Biz Jets: Technology and Market Structure in the Corporate Jet Aircraft Industry

279 Pages·1994·7.53 MB·English

by  Almarin Phillips

BIZ JETS
Economics of Science, Technology and Innovation
VOLUME 1
Series Editors
Cristiano Antonelli, University of Torino, Italy
Bo Carlsson, Case Western Reserve University, Us.A.
Editorial Board
Steven Klepper, Carnegie Mellon University, US.A.
Richard Langlois, University of Connecticut, US.A.
1. S. Metcalfe, University of Manchester, UK.
David Mowery, University of California, Berkeley, US.A.
Pascal Petit, CEPREMAP, France
Luc Soete, University of Limburg, The Netherlands
The titles published in this series are listed at the end of this volume.
BIZ JETS
Technology and Market Structure
in the Corporate Jet Aircraft Industry
by
ALMARIN PHILLIPS
Professor Emeritus,
University of Pennsylvania,
and
Chairman of the Board,
Econsult Corporation
A. PAUL PHILLIPS
and
THOMAS R. PHILLIPS
SPRINGER-SCIENCE+BUSINESS MEDIA, B.V.
Library of Congress Cataloging-in-Publication Data
Phlilips. AI~a rln.
B,Z Jets technology and market structure In the corporate Jet
alreraft lndustry! boy Almarln PhllilPS. A. Paul Ph'llips. Thomas R.
Ph 1 I I 1 ps.
p. em. -- (Eeonomles of SClenee. teehnoio9OY. and lnnovatlon ;
v. 1)
Inc Iud e s b 1 b I 10 9 r a Dh 1 Ca Ire fer e nee san d 1 n d ex.
ISBN 978-94-010-4348-9 ISBN 978-94-011-0812-6 (eBook)
DOI 10.1007/978-94-011-0812-6
1. Alrcraft lndustry--Unlted States. 2. Jet planes. 3. Market
surveys--Un i ted Sta tes. I. Ph ill 1 ps. A. Paul. II. PhllllPS.
Thomas R. III. Tltle. IV. Serles.
HD971 1 .U6P48 1994
338.4·762913334·0972--de20 93-42692
ISBN 978-94-010-4348-9
Printed on acid-free paper
All Rights Reserved
© 1994 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 1994
Softcover reprint of the hardcover 1s t edition 1994
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means. electronic or mechanical,
including photocopying, recording or by any information storage and
retrieval system, without written permission from the copyright owner.
Table of Contents
Preface Xl
Chapter One 1
Technology and Market Structure
The Setting
The Scope of the Study 2
Where We Go From Here 5
Notes 8
Chapter Two 13
The 1950's: Pressures Build for the Introduction of Business Jets
Aircraft Available for Business Use 13
The Growing Dissatisfaction of Businesses and Government 15
Developments in Jet Aircraft Technology to the Mid-1950s 17
Efforts at Development of Business Aircraft Within the Reciprocating- 20
Engine Technologies
Government Activity Supporting the Introduction of Business Jets 23
First Efforts at Developing Business Jets 26
Sabreliner and JetStar Get the Lead 30
Notes 31
Chapter Three 35
1960-1970: The Developing Market for Business Jet Aircraft
The Debuts of the JetStar and Sabre liner 35
JetStar 35
Sabreliner 37
Entrants Achieving Significant Sales by 1970 40
Lear Jet 40
v
VI Biz Jets
Jet Commander 44
Gulfstream II 47
HS-125 48
Falcon Jet 50
Some Early Entrants That Failed 51
MS-760 Paris 52
Hansa HFB 320 53
Piaggio-Douglas 808 54
rAI B-301C 56
Heinkel-Potez CM-191 56
Saab 105 56
Hispano Aviacion HA-230 57
Macchi MB.330 57
ME.P-308 57
Aero Star Model 2000 57
Century 58
Other Projects of the 1960s 58
Observations on the Formation of the Market 59
Notes 67
Chapter Four 73
Cessna Opens the Lower End of the Market
Background 73
Development of the Cessna Fan Jet 500 Citation 75
Follow-On Citation Models 80
Challenges to the Citation 83
Aerospatiale SN-600/601 Corvette 83
Other Early Efforts to Compete with the Citation 87
Later Challenges to the Citation 89
Cessna's Success in Holding Its Position in the Market 94
Notis 97
Contents vii
Chapter Five 103
The "Heavy Iron" Business Jets: Gulfstream, Dassault and Canadair
Grumman's History in Military and Business Aircraft 103
Gulfstream G-II 104
Gulfstream G-III 107
Gulfstream G-IV III
More Recent Gulfstreams 114
Competition from Dassault 115
The Falcon 50 116
The Falcon 900 118
Canadair Enters the Fray 121
The Canadair CL-600 122
Observations on Rivalry in the "Heavy Iron" End of the Market for 130
Business Jets
Notes 135
Chapter Six 141
The Market for Mid-Sized Business Jets After 1970
The Fate of the Early Entrants 141
JetStar 141
Sabreliner 143
Gates Learjet 151
Israeli Aircraft Industries 159
Hawker-Siddeley/British Aerospace 165
Dassault and the Falcon Jets 169
