Boeing Out Of Business?
Boeing Out Of Business?
In the article titled, “Can This Plane Save Boeing?,” (Time Magazine, October 12, 2003), Sally B. Donnelly/Everett talks about the decline in production and output from Boeings 98-acre factory partly due to the events of September 11, 2001, and the pressure from Autobus, an uprising threat. The main topic of the article is Boeing’s new plans for a plane that might boost airplane sales and give the company some new hope.
Over the past 87 years when someone mentioned airplanes the one company that would come to mind was Boeing, but that might soon change. The world’s worst aviation downturn in history has forced Boeing to lay off 35,560 of its 93,000 workers in the past two years. This downturn has also led to the assumption that this year Boeing will account for less than half of the company’s overall sales. Four years ago Boeing held 67 percent of the global market share and now it controls less that 50 percent. Does Boeing have what it takes to be a competitor in the airplane industry any more?
The Boeing engineers believe they have created a plane that the buyer and the passenger will love. They call it the 7E7, and it is a midsize, fuel efficient, 200-seat plane that will supposedly fly point-to-point nonstop trips. This allows passengers to relax and not have to worry about any connecting flights or long layovers. The increase in demand and price, for this new plane, should give Boeing the competitive edge in the market again.
Once Boeing gets this new plane out there and it begins to sell, the other competitors are going to see how well it is doing and want to produce something similar. This will cause price of the planes to fall because of the competition in the industry. It will also increase the quantity of planes produced. Due to the fact that these planes will only be purchased by a limited amount of customers, the overall demand is not very big. This means that the demand in the short run is inelastic, an increase in supply causes a decrease in price.
As Boeing begins producing and gets a good steady pattern of turning out these new planes they are going to be able to decrease input cost which will in turn decrease plane costs. These changes in the airplane market can also affect other competitor sales. This article talks about how Boeing’s new plane is lighter and has less corrosive parts along with it being 20 percent more fuel efficient than the Airbus 330-200, a comparable model. A lower airplane cost will affect the market for the Airbus 330-200. As Boeing’s airplane costs decrease, the demand for the Airbus 330-200 will decrease.
As new companies enter the market the price of the planes is going to decrease and Boeing’s profits will decrease as well. They were able to charge higher prices because they are the only ones in the industry producing a plane of this kind. Once other companies begin to come into the industry the price of the planes will decrease and end up at the long-run equilibrium. Therefore price will be at the zero economic profit point.
The engineers at Boeing are willing to try anything at this point and they might just have come up with a solution to help increase their recent decline in sales. This new lightweight, medium capacity, fuel-efficient plane just may be the answer. It may also be just the thing that the airplane industry needs in this fast paced society where flying is becoming more and more popular everyday.