Journal of Air Transport Management 6 (2000) 3}11

A market attraction model for predicting the US market share of large

civil aircraft
Abel Fernandez*, Derya Jacobs, Charles Keating, Paul Kau!man
Department of Engineering Management, Old Dominion University, Norfolk, VA 23529, USA

Abstract

With global annual sales exceeding $65 billion, the large civil aircraft industry is an important economic and strategic element of the
European Union and US economies. Here we de"ne large civil aircraft (LCA) as those aircraft with capacities exceeding 121
passengers and dedicated to the air passenger market served by commercial airlines. This paper employs a transformed log-centered
market attraction model to forecast the US market share of LCA. This model speci"cation ensures that the predicted market share is
in the range [0,1] and that the sum of all predicted market shares is equal to 1.0, both logical process requirements. In this special case,
where there are two producers, the market attraction model becomes a logit regression model. Here we specify the logit regression
model as an autoregressive distributed lag model in which US market share is predicted by quantitative and qualitative predictor
variables, an autoregressive lag operator and a linear trend component. ( 2000 Elsevier Science Ltd. All rights reserved.

Keywords: Market share model; Logit regression; Large civil aircraft

1. Introduction oping a regression model explaining the US share of

We de"ne large civil aircraft (LCA) as those aircraft
with a passenger capacity exceeding 121 passengers and
dedicated to the air passenger market served by commer-
cial airlines. The LCA industry is of signi"cant strategic
and economic value to the US and the European Union
(EU). Global annual sales of LCA exceeded $65 billion in
1996, with these sales generating politically important
jobs and exports. This paper describes predictive models
for the US share of world and regional markets for three
di!erent classes of LCA.
Until the late 1970s, US producers held an almost
100% market share in virtually all segments of the LCA
market. However, major structural changes within the
LCA industry over the past 25 years have resulted in
dramatic US market share erosion, and the loss of this
preeminent position. This loss in market leadership,
coupled with the signi"cant research and capital invest-
ment expenditures associated with the LCA industry,
underscores the importance of identifying factors driving
market share. A previous study by the US International
Trade Commission (1993) reported limited success devel-
* Corresponding author. Tel.: #1-757-683-4734; fax: #1-757-683-
5640.
E-mail address: afernand@odu.edu (A. Fernandez)
world orders for LCA. This limited prior success and the
little published empirical modeling of the market share of
US LCA producers were the motivating factors for the
present study.
In this paper, we present a set of market attraction
models for the US market share for three di!erent classes
of LCA. The market attraction models used are linear
regressions that, in this application, take the form of logit
regressions. The logit regression models are speci"ed as
autoregressive distributed lag models in which US mar-
ket share is predicted by both quantitative and qualitat-
ive predictor variables, an autoregressive lag operator
and a linear trend component. This model form insures
logical consistency in predicted market share values (i.e.,
predicted US market share in the range [0,1] and pre-
dicted US and foreign market shares that sum to 1.0).
The paper begins by providing a general overview of
the LCA industry, including the classi"cation system
used to segment the LCA marketplace. The following
section then describes the variables used in the current
study, their nature and sources. Speci"cations for three
commonly used market share models (i.e., the linear,
multiplicative and market attraction models) are then
provided as background to prior work in the "eld. We
then show that in the special case of two producers,
the market attraction model degenerates into a logit

