I think Boeing has lost it

[DanS]

One thing to note is that there might not be much advantage to being first to market. Looked at one way, Boeing is relying on Airbus to prove the market on the superjumbo. Once and if the market for superjumbos is proven, they can put out a superjumbo of their own.

[DanS]

IMO, in order to obtain and maintain market leadership in a market that demands a long term vision (and a long term is by definition uncertain) you're required to take big bets and keep on taking big bets.

I think it just depends on the business. You might be right that Boeing benefited from creating markets. On the other hand, Boeing has had several near death experiences. I guess they have a healthy fear of the whims of the market in part because of these experiences.

[Mazarin]

Re: A Little Economics Please

Originally posted by Adam Smith
If the US military pays Boeing to do R&D for a technology which also turns out to have commercial application, then the military and commercial applications are said to be joint products of the R&D. Once the technology is developed either application can use it. The commercial application is NOT being subsidized because there is no economically or logically defensible way to assign the costs of R&D to either product. I.e., there is no way of determining how much of the development cost each buyer "should" pay.

You are absolutely right in a perfect market: companies will take the expected benefits from the technology develloped into consideration and reduce their bids accordingly...You will certainly admit that defence markets are not perfect, Airbus has very bad chances of being accepted by the Pentagon...just like it has advantages when dealing with European governments. Since the US spends much more money on military equipments than Europe, Boeing has a clear competitive advantage over Airbus. This advantage has been acknowledged by the EU-US agreement mentioned above.

[TCO]

Re: Re: A Little Economics Please

Originally posted by Mazarin

You are absolutely right in a perfect market: companies will take the expected benefits from the technology develloped into consideration and reduce their bids accordingly...You will certainly admit that defence markets are not perfect, Airbus has very bad chances of being accepted by the Pentagon...just like it has advantages when dealing with European governments. Since the US spends much more money on military equipments than Europe, Boeing has a clear competitive advantage over Airbus. This advantage has been acknowledged by the EU-US agreement mentioned above.

yeah...but this only applies with airframes and such. If boeing sells a bomb or a service contract or semiconductor r/d and they do, then there is no synergy anyway.

[TCO]

Standup, Mazarin actually understands this issue and made a cogent response that showed some knowledge of microeconomics. you on the other hand should stick to washing test tubes.

[Mazarin]

Re: Re: Re: A Little Economics Please

Originally posted by TCO
yeah...but this only applies with airframes and such. If boeing sells a bomb or a service contract or semiconductor r/d and they do, then there is no synergy anyway.

Surely, but it is not only abour r&d synergies. Boeing's strong position in the not-perfectly competitive defence market allows better ratings when borrowing money, it allows better prices when bying raw materials etc. This is quite a tricky issue which we've had to do a lot with in Germany when our de facto monopolists Deutsche Telekom and Deutsche Post were privatised: the second has been able to use its strong position in its original segments like delivery of letters to quickly build up a fully integrated logistics company. Though these companies are controlled by federal authorities it is extremely difficult for new companies to be able to compete and gain market shares from companies that have huge starting advantages.

[TCO]

Re: Re: Re: Re: A Little Economics Please

Originally posted by Mazarin

Surely, but it is not only abour r&d synergies. Boeing's strong position in the not-perfectly competitive defence market allows better ratings when borrowing money, it allows better prices when bying raw materials etc. This is quite a tricky issue which we've had to do a lot with in Germany when our de facto monopolists Deutsche Telekom and Deutsche Post were privatised: the second has been able to use its strong position in its original segments like delivery of letters to quickly build up a fully integrated logistics company. Though these companies are controlled by federal authorities it is extremely difficult for new companies to be able to compete and gain market shares from companies that have huge starting advantages.

now you are on dangerous ground and starting to bull****. An advantaged position in one market is no reason for an advantage in another. Each proejct has its own WACC and its own NPV. See Copeland Valuation. Read it!

[TCO]

Oh...and that better borrowing...that sounds so Enron. They used to talk all that crap.

[TCO]

The cost of borrowing for the entity as a whole is irrelevant. Situation is same for a conglomerate with SBUs in risky businesses. they are still economically judged using a WACC based on cost of capital overall. Only if you get specific subsidized loans for the SBU or if the amount of your defense subsidies is based on you keeping production going in domsetic civilian business or the like is there an advantage.

[TCO]

It's a common fallacy when viewing colglomerates. People make it even when there is no issue of governemtn. bottom line is each project has its own beta unless there are dependancies. Just having a comglomerate in and of itself is no advantage.

[gopher]

Boeing has taken some lumps recently, but do not count it out of the ballgame. First of all, as mentioned previously, Boeing has the Mcdonnel-Douglas Military contracts, which are worth a pretty penny in many marketplaces. Also, Boeing has one of the best lobbies in the USA. A few states are militant Boeing fanatics (ex: Washington EDIT: The State). Boeing has friends all over congress and the Pentagon.
I highly doubt Washington (EDIT: The City) will let Boeing fall. Stumble, perhaps, but the US has made it clear it considers Boeing a national security industry for Space/Aerospace/Military, and protected by government. Plus, Congress is not pleased to loose the US's most important aerospace company to what is seen as a french/EU megaconsortium.

[gopher]

My last point is proven by the yavoon/spiffor debate
Just move the argument from Poly to Washington/Tolouse (sp?)

[gopher]

Originally posted by DanS
One thing to note is that there might not be much advantage to being first to market. Looked at one way, Boeing is relying on Airbus to prove the market on the superjumbo. Once and if the market for superjumbos is proven, they can put out a superjumbo of their own.

Sorry to nitpick, but I have to disagree. In the area of Aerospace, this is not really true. The R/D, design time, and time for retooling the plants is increadably long. Boeing better be really planning a superjumbo for awhile, otherwise Airbus will be the only ones selling the superjumbo for 10 years or so. If it is feasable, which will be found in 1 year, then Airbus owns the market. And, since when the airline buys the plane, it expects 20-30 years of service through overhauls, the airline has satisfied the demand for that class for quite awhile. Boeing cannot quickly emerge with a similar market product and expect to compete. It happened before with the DC-10 and L-1011, IIRC. Lockheed got trounced with the late Eurohopper and stayed in Defense/Defence (For our friends on the other side of the pond).

[TCO]

that's a good point.

[Adam Smith]

Re: Re: A Little Economics Please

Originally posted by Mazarin
You are absolutely right in a perfect market: .....You will certainly admit that defence markets are not perfect, ...

Defense market certainly are not perfect. My point, however, was that as long as the products are not produced in fixed proportion to each other (e.g., two steaks and one hide from each cow) there is no way of determining how much of the cost each product "should" pay. It doesnt matter if the markets are monopoly, oligopoly, competitive, whatever. Same conclusion applies.

Originally posted by Mazarin Boeing's strong position in the not-perfectly competitive defence market allows better ratings when borrowing money, it allows better prices when bying raw materials etc. This is quite a tricky issue which we've had to do a lot with in Germany when our de facto monopolists Deutsche Telekom and Deutsche Post were privatised: the second has been able to use its strong position in its original segments like delivery of letters to quickly build up a fully integrated logistics company. Though these companies are controlled by federal authorities it is extremely difficult for new companies to be able to compete and gain market shares from companies that have huge starting advantages.

Your analogy, while instructive, falls apart when you realize that entry into these segment of the airframe industry is not likely to come from an entirely new firm, but rather from a branch of an already established firm. In terms of DT and DP, German regulators should have allowed firms like UPS and Fedex in sooner, rather than trying to drum up de novo entrants (or trying to protect DT and DP profits as long as possible).