outsourced to Japan. What was the result of subcontracting to Japan? Boeing enjoys well-established relationships with companies such as Mitsubishi Heavy Industries (MHI) and Kawasaki Heavy Industries (KHI) in Japan, where an estimated 35 percent of the 787 Dreamliner is produced. Boeing aircraft also now dominates the Japanese airline industry.

Extensive outsourcing doesn’t come without a price, however. “We outsourced too much,” admitted Boeing Commercial Airplanes Chief Executive Officer (CEO) Jim Albaugh in March 2010. “We didn’t consider the extent of the risk we’d take on by going outside.” Boeing had unwittingly and in essence become the project manager on the 787’s production, fulfilling only the roles of design, assembly, and testing. Many blame this factor for the myriad engineering issues and, ultimately, the egregious (and even embarrassing) delays Boeing suffered in the release of its long-anticipated aircraft. This geek is pleased to see the Boeing 787 Dreamliner (finally) taking to the skies!

Mentor, Kawasaki Heavy Industries, Mentor Graphics, Airbus, Mitsubishi Heavy Industries, Boeing, Aerospace, Mentor.com, Japan, Mil-Aero, Jim Albaugh, duopoly, Milaero, Military, Geek

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