0969-6997/00/$ - see front matter ( 2000 Elsevier Science Ltd. All rights reserved.
PII: S 0 9 6 9 - 6 9 9 7 ( 9 9 ) 0 0 0 1 7 - 4
4 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11
regression. The paper concludes with presentation and
interpretation of the results.
2. The LCA industry
Prior to the founding of Airbus Industrie (AI) in the
late 1970s, US producers dominated the world market
for LCA. AI has over the past 30 years captured signi"-
cant market share, and in the process catalyzed attendant
structural changes in the industry. At present there are
only two major LCA producers in the Western World (the
Boeing Corporation of the US and AI of the European
Union) and one minor producer (British Aerospace Re-
gional Aircraft of the United Kingdom). Other non-West-
ern producers exist, most notably Ilyushin and Tupolev of
Russia, but they have had little success in selling to other
than their internal domestic market and in the near term
are not considered to be major global producers.
Historically, the LCA market is segmented according
to aircraft type and world region of the purchasing airline
(US International Trade Commission, 1998). Following
the Boeing (1997) convention, aircraft models are classi-
"ed according to average seating capacity, as shown in
Table 1. Note that LCA are those aircraft types repres-
enting the airframes that correspond exclusively to large
commercial jet transports.
In accordance with the Boeing (1997) convention, the
LCA world market is divided into the following regions:
f Region 1: The United States * the United States and
its possessions, e.g., Guam and Puerto Rico;
f Region 2: Europe * countries of Western, Eastern and
Southern Europe;
f Region 3: Asia-Paci"c * China, Southeast Asia, the
Indian subcontinent and Australasia; and,
f Region 4: Rest-of-the-World * Central and South
America, Canada, the Caribbean, the Middle East and
Africa.
Speci"c countries within each group may be found in
Current Market Outlook (Boeing, 1997). The nation mem-
bers of the Commonwealth of Independent States (the
Table 1
Aircraft type classi"cations!
Aircraft type Seating capacity
1 (50
2 50}69
3 70}90
4 91}120
5 121}170
6 171}240
7 241}350
8 '350
!Source: Boeing (1997).
former Soviet Union) are not included since their market
has historically been, and continues to be, limited to
domestic producers.
3. The LCA market
The LCA industry is of signi"cant strategic and eco-
nomic value to the US and the EU (March, 1990; US
International Trade Commission, 1993,1998). Strategi-
cally, it is an important complement to the aerospace
defense industry and is perceived as critical to the long-
term national defense interests of both the US and the
EU. With approximately $180 billion (1996 dollars) in
orders during the period 1971}1996, the LCA industry is
also a signi"cant generator of jobs and exports, and thus
an important contributor to the economies of both re-
gions (Fernandez, 1997). The LCA industry is parti-
cularly interesting not only because of its size and
economic impact, but also because of the major struc-
tural changes that have occurred over the past 25 years.
The most signi"cant of these changes is the emergence of
AI as a strong competitor in all LCA market segments
with the exception of Type 8 aircraft, where US pro-
ducers have retained an almost 100% share of the world
market. With this exception, US producers have lost
signi"cant market share to AI in all other LCA market
segments (i.e., all four regional markets for Type 5, 6 and
7 aircraft).
Market share is a widely used indicator of the com-
petitiveness of a particular producer or set of producers.
To capture the economic impact of market penetration,
the market share values used in this study are based on
the dollar value of annual new aircraft orders (i.e., the
used aircraft after market is excluded). However, new
aircraft sales tend to #uctuate dramatically from year-
to-year due to the order variability inherent to the air-
craft market (Fernandez, 1997; Wingrove et al., 1998). In
order to reduce high-frequency variation, the market
share data was smoothed using a two-period-based
centered moving average (CMA) technique (Bowerman
and O'Connell, 1987). Using centered moving averages
eliminates irregular #uctuations from data and is parti-
cularly well suited to this application as it maintains
a correspondence between the smoothed data and yearly
time periods. The CMAs are based on two-period calcu-
lations so as to "lter out very high-frequency noise yet
minimize the loss of data, a particularly important issue
here since there are a relatively small number of observa-
tions for developing predictive models. Table 2 shows
smoothed yearly US market share values for Types 5,
6 and 7 aircraft, over the period 1971}1995. For each
aircraft type, market share is given for each region and
for the world as a whole.
Although each aircraft model has a nominal seating
capacity, the actual capacity of a speci"c aircraft `as
Table 2
Smoothed US market share of LCA!

Year Type 5 Type 6 Type 7

Region 1 Region 2 Region 3 Region 4 World Region 1 Region 2 Region 3 Region 4 World Region 1 Region 2 Region 3 Region 4 World

