1. What are three reasons for the Europeans creating the Airbus consortium?

Airbus Industries was formally established as a Groupement d'Intrt conomique (Economic Interest
Group or GIE) on 18 December 1970. It had been formed by a government initiative between France,
Germany and the UK that originated in 1967. Its initial shareholders were the French company
Arospatiale and the German company Deutsche Airbus, each owning a 50% share. The name "Airbus"
was taken from a non-proprietary term used by the airline industry in the 1960s to refer to a commercial
aircraft of a certain size and range, for this term was acceptable to the French linguistically. The
objective of the consortium was to build commercial aircraft with Germany, Great Britain, and Spain
taking on the job of constructing the aircraft and France assuming responsibility for assembling it. The
logic of the arrangement was fairly straightforward. Three reasons for the Europeans creating the Airbus
consortium: 1. Given the growth of international travel:- Airbus started building planes. It took quite a while, but by
1990 the consortium was not only becoming well established but had back orders for 1,100 planes
and by 1997 this number had reached 2,300. In the process Airbus captured over 30 per cent of the
world market. One of the major reasons for its success was that it focused on building fuel-efficient
craft at competitive prices. Its wide-body, medium-range models, the A300 and A310, for example,
were very reliable and the orders started flowing in from a wide number of buyers including large
US carriers such as America Airlines and Northwest.

2. There would be a continual need for new commercial aircraft:- When major air carriers such as
American Airlines, Japan Airlines, and Lufthansa needed to replace aging airplanes or increase the
size of their fleet, they turned to Boeing or McDonnell Douglas, the two giant American aircraft
manufacturers. Cargo carriers such as FedEx and DHL also bought planes from them, and, as
international air shipments continued to grow rapidly, the annual demand proved to be a boon for
Boeing and McDonnell. In such a situation Airbus has to take the initiative plus big moves should be
played to get the market share.

3. Airbus wanted to be a major player in this industry:- The initial challenge for Airbus was to capture
some market share and thus establish a toehold in the industry. This, fortunately, was not a
problem. The consortium had divided up the responsibility for building the aircraft among its
members. In this way, each country was guaranteed some of the work and, in turn, could count on
its respective government to provide financial assistance and contracts. In particular, the
consortium would have to spend large amounts of money for research and development in order to
build competitive, state-of-the-art craft, but by getting support from their respective governments a
great deal of the initial risk would be eliminated.

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Airbus captured over 30 per cent of the world market. One of the major reasons for its success was that
it focused on building fuel-efficient craft at competitive prices. Its wide-body, medium-range models,
the A300 and A310, for example, were very reliable and the orders started flowing in from a wide
number of buyers including large US carriers such as America Airlines and Northwest. 2.

There would be a continual need for new commercial aircraft:- When major air carriers such as
American Airlines, Japan Airlines, and Lufthansa needed to replace aging airplanes or increase the size of
their fleet, they turned to Boeing or McDonnell Douglas, the two giant American aircraft manufacturers.
Cargo carriers such as FedEx and DHL also bought planes from them, and, as international air shipments
continued to grow rapidly, the annual demand proved to be a boon for Boeing and McDonnell. In such a
situation Airbus has to take the initiative plus big moves should be played to get the market share. 3.

Airbus wanted to be a major player in this industry:- The initial challenge for Airbus was to capture some
market share and thus establish a toehold in the industry. This, fortunately, was not a problem. The
consortium had divided up the responsibility for building the aircraft among its members. In this way,
each country was guaranteed some of the work and, in turn, could count on its respective government
to provide financial assistance and contracts. In particular, the consortium would have to spend large
amounts of money for research and development in order to build competitive, state-of-the-art craft,
but by getting support from their respective governments a great deal of the initial risk would be
eliminated.

2. How will Airbus help the EU compete in the United States?

The related big change in the marketplace dating from the 1990s is that subsidies are often channeled to
component suppliers by governments outside the European Union or the United States, particularly by
the Japanese and Chinese governments. Japan has long sought to parlay expertise acquired in the
manufacture of aircraft components into a stronger military capability. China harbors similar goals and
has publicly declared its intention to become a maker of civil aircraft alongside Boeing and Airbus.
Facilitating these ambitions, Boeing has outsourced a big percentage of its new 787, including hightechnology work, to Japan and Italy. Airbus has likewise outsourced on a grand scale, some $10 billion of
orders to US component suppliers and nascent assembly operations in China. With these changes, the
United States and Europe are becoming by standers as well as participants in the global competition for
the civil aviation industry. To their credit, the United States and Europe have never required that
domestic carriers purchase new aircraft from domestic firms. Similar for bearance by China and Japan
cannot be taken for granted. Important segments of the aircraft industry are already migrating to Asia,
lured by the promise of subsidies and preferential purchase arrangements for the finished aircraft. In
fact, Boeing CEO Jim McNerney recently predicted that China would become the third airplane maker to
rival his firm and Airbus in the coming decades. If nothing else, this trend should prompt cooperation
between US and EU authorities.