Airbus vs.

Boeing
Presented by:
Group E
QUESTION 1
What are the drivers of value creation and
value capture in the industry?
 Value Creation
• Innovation
– Had to balance innovation with homogeneity
• Customer Relations
– Dedicated teams for airline accounts
• Alliances
– Alliance with Japanese manufacturers
– Alliance between the players for VLCT
• Technology
– Driven by technology
• Fuel efficiency
• Greater capacity
• Direct Operating Cost
Porter’s 5 Forces Analysis
 Bargaining Power of Suppliers
• Large Number of Suppliers
• Large investment made by suppliers in
developing manufacturing technologies
• Long term relationships with the suppliers

• LOW
 Bargaining power of Buyers
• More than 450 airlines and operators
• Discounts for large orders
• High investment for the research & design

• MEDIUM
 Threat of New Entrants
• High switching costs
• High Research & Development cost
• High initial investment
• Govt. subsidies (Airbus)

• VERY LOW
 Threat of Substitutes
• Other modes of transport
• Tele-conferencing

• HIGH
 Rivalry Amongst the Players
• Struggle for market
• Red ocean
– United Airlines
• Break-even sales requirement is high
• Orders are usually bulk orders

• HIGH
QUESTION 2
As of 1992, who is doing better- Boeing or
Airbus? Explain why?
 Comparison Between Boeing &
Airbus
  BOEING AIRBUS

Existing Fleet Size 57% 16%

Fight between Airbus

and McDonnell
%age of new orders 55-65% Douglas for the rest

Earnings from operations(1991) $1.95 billion $250 million

No. of aircrafts delivered 6600 900

Orders to be delivered in 1992 342 156

Number of categories of aircraft 4 3

Revenue: Boeing, McDonnell Douglas &
Airbus
 Supremacy of Boeing
• Mission: Aircrafts for every segment
• Deliver 500 planes over the next 5 years
• Innovative approach
– Gang of Eight: A group of 8 US and International
Airlines invited by Boeing to contribute to design
process of 777
– DBTs (Design/Build teams): A group of 10 to 30 people
of various disciplines
– CATIA( Computer Aided Three dimensional Interactive
Applications): All 777 designs were computer aided
 Rise of Airbus
• Airbus is growing
– Number of orders received by Boeing grew by
12.2% between 1999 to 1991 whereas the growth
of Airbus for the same period is 73%.
– Airbus won a long time customer of Boeing.
(Potential threat?)
• Superior Technology
– “Fly by wire” in A320 in mid 1980’s
QUESTION 3
What will be the value of the new VLCT to
both the companies?
 Value of VLCT to either player
• Economies of scale to airlines would lead to
increased demand and profitable contracts
• Brand name would be reinforced as a pioneer in
aviation technology and would spill over
favorably towards other business (smaller
models)
• Would eventually be ‘the way of the future’-
Howard Hughes; due to congestion at key
airports
 Feasibility of Co-operation
• Historically Airbus suspected that all the
Americans were really interested in was to split
Airbus up, and hamper its growth as a
competitor
• The threat remained that one of the parties
would acquire the other's crucial technical
expertise
• Develop an advantage and defect
• Going for outright dominance
 Potential Value add through JV
• More control over suppliers
• Risk mitigation
• Collaboration to facilitate high level of
resources
• Take advantage of currency swaps and interest
rate fluctuations between the U.S. and Europe
• Combining Airbus’s fuselage and Boeing’s
wings
QUESTION 4
If you were Airbus, how would