1971 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
1972 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
1973 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
1974 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.92 0.94 0.95
1975 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.87 0.83 0.89
1976 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.85 0.88 0.94
1977 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.79 1.00 0.54 0.84 0.78
1978 1.00 1.00 1.00 1.00 1.00 1.00 0.37 1.00 1.00 0.86 0.74 0.77 0.37 0.77 0.65
1979 1.00 1.00 1.00 1.00 1.00 1.00 0.16 1.00 0.84 0.75 0.77 0.63 0.38 0.69 0.61
1980 1.00 1.00 1.00 1.00 1.00 1.00 0.19 1.00 0.61 0.73 0.76 0.60 0.40 0.52 0.54
1981 1.00 1.00 1.00 1.00 1.00 1.00 0.38 1.00 0.56 0.71 0.46 0.81 0.29 0.34 0.39
1982 1.00 1.00 1.00 1.00 1.00 1.00 0.35 0.77 0.76 0.79 0.27 1.00 0.38 0.46 0.41
1983 1.00 0.76 1.00 1.00 0.96 0.96 0.30 0.67 0.79 0.80 0.34 0.64 0.93 0.60
1984 1.00 0.77 0.80 1.00 0.91 0.80 0.47 0.55 0.66 0.68 0.42 0.00 0.29 1.00 0.41
1985 1.00 0.94 0.72 0.71 0.92 0.76 0.59 0.57 0.51 0.66 0.54 0.00 0.34 1.00 0.39
1986 1.00 0.64 0.74 0.56 0.83 0.92 0.65 0.75 0.53 0.76 0.41 0.85 0.65 0.63 0.63
1987 1.00 0.46 0.69 0.18 0.69 0.97 0.82 0.85 0.58 0.86 0.44 0.93 0.74 0.63 0.68
1988 1.00 0.64 0.56 0.14 0.74 0.95 0.88 0.82 0.79 0.90 0.48 0.47 0.60 0.35 0.51
1989 0.88 0.89 0.59 0.21 0.78 0.90 0.67 0.76 0.70 0.77 0.48 0.13 0.43 0.21 0.38
1990 0.57 0.84 0.68 0.32 0.64 0.84 0.44 0.78 0.34 0.62 0.49 0.41 0.37 0.16 0.41
1991 0.31 0.82 0.76 0.35 0.55 0.87 0.53 0.84 0.13 0.70 0.38 0.73 0.43 0.28 0.46
1992 0.45 0.98 0.72 0.62 0.63 0.90 1.00 0.85 0.30 0.88 0.36 0.70 0.44 0.48 0.47
A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11

1993 0.63 0.77 0.59 0.44 0.63 0.92 1.00 0.77 0.67 0.88 0.47 0.38 0.31 0.55 0.40
1994 0.66 0.64 0.59 0.33 0.58 0.86 0.91 0.67 0.79 0.80 0.34 0.27 0.30 0.63 0.42
1995 0.73 0.57 0.56 0.53 0.63 0.77 0.83 0.58 0.69 0.71 0.50 0.62 0.41 0.63 0.54

!Source: Fernandez (1997).

