A. Introduction to the problem

1. What do you know about Boeing and Airbus companies?

2. Do you know any other aircraft producers?

3. When you fly, are you aware of the company producing the airplane?

4. Should you be aware? Give your reasons.

B. Scanning for Information

Work in pairs. Each person should scan one of the two articles on Airbus Industrie and the Boeing Company and fill in the table after the texts in the appropriate section. Then, share information so that partner has the same data and can fill in Airbus Industrie and the Boeing Company table.

Text A

Airbus Industrie

In 1970, four European nations created Airbus Industrie to offset a decline in the airframe industry and challenge U.S. dominance in the global commercial aircraft market. Airbus is a four-country international consortium: In this unusual business structure, the four partners are both owners and suppliers, the common language of business is English, and all sales are transacted in U.S. dollars.

In the early years, Airbus Industrie was clearly the underdog, lagging far behind the U.S. companies of Boeing and McDonnell Douglas, which had dominated the industry for years. Since the consortium had no track record on safety or maintenance, airlines were reluctant to purchase the new aircraft. Through favourable pricing, generous maintenance contracts, and other competitive offers, the company was able to attract a number of carriers, including some in the United States. As a result, in less than twenty years, Airbus was able to produce a full family of airplanes and, with over 100 customers, it moved into the number two spot in the global aircraft industry.

Airbus succeeds because civil aircraft manufacturers from four nations pool their financial and technological resources in a true multinational partnership. It also succeeds because officials in these countries believe that European industry must be supported and protected by a strong industrial policy. For Airbus Industrie (the largest single industrial undertaking in the EC) support takes the form of an estimated $26 billion in subsidies. As a result of this financial backing Airbus has been able to recover from 70 to 100 percent of its product development costs, which are enormous in the industry. It can easily take four to six years, for example, for a plane to move from the design stage to actual production. During this time, the project yields no profits.

Airbus officials defend subsidies as a way to help level the playing field. They are quick to point out that Boeing and McDonnell Douglas receive millions of dollars in contracts to build military aircraft and spacecraft for the U.S. government, which is clearly a form of subsidy. It is hypocritical, say Airbus executives, to argue that the market is or can be completely free from government intervention.

Airbus officials point out that the consortium is a source of pride for the European Community, a model of international cooperation that can inspire future economic development in the area. Moreover, high quality Airbus products provide a viable alternative to U.S. airframes, assuring customers all over the world of the benefits of industrial competition.

With 30 percent of the global airframe market already, Airbus officials are gunning for at least 40 percent over the next several years. Predictions of increasing worldwide air traffic are fuelling Airbus’s growth. The consortium is already anticipating the need for airplanes that are quieter, more fuel efficient, and more comfortable for air travellers on long trips. According to company literature, “Airbus Industrie looks forward to lasting financial success well into the twenty-first century.”

Text B

The Boeing Company

Bill Boeing, a wealthy lumberman from Washington State, founded the Boeing Company. In 1916, he set up an airplane factory in Seattle, Washington, a city, which now depends on the aircraft industry. Fascinated with the technology of flying, Bill Boeing when he founded the company promised, “to let no new improvement in flying and flying equipment pass us by.”

During World War II, the Boeing Company established its reputation as a supplier of military aircraft. After the war, in the early fifties, Boeing made the first passenger jet, which soon replaced all of the propeller-driven aircraft in the passenger market. It has also built a number of spacecraft used in the U.S. space program. Over the years, the company has developed a strong reputation for reliable products and the service of those products. It has been number one in worldwide sales for years, controlling over 50 percent of the market for commercial aircraft.

Aerospace products are the number one U.S. export after agricultural products. The country has a long and proud tradition of dominating the industry with technological breakthroughs leading to superior products. But this dominance is now being challenged. Boeing executives argue that they cannot compete against the deep pockets of the four European governments that subsidize Airbus.

Traditionally, the United States has maintained a free-market philosophy, which holds that government should not regulate market forces. In this view, better and more efficient production occurs when world markets are open, allowing the forces of competition to work freely. According to Boeing and other executives, this philosophy has been the backbone of American industrial power from the beginning. For the health of the civil aviation industry, the free-trade argument goes, the United States must convince the EC to stop subsidizing Airbus.

However, there is less agreement than there used to be on the issue of government’s role in industry and trade. Some U.S. officials and academics point out that the free-market philosophy no longer suits global economic conditions. Advocates of this emerging view urge the development of a strong industrial policy that would develop and support important U.S. industries. Such a policy could work through such protective measures as tariffs, import quotas or direct subsidies to industry, and through policies that encourage research in certain high-tech industries.

Those in favour of the traditional free trade and open market philosophy reject the notion of an industrial policy. At worst, it sounds like the centralized planning of a socialist system. At best, it sounds like protectionism, a policy that simply uses government money to protect industries that would fail in the market without it. Even the free traders have to admit that U.S. industry is not as competitive in the global economy as it once was and that, increasingly, it must compete against nations that have strong industrial policies and are unlikely to change them.

C. Interpreting Information

Work in small groups. Read the questions below. Discuss your answers with your group mates. Give your arguments.

1. What is the history of Airbus Industrie and the Boeing Company?

2. What is the nature of competition between the two companies?

3. Airbus Industrie, a four-nation European consortium, was established in 1970 to challenge U.S. dominance in aerospace. How well has the company accomplished its goals?

D. Discussion

1. Why do Airbus and EC officials believe subsidies for Airbus are necessary and important?

2. Why most Boeing and Us officials opposed to financial backing of the airframe industry by the government?

3. If Boeing were not loosing ground in the global airframe market, would it complain about Airbus subsidies?

4. What advantages might multinational companies enjoy?

5. What industries are subsidized in your country? Do you agree with this policy?

WRITING

Write an essay on Globlilzation. You may use the information from the text.

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