Airbus's decision to drop its support for Microsoft in a European antitrust battle is a welcome relief for its own supply chain
As Flight International closed for press, Airbus reversed its earlier decision to publicly support Microsoft in its antitrust battle against the European Commission. This is the right decision for Airbus, which has done much to free its own suppliers, and for whom Microsoft would have made an odd bedfellow.
This week's case, an injunction, is a sideshow to the main clash. Microsoft is appealing against the EC's March ruling that it broke competition laws by abusing its position as dominant supplier to kill competitors. The EC not only proposed a hefty fine, but also ordered "remedies", including opening up source code for its Windows operating system and forcing the company to sell Windows in Europe minus add-on applications.
Airbus had been cleared to offer testimony in support of Microsoft. But why should Airbus have been be bothered by the ruling?
It says all industry in Europe is worried about the precedent the ruling sets, and that it is merely taking an interest in a landmark case, rather than taking sides. Certainly, if applied to other sectors, companies might not be allowed to add value to their products in a bid to gain market share, some fear.
The EU Court that hears commercial cases requires all interveners, or expert witnesses, to come down in support of one of the two parties - in this case either the EC or Microsoft. The software giant had previously welcomed Airbus's support as a sign that it is an issue that affects more than just the computer trade.
On the surface Airbus need not worry too soon about possible EC sanctions. The Microsoft case is based on market dominance; Windows sits on over 95% of all desktop computers. Airbus on the other hand vies with Boeing to control the market for large commercial airliners. Furthermore, decentralised Airbus has a different business model to Microsoft, which develops and designs all of its software products in-house, often acquiring software houses whose skills it lacks.
Indeed, Airbus has long been a model for vertical disintegration, a champion of the supplier-vendor relationship. By jumping into bed with Microsoft, albeit tacitly, it could have sent the wrong signal to its supply chain.
Take for example a possible future scenario where Airbus were able to see off Boeing's 7E7 with its A350. Boeing's future survival in the civil market hangs to a large degree on the success of the Dreamliner and it is not impossible to imagine that the airframer would be reduced to bit-part player without it. If that were to happen, Airbus could rise to supply over 80% of commercial airliners, the theoretical definition of market domination given by the EC. If Airbus were then to take away airlines' right to pick and choose specifications, this would certainly damage airline profitability.
This is where the issue of "bundling" comes in. The EC argues that although there are rival software products available, the fact that Microsoft's own products come pre-loaded dissuades casual users from changing. If Airbus, in a future hypothetical dominant position, were to offer only, say, cinema-style seats on all A320s, then it would be hard for other furniture suppliers to break into the market, given that airlines would have to replace the seats.
Market forces currently push both Airbus and Boeing to supply whatever specification the airline requires. However, in the nightmare scenario envisaged above, where Airbus had a stranglehold on aircraft orders, then there would certainly be a temptation in Toulouse to raise the value of each aircraft and thus maximise shareholder return. Anything else would be bad corporate governance.
In such a scenario, Airbus could be left with power of life and death over suppliers. There is already some resentment about the growing importance EADS subsidiaries have in the supply chain, to the detriment of independents.
In the early 1990s, Airbus was likened to Apple, Microsoft's erstwhile rival. Airbus was the underdog, arguably with a superior product. Unlike Apple, whose Macintosh system has comprehensively lost the marketing battle, Airbus has been able not only to break into the market, but to acquire a majority share.
In doing this, Airbus has revolutionised the supply chain and accelerated innovation in the commercial aircraft sector. One would imagine that it would be supportive of any ruling designed to open virtual monopolies to competition. The EC decision to reopen the software market will have far-reaching implications for other sectors, including aerospace. But as Airbus grows, it shouldn't seek to emulate Microsoft's supplier relationship and was right to withdraw its support.
Source: Flight International