5
6 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11

delivereda depends upon the passenger con"guration Table 3

speci"ed by the operating airline. The average seating Type 5, 6 and 7 aircraft models!
capacity of each aircraft model was found from seating Manufacturer Model Aircraft type
con"guration data obtained from Jet Information Servi-
ces, Inc. (1997). We computed these averages by region of Airbus A319 5
the world to allow for the possibility of regional di!er- Airbus A320 5
Boeing 727 1/200 5
ences in preferred aircraft con"gurations. With the excep- Boeing 737 3/4/7/800 5
tion of the Airbus A330 in Europe and the Boeing Boeing 707 5
767}300 in Asia, the mean number of seats per aircraft is Douglas MD80 5
independent of world region. The Boeing 767}300 is Douglas MD90 5
classi"ed as a Type 7 aircraft for Region 3 (where the Airbus A310 6
Airbus A321 6
aircraft is designated as model 767}300}A) but is a Boeing 757 2/300 6
Type 6 for the three other regions (designated as model Boeing 767}300}O 6
767}300}O). The A330 is classi"ed as a Type 7 for Re- Boeing 767}200 6
gions 1, 3 and 4 (designated as model A330}O) but is Douglas DC8 60/70 6
a Type 8 aircraft for Region 2 (i.e., the European market). Airbus A300 7
Airbus A330}O 7
Aside from very limited use of the A330 in Europe, the Airbus A340 7
Boeing 747 is the sole aircraft of Type 8. Table 3 lists the Boeing 747}SP 7
Type 5, 6 and 7 aircraft models in production during the Boeing 767}300}A 7
period 1971}1995. Boeing 777 200 7
The market share values shown in Table 2 are the Douglas DC10 7
Douglas MD11 7
empirical basis for model development. The next section Lockheed L1011 7
discusses the candidate predictor variables, followed by
descriptions of the speci"cation of the US market share !Source: Jane's All the World's Aircraft (1997).
model, results and conclusions.
total US global market share but also segments the LCA
market according to world region.
4. Speci5cation of variables
4.2. Explanatory variables
4.1. Dependent variable
Airline purchasing decisions are guided by complex
Three separate models are developed, having as the economic, legislative and political factors (Fernandez,
respective dependent variable the smoothed US market 1997; US International Trade Commission, 1998). At
share for Type 5, 6 and 7 aircraft, as shown in Table 2. a gross level, the aircraft type is determined by examining
Three aspects of this variable should be highlighted. operational needs such as route length and passenger
Firstly, due to the fairly recent structural changes attribu- carrying capacity. Once aircraft type is established, life-
table to the emergence of AI as a competitive LCA cycle costs over an aircraft's useful life are the principal
producer there are relatively few observations available economic evaluation criteria used by airlines. Elements
for model development. Disaggregating market share evaluated in a lifecycle cost analysis include initial
according to regional markets increases the e!ective acquisition costs (i.e., airframe, engines, initial spares
number of observations available for model develop- contingent, and training), operating and maintenance
ment, and allows geographic distinctions to emerge. (O&M) costs, useful life, and salvage value. With rising
However, the geographic classi"cation used to de"ne the O&M costs, this element of the lifecycle costs is becom-
regional markets re#ects aircraft industry convention ing an increasingly important consideration in purchas-
and may not necessarily re#ect true clustering of pur- ing decisions (March, 1990; US International Trade
chasing patterns. Secondly, the market share values used Commission, 1998). Financing arrangements (e.g., leas-
are smoothed prior to use for model development. The ing) sometimes play critical roles in purchase decisions.
previously discussed yearly natural variation in actual Legislated and political considerations take many forms
market share precludes meaningful results without prior and are highly subjective, yet can also be decisive factors
smoothing. Lastly, the market share values are calculated in airline purchase decisions. Examples of these types of
on a dollar order basis in order to capture the economic considerations include environmental requirements (e.g.,
impact associated with US producer competitiveness in aircraft operating noise), trade o!sets (e.g., in-country
the various LCA markets. Prior studies have based mar- value added to purchased aircraft), global strategic politi-
ket share on LCA unit orders (i.e., the number of aircraft cal considerations (e.g., trade as political leverage) and
ordered and not their dollar value) or on deliveries. other such non-economic factors. Although the import-
Furthermore, the current study not only considers the ance of legislative and political factors is recognized,
 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11
the inherent di$culty in collecting and quantifying this
type of data for the LCA industry did not allow their
consideration in the present study.
4.3. Endogenous and exogenous explanatory variables
Adopting an LCA producer's perspective, some of the
explanatory variables in this study may be classi"ed as
endogenous and exogenous depending on a producer's
capability of directly impacting the respective factor. The
two exogenous variables included in this study are the
relative strength of the US dollar relative to the Euro-
pean Currency Unit (ECU), and the global average jet
fuel cost. The variable $/ECU is the average US dollar to
ECU exchange rate, a factor impacting the competitive-
ness of US producers in the global market. Yearly values
of $/ECU are taken from the The European Commission
(1998). A weak dollar relative to the ECU is conven-
tionally thought to bolster the position of US producers
in the global market. The sign of the coe$cient for the
variable $/ECU is thus expected to be positive. The
second exogenous variable, FUEL, is the average global
costs of jet fuel (expressed in units of constant 1995
dollars per imperial gallon) and is taken from The Avi-
ation and Aerospace Almanac (1997). This variable is
a proxy for the fuel e$ciency of US aircraft relative to
that of foreign producers, since the price of jet fuel is
thought to drive purchasers towards more e$cient air-
craft. The sign of the coe$cient for the variable FUEL is
expected to re#ect the relative e$ciency of US aircraft
with respect to its foreign counterpart, where a positive
value would be indicative of perceived greater opera-
tional e$ciency of US aircraft.
The second set of candidate explanatory variables are
considered endogenous to LCA producers, that is, con-
trollable by either US or foreign LCA producers. Accord-
ing to the US International Trade Commission (1998),
a decisive factor in airline purchase decisions is seat-mile
operating costs over the aircraft lifecycle. Two variables
were included to represent aircraft operating costs over
its lifecycle. The variable COST proxies for aircraft
acquisition cost and is de"ned as an aircraft's initial
purchase cost divided by the product of its range
and passenger capacity (i.e., has units of $'s per
passenger-mile). The variable COST is a measure of an
aircraft's cost e!ectiveness in ful"lling its operational
mission, where lower values are preferred. The variable
EFF proxies for aircraft direct operating costs and is
de"ned as an aircraft's available seat-miles (ASM)
divided by its fuel capacity in imperial gallons (i.e., has
units of passenger-miles per gallon). Data regarding
COST and EFF were collected from Jane's All the World's
Aircraft (1997), NASA's Aviation System Analysis
Capability (ASAC) system (Wingrove et al., 1998), and
Fernandez (1997).
7
The individual aircraft data for COST and EFF were
grouped according to US or foreign manufacture and
averaged on an aircraft type basis, e.g., yearly values of
COST for US Type 7 aircraft. A potential problem with
the direct use of COST and EFF is the high degree of
correlation among the respective predictor variables of
the producers (Owen et al., 1995). To overcome this
problem, these two explanatory variables were evaluated
in the model development as ratios of US to foreign
average values. The variable COST was calculated as the
ratio of cost e!ectiveness of US aircraft of a particular
type to the corresponding cost e!ectiveness of foreign
aircraft (therefore unitless). The coe$cient for COST is
expected to be negative, re#ecting decreasing US market
share as US aircraft become more expensive relative to
their foreign competition. The EFF variable was sim-
ilarly calculated as the ratio of the average operational
e$ciency of US aircraft of a particular type to the corre-
sponding operational e$ciency of foreign aircraft (there-
fore unitless). The coe$cient for EFF is expected to be
positive, re#ecting increasing US market share as US
aircraft become more fuel e$cient relative to their foreign
competition.
The "nal group of endogenous explanatory variables
re#ects the potential market share impact associated
with the introduction of a new aircraft model by LCA
producers. According to the US International Trade
Commission (1998, pp. 2}8), `the "rm that makes a
successful &"rst move' typically garners the largest sharea
of a new or existing market. Two dummy variables,
NEWUS and NEWFOR, were included to control for
the impact of new market introductions by US and
foreign producers, respectively. The variables NEWUS
and NEWFOR take on the value 1 in the year in
which any US or foreign LCA producer, respectively,
introduces a new aircraft model of a particular type.
Data for the NEWUS and NEWFOR variables were
collected from Jane's All the World's Aircraft (1997). The
coe$cient for NEWUS is expected to be positive (re#ect-
ing an increased US market share during the "rst year
a new US aircraft model is available), and negative for
NEWFOR (re#ecting a relative decrease in the US
market share during the year a new foreign aircraft is
introduced).
4.4. Special control variables
A variable was included to capture the deterministic
trend components of US market share over the sample
period. The variable takes on the values 1, 2,2, where
"1 for the "rst year in which the global US market
share for a particular aircraft type is not 1.0. For
example, for Type 7 aircraft the variable "1 for the
year 1973. The coe$cient for is expected to be negative
for those aircraft types in which there was US market
share erosion over the sample period.
8 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11

