Contents
The Balance of Power comes from politics between states. But it applies in markets as well. When one camp becomes so strong that the others are reduced to buyers and suppliers, pressure builds to join forces. The founding of Airbus is a textbook case.
A market with three American names
Situation
In the 1960s, Boeing, McDonnell Douglas and Lockheed build most of the world’s large airliners. Their lead has several causes: a huge home market, an industry that emerged from the Second World War strong and well organized, and an agreement from 1942 under which the United States, in its alliance with Britain, built the transport aircraft. The European manufacturers are fragmented. Each builds small production runs for its own market.
Link to the principle
A preponderance of power doesn’t have to be hostile to seem threatening. It is enough that the others lose their independence. For Europe, that meant: no industry of its own for large aircraft, no engineers of its own at the cutting edge, dependence in a key technology.
Too small alone
Situation
European airlines want an aircraft with well over 100 seats for short and medium routes that is cheap to operate. No European country can manage such a project on its own. On September 26, 1967, France, West Germany and Britain sign a memorandum of understanding in London for a twin-engine wide-body aircraft, the future A300.
Link to the principle
Counterweights arise where no one can keep up alone. The motive is not friendship but calculation: only the pooled strength comes close to that of the stronger party. That holds for states and companies alike.
The alliance becomes a company
Situation
On December 18, 1970, Airbus Industrie is founded as a groupement d’intérêt économique, an economic interest grouping under French law. The shareholders, with 50% each, are France’s Aérospatiale and Deutsche Airbus. The British government withdrew from the project in 1969, but the British company Hawker Siddeley continues to build the wings. In October 1971, Spain’s CASA joins, and in 1979, British Aerospace. The technical director, Roger Béteille, later said, in essence, that the basic idea of Airbus had always been to take on the established manufacturers.
Link to the principle
A balance holds only if the alliance becomes permanent. Airbus is more than a joint project. It is an organization that remains once the first aircraft is finished. The partners give up independence in order to hold their own together against the stronger party.
The long road to a counterweight
Situation
The A300 makes its first flight in 1972 and enters service with Air France in 1974. The early years are hard going. But Airbus builds up a family of aircraft. Lockheed withdraws from building commercial airliners in the 1980s, and McDonnell Douglas merges into Boeing in 1997. The market with three American names becomes a market with two large manufacturers. In early 2022, Airbus is considered the world’s largest aircraft manufacturer by deliveries for the third year in a row.
Link to the principle
The result is not a victory but a balance. No manufacturer can dictate terms to customers alone. That is exactly what the alliance set out to achieve.
What the balance costs
Situation
Airbus comes into being with state support. For decades, the United States accuses Europe of illegal subsidies, and Europe counters with accusations against Boeing. Starting in 2004, the dispute occupies the World Trade Organization for many years.
Link to the principle
If you create a counterweight, you provoke countermoves. Balance does not mean calm but a new kind of competition among near equals.
Key takeaways
Key lessons
- A preponderance of power becomes a problem when you lose your independence.
- If you are too small on your own, look for partners who face the same stronger party.
- Turn an alliance of convenience into a lasting structure.
- Be prepared for a long road; counterweights don’t arise in a year.
- Count on the stronger party reacting to your alliance.
Summary
When American manufacturers dominated the market for commercial airliners, France and Germany founded Airbus Industrie in 1970; Spain and Britain joined later. None of the partners would have been big enough on its own. Together, over decades, they created a counterweight to Boeing. That is the Balance of Power in business: whoever becomes too strong calls forth an alliance.
Sources
- Hans J. Morgenthau: Politics Among Nations: The Struggle for Power and Peace. New York: Alfred A. Knopf 1948.
