My conclusion is this: it's easy to say "well, because the government is picking winners and losers." And it's true. But let's assume government will always be here (anarcho-capitalists are generally imbeciles) and it will generally rely on big industry.
So it's not necessarily a market failure. The businesses have a steady stream of income they can rely on because, well, the government probably isn't going to change any time soon. Also, these businesses are experts at forming relationships with the state. It's probably what they do best.
So if government will always be there, and will always spend into the market, what's the solution here?
Limit business size. A progressive tax on the size of any company once it reaches some number like 1000 people (1% at 1000 up to 90% at 1M+). Putting downward pressure on company size does a lot of things: it eliminates a lot of bureaucracy, it creates more businesses (and competition), and it limits the power any one business has (political or economic).
If the government decided "wow Boeing's planes suck nowadays" they can shift their contract and not worry about ~150K people losing their jobs which is a political dumpster fire.
More competition, more choice, more ability to change. I'm sure there would be downsides, but I have trouble thinking of downsides that outweigh the upsides.
Of course, I'm not a dictator, and passing any kind of tax law like this after the fact is going to be a no-go.
In rockets, we have SpaceX. Commercial aviation has a higher regulatory barrier for entry, both in technical knowledge and facilities. You don't just spin up a gigantic, cavernous assembly line with thousands of technicians and billions of dollars in tooling overnight. I wouldn't be surprised if in 10-20 years though, someone backed by Google tried building a self-piloted, subsonic blended-wing-body 200-300 pax jetliner. Google right now has Kitty Hawk, but I think their ambitions are far greater.