The variable SH is included as a predictor vari-
US,(t~1)
able to model any autocorrelation exhibited by the
dependent variable. Lagged market share as an indepen-
dent variable is cited in other market share models, and
may be interpreted as a proxy for lagged values of other
explanatory variables in the model (Owen et al., 1996;
Chang, 1984).
Lastly, for each aircraft type a set of four dummy
variables is included to identify the four world regions,
controlling for di!erences in global and regional US
market share for a particular aircraft type. The dummy
variables REG1 through REG4 assume a value of one
according to the world region being considered. The US
share of the global market results whenever all four
dummy variables take on the value of zero. The respect-
ive coe$cient signs are expected to vary according to
whether the US market share in a particular region is
greater or smaller than that for the world as a whole.
The market attraction model shown in Eq. (3) satis"es
the logical consistency requirements imposed by the pro-
cess but does not lend itself to model development.
Cooper and Nakanishi (1988) have used a log centering
transformation to linearize this equation, reducing it to
a form amenable to the application of standard regres-
sion techniques. Allowing the response coe$cient b in
Eq. (3) to represent the di!erential e!ect of producer j's
action in terms of its kth predictor variable, the log
centered market attraction model can be written as
m K
ln SH"aH# + + b ln X #eH, (4)
it i kij kjt it
j/1 k/1
where, SH"S /SI , SI is the geometric mean of S i,
it it t t it
aH"a !a6, a6 is the arithmetic mean of a i, and
i i i
eH"ln (e /e8 ), e8 is the geometric mean of e i.
it it t t i
In an application such as this in which there are two
producers (i.e., US and foreign producers), Eq. (4) degen-
erates into a logit regression model of the form

