Boeing and Airbus

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NABIL AL-NAJJAR

Boeing and Airbus:

Competitive Strategy in the Very Large Aircraft Market

In 1999 Airbus was considering investing in building the world’s first super-jumbo jet airliner. For a $20 billion company, this $12 billion gamble could literally make or break the 30year-old European consortium. The controversy was enormous among Airbus senior executives. Some argued that the super-jumbo project was exactly what the market was waiting for, given commercial aviation business trends. Airbus had already invested $500 million in this project putting it ahead of Boeing in development—why not take advantage? The problem was a recent announcement by Boeing. One month earlier, Boeing had announced it would launch a stretch version 747 that would carry nearly as many passengers as Airbus’ super-jumbo and would be produced for half the forecasted investment of Airbus. Boeing’s commercial strength with Asian airlines companies, built on decades of selling the 747, was also a factor. Without the early backing of some of these Asian companies, the Airbus project would never materialize. Boeing’s announcement surprised Airbus’ executives, since for years Boeing had forecast that the superjumbo market was too small to enter profitably. What could have made Boeing change its mind? And should Airbus enter this market, too?

Commercial Aviation Industry Drivers and Fundamentals

The Drivers of the Current Demand

Airbus and Boeing customers were a mixture of airlines (both inter- and intra-continental), leasing companies, and financial institutions. The timing of order placements depended on a complex variety of factors, but, in simple terms orders tended to increase after airline profitability had recovered from a period of low returns (see Table 1). The profitability of airlines was driven by a variety of factors including oil prices and the number of competitors in the same route. The airline’s profitability also impacted the likelihood of new aircraft...