New Participants in the Mid-Sized Segment of the Market 174
Cessna 174
Mitsubishi 179
Summary Observations on the Mid-Sized Segment of the Market 182
Notes 183
Chapter Seven 193
Schumpeterian Rivalry and the Market for Business Jets
Introduction 193
Biz Jets
Vlll
Technological Opportunities, Innovations and Market Structure 198
First-Mover Advantages 212
The Overbidding Question 213
The Overall Demand for Business Jets 214
Trajectories: Price and Performance Trends 214
Government Policies 222
What of Tomorrow? 225
Notes 228
Appendix A: Operation Cost Regression 231
Appendix B: Characteristics of Business Jet Aircraft Av ail- 235
able in the United States, 1958-1993
Appendix C: Glossary 255
Index 259
List of Tables
Table 3-1: Total U.S. Deliveries of Business Jets, 1960-1970 60
Table 3-2: U.S. Market Shares, 1964 and 1970 61
Table 3-3: Business Jet Aircraft Available in the United States Through 63
1970
Table 4-1: Comparison of the MS-760 and the T-37 76
Table 4-2: Comparisons of the T-37, the (Announced) Fan Jet 500 and the 78
(Production) Cessna Citation
Table 4-3: Unit and Dollar Value of Cessna Business Jets and Total 82
Business Jets Delivered to U.S. Customers, 1971-1981
Table 4-4: Comparison ofSN-600 Corvette and Citation 500 84
Table 5-1: Deliveries of Gulfstream II Aircraft to U.S Customers 106
Table 5-2: Deliveries of Gulfsteam III Aircraft to U.S. Customers 112
Table 5-3: U.S. Deliveries of New Falcon 50 Aircraft, 1980 - 1989 119
Table 5-4: Selected Characteristics of the Falcon 50 and Falcon 900 120
Table 5-5: Comparative Data on Gulfstream, Dassault and Canadair 131
"Heavy Iron" Business Jets, 1985
Table 6-1: U.S. Deliveries of JetStars, 1971-1979 144
Table 6-2: U.S. Deliveries of Sabreliners, 1971-1981 147
Table 7-1: United States and World Fleet of Business Jet Aircraft, 194
December 1992
Table 7-2: Percentage Distribution of the Number and Value of Business 199
Jets Delivered in the United States, 1961-1991 with Herfindahl
Indexes
Table 7-3: Changes in Characteristics ofthe HS-125, 1964 - 1992 217
Table 7-4: Comparisons in Estimated Total Operating Costs per Seat Mile 219
for Selected Business Jets
IX
Preface
This book grew from long-term interests in the economics of tech
nological change and the aircraft industry. The senior author has argued for
many years that opportunities created by advances in science and technology
playa large role in the determination of market structures. The argument
was made explicit in "Patents, Potential Competition and Technical Pro
gress," American Economic Review, May 1966, and more fully explicated in
Technology and Market Structure; A Study of the Aircraft Industry, 1971.
At that time, the so-called structure-conduct-performance paradigm reigned
in industrial economics. The idea that market structure was even partially
endogenous to the market process was quite foreign to the main body of mi
croeconomics, including the economics of technological change. Even the
works of Joseph Schumpeter had been popularized to say that the important
relationships to be studied were those that explained differences in the rates
of technological change in terms of differences in market structures. It is
probably correct to say that the latter approach still dominates economic re
search in the area, despite a growing number of influential theoretical and
empirical studies that emphasize the endogenization of market structure.
The senior author was commissioned to conduct a study of the mar
ket for business jet aircraft in the mid-1980s. This work sparked a renewed
interest in describing changes in market structure in terms of the degrees of
success various sellers achieve in seizing on the opportunities created by ad
vances in technologies. As was the case in the 1971 study of commercial
aircraft, detailed research could unearth the stories of the failures as well as
the successes in these endeavors. Interest was heightened as well by the
large volume of related research that had appeared in the intervening years.
The two junior authors - sons of the senior author - volunteered their ser
vices enthusiastically.
Almarin Phillips was responsible for the first draft. His work was
based primarily on research conducted by Thomas R. Phillips. A. Paul Phil
lips edited the work with such care that he literally became co-author of
XI