A B C D
5. Model speci5cation S m K
ln it "2 aH# + + b ln X #eH . (5)
1!S i kj kjt it
Three market share models forms have been widely it j/1 k/1
cited in the literature: the linear, multiplicative and mar-
ket attraction models (Lilien et al., 1992; Owen et al., 5.1. Model adaptation to the LCA market
1996). The general form of these market share models,
respectively, is given by Previous studies have indicated that LCA producer
market shares exhibit strong autocorrelation and have
K a deterministic time trend component (Fernandez, 1997;
S "a # + b X #e , (1)
it i k kit it Wingrove et al., 1998). For model development we thus
k/1
used Eq. (5) within a general autoregressive distributed
K
S "eai < (X )bk e , (2) lag (ADL) framework, similar in form to other market
it kit it share regression studies (Owen et al., 1995). The ADL
k/1
eai <K (X )bk e model incorporates the lag e!ects of the predictor
S " k/1 kit it , (3) variables on market share, and allows consideration of
it +I [eai <K (X )bk e ]
i/1 k/1 kit it autocorrelation.
where, S is the market share of producer i in period t, The "nal model speci"cation is of the form:
it
a the constant term of producer i, i"1, 2, 2, I, b the
i k K
coe$cient for kth predictor variable, X the kth pre-
kit ln SH "aH # + b ln XH #ln SH #j#eH ,
dictor variable for producer i in period t, and, e the error US,t US k kt US,(t~1) US,t
it k/1
term for producer i in period t. (6)
The linear model, Eq. (1), speci"es a producer's market
where,
share as a linear function of predictor variables, whereas

A B
the multiplicative model, Eq. (2), speci"es a producer's S
ln SH "0.5 ln US,t ,
market share as the product of predictor variables. US,t 1!S
An important consideration when modeling market US,t
share is that there should be logical consistency between S the market share of US producers in period t,
US,t
the predicted market share and the realities of the phys- XH the kth explanatory variable in period t, j the coe$c-
kt
ical process. In particular, the predicted market share ient for the time trend, with units of per year, and, the
must be in the range [0,1] and the sum of the predicted index for time.
market shares for all producers must be equal to 1.0. The form of Eq. (6) is such that SK , the predicted
US,t
Neither the linear nor the multiplicative models guaran- value of the US market share, is always in the range [0,1].
tee satisfaction of these requirements, although there are Furthermore, with two producers (viz., US and foreign
techniques for ex-post modi"cation of predictions to producers) the logit regression model also satis"es the
ensure logical consistency (Beckwith, 1973; Lee#aung requirement that the sum of all producer market shares
and Reuyl, 1984). be equal to 1.0.
 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11 9

6. Estimation and results ket share of LCA using a multiplicative model, of the
form shown in Eq. (2), and obtained an R2 value of 47%
6.1. Overall model results (Wingrove et al., 1998).

Separate logit regression models were developed for 6.2. Coezcient estimates of parameters
each of Type 5, 6 and 7 aircraft, respectively. The corre-
sponding parameters for the three logit regression mod- Coe$cient estimates for the logit regression para-
els, as speci"ed in Eq. (6), were estimated by ordinary meters, with associated t-values in parenthesis, are shown
least squares (OLS). Table 4 presents a summary of the in the "rst 15 data rows of Table 4. With relatively few
results for the most parsimonious logit regression model exceptions, all parameter estimates yield the expected
for each aircraft type. The explanatory power of the three coe$cient sign and are signi"cant at the 95% level or
regression models is not exceptional, with a coe$cient of above. In their most parsimonious form, none of the three
determination, R2, ranging from 58.4% to 75.2%. How- models included all of the candidate predictor variables.
ever, given the volatility of the aircraft market and the The two exogenous variables, $/ECU and FUEL, are
di$culty in collecting data, these relatively low values of included in only two of the models. The variable $/ECU
R2 are not disturbing. In all three cases the F-test results is included in the Type 6 model (where its coe$cient
(as shown in the bottom row of Table 4) provide further estimate is statistically signi"cant at the 95% level) and,
con"dence that the regression estimates are statistically as expected, has a positive coe$cient. A positive value
signi"cant as a whole. Furthermore, the resultant values implies an increase in the US market share as the dollar
of R2 exceed previously reported results by other re- weakens relative to the ECU. The variable FUEL is
searchers. A study by the US International Trade Com- included in Type 5 and 6 models, but its coe$cient is
mission (1993) modeled the US share of the global LCA signi"cant at the 95% level only for Type 5 aircraft
market using a linear model, of the form shown in Eq. (1), (although the Type 6 coe$cient estimate has a p-value of
and obtained R2 values in the range of 13}61%. A more 0.94). The positive estimates in both instances seem to
recent report prepared for NASA modeled the US mar- indicate that US aircraft are more fuel e$cient than their
foreign counterparts, an observation con"rmed for Type
5 and 6 aircraft during most of the study period.
Table 4 The two quantitative endogenous variables, EFF and
Logit regression coe$cients COST, are included in the three logit regression models,
Parameter Type 5 Type 6 Type 7
in all cases exhibiting the expected sign for the coe$cient
estimate. The variable EFF is included in all models,
aH 1.217 !2.3152 0.868 being statistically signi"cant at the 95% level in all three
US
(1.19) (!2.69) (2.07) cases. Interestingly, the signi"cance levels for the Type
b HUS,(t~1) 0.2829 0.51483 0.520 5 and 6 aircraft is much greater than that for Type 7. This
S
(1.98) (6.07) (6.01)
b$ 0.6196
may perhaps explain why FUEL (a proxy for aircraft
@ECU
* *
(2.25) #ight-time operating costs) is also signi"cant for only
b 0.9691 0.6838 these two aircraft types. The variable COST is only used
FUEL
*
(1.82) (1.55) in the models for aircraft Types 5 and 6; however, it is
b 2.392 2.882 3.59 only statistically signi"cant at the 95% level for the Type
EFF
(2.499) (2.40) (1.77)
b !1.868 !2.496
6 regression model.
COST
*
(!1.23) (!2.26) The results for the two dummy endogenous variables,
b 0.100 0.262 NEWUS and NEWFOR, are somewhat more puzzling.
NEWUS
*
(0.42) (2.91) NEWUS is only included in the models for aircraft Types
b 0.291 !0.4669 !0.429 5 and 7, although only statistically signi"cant at the 95%
NEWFOR
(1.95) (!2.37) (!2.61)
b !0.2735 0.1097 !0.044
level for Type 7. In both these models the respective
REG1 coe$cient estimates for NEWUS are positive (as ex-
(!1.47) (0.98) (!0.43)
b 0.1386 !0.02574 0.0738 pected), implying an increase in US market share during
REG2
(0.97) (!2.33) (0.63) the year a new US aircraft model is introduced. The
b !0.0802 !0.0943 !0.0828 variable NEWFOR is included in all models, and is
REG3
(!0.54) (!0.91) (!0.84)
b !0.5138 !0.2341 0.0513
statistically signi"cant at the 95% level in all three cases.
REG4 However, the coe$cient estimates are negative for air-
(!2.71) (!2.28) (0.50)
j !0.02401 0.08936 !0.0454 craft Types 6 and 7 but positive for the Type 5 model.
(!0.40) (2.52) (!2.34) The latter result is surprising, as the introduction of
R2 64.2% 75.2% 58.4% a new foreign aircraft model was expected to result in
F 6.37 16.50 12.46
(0.000) (0.000) (0.000)
a competitive disadvantage to US producers and a result-
ant decrease in US market share during that year. A
10 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11
possible explanation may be that in some cases the mar-
ket may perceive that a producer is prematurely accept-
ing orders for a new aircraft, and thus postpone purchase
decisions to a later year.
All three models resulted in statistically signi"cant
positive coe$cients for SH , the value of the single
US,(t~1)
year lagged US market share. These results corroborate
previous studies citing a high degree of autocorrelation
for the US market share of LCA, and highlight the
importance placed by producers on capturing and retain-
ing market share (Fernandez, 1997; US International
Trade Commission, 1993,1998). The coe$cient estimates
for , the deterministic trend component for the US
market share are included in all models, but are statist-
ically signi"cant at the 95% level only for aircraft Types
6 and 7. The negative coe$cient for Type 7 re#ects the
general erosion of US market share for this type aircraft
(over the study period), while the positive coe$cient
estimate for Type 6 re#ects an increasing US market
share over time. The data shown in Table 2 con"rms
these general time trends.
The estimation results for the control variables REG1
through REG4, intended to distinguish among world
regional markets, indicate little across-the-board LCA
geographic market di!erentiation. Only three of the 12
coe$cient estimates are statistically signi"cant at the
95% level. The most distinct results are for Region 4 (the
Rest-of-the-world) where the coe$cient estimates are
statistically signi"cant for aircraft Types 5 and 6. The
coe$cient estimates for both these aircraft types are
relatively large in magnitude and are negative, implying
a generally very weak US market position in this region.
The only other statistically signi"cant estimate (at the
95% level) is for Region 2 (Europe) of Type 6 aircraft,
where the negative coe$cient again implies a generally
lower US market share. However, the US producer
weakness in Europe is tempered by the relatively small
magnitude of the coe$cient estimate. The only other coef-
"cient estimate of relative merit is that for Region 1 (the
US) of Type 5 aircraft. This estimate has a p-value of 93%
and is relatively large in magnitude (with negative sign),
implying that foreign producers have been relatively suc-
cessful in the US Type 5 aircraft market. None of the other
coe$cient estimates for the dummy regional market vari-
ables is statistically signi"cant. These conclusions about
the position of US producers relative to foreign competi-
tion are corroborated by the data shown in Table 2.
7. Conclusions
The global LCA industry is of key economic and
strategic importance to the US and the European Union.
For the past 50 years the US has dominated this indus-
try, however, Airbus Industrie has successfully chal-
lenged this position and over the past 25 years captured
signi"cant market share. The emergence of a strong
foreign competitor and the large capital investment asso-
ciated with LCA production has been the catalyst for
major structural changes in the industry. The most recent
change is the merger of Boeing and McDonnell Douglas,
which reduced the global LCA industry to Boeing and
Airbus Industrie. These two producers are vying for
relative competitive position in the various LCA market
segments, with market share used as an indicator of
their relative competitive strength (March, 1990; US
International Trade Commission, 1998).
In this paper we have developed models for the US
market share of Type 5, 6 and 7 aircraft, respectively,
within di!erent LCA market segments. A market attrac-
tion model has been speci"ed in order to allow for the
required characteristics of the market share measurement
metric. Some clear patterns and corroboration of prior
"ndings have resulted from the model development.
Firstly, the importance of life-cycle costs as a driving
factor for LCA producer market share is clearly evident.
The three explanatory variables in this study used as
proxies for life-cycle costs (FUEL, EFF and COST) were
statistically signi"cant in all three models. It is evident
that aircraft purchasing decisions are driven in large
measure by initial acquisition cost e!ectiveness and di-
rect operational costs. Secondly, the impact of foreign
exchange rate #uctuation (as measured by $/ECU, the
dollar to ECU exchange rate ratio) was not found to be
a signi"cant factor across all aircraft types. It may be that
"nancing instruments (e.g., currency hedges, and long-
term "nancing) are to some degree insulating aircraft
purchasing decisions from the vagaries of yearly currency
#uctuations. Thirdly, a new aircraft model was found to
impact market share in the launch year. These results
con"rm the importance placed by LCA producers on the
timing of new aircraft introductions. Lastly, there do not
seem to be signi"cant market share di!erences among the
various LCA regional markets. This may re#ect consis-
tent purchasing patterns across all airlines, or it may be
indicative of poor homogeneity amongst the geographic
clusters. This study adopted the industry accepted con-
vention for world regional markets, with no attempt to
aggregate based on other considerations.
References
The Aviation and Aerospace Almanac, 1997. Mcgraw-Hill, New York.
Beckwith, N.E., 1973. Concerning the logical consistency of multivari-
ate market share models. Journal of Marketing Research 10 (2),
341}344.
Boeing Corporation, 1997. Current Market Outlook. Boeing Commer-
cial Airplane Group Marketing, Seattle, Washington, DC.
Bowerman, B., O'Connell, R., 1987. Time Series Forecasting. Duxbury
Press, Boston, MA.
Chang, S., 1984. Practitioners' Guide to Econometrics. University Press
of America, Lanham, MD.
 A. Fernandez et al. / Journal of Air Transport Management 6 (2000) 3}11
Cooper, L.G., Nakanishi, M., 1988. Market Share Analysis. Kluwer
Academic Publishers, Boston, MA.
The European Commission, 1998. O$cial ECU and Euro Exchange
Rates. http://europa.eu.int/comm/dg02/document/ecu/xecupage.htm
Fernandez, Abel, A., 1997. Market Share Study: Commercial Air-
craft Industry. Unpublished technical report, Logistics Manage-
ment Institute Contract No. 9719. Old Dominion University,
Norfolk, VA.
Jane's All the World's Aircraft, 1997. Jane's Information Group
Limited, Surrey, UK.
Jet Information Services, Inc., 1997. World Jet Inventory at Year End
1996. Woodinville, Washington, DC.
Lee#aung, P.S.H., Reuyl, J.C., 1984. On the predictive power of market
share attraction models. Journal of Marketing Research 21,
211}215.
11
March, A., 1990. The future of the US aircraft industry. Technology
Review 93 (1), 27}36.
Owen, A., Chowdury, K., Garrido, J., 1996. A market share model for
vegetable and tropical oils. Applied Economic Letters 3, 95}99.
US International Trade Commission, 1993. Global Competitiveness of
US Advanced-Technology Manufacturing Industries: Large Civil
Aircraft. US International Trade Commission, Publication 2667.
Washington, DC.
US International Trade Commission, 1998. The Changing Structure of
the Global Large Civil Aircraft Industry and Market: Implications
for the Competitiveness of the US Industry. US International Trade
Commission, Publication 3143. Washington, DC.
Wingrove, E., Gaier, E., Santmire, T., 1998. The ASAC Carrier Invest-
ment Model (Third Generation). NASA Langley Research Center
CR-1998-207656. Hampton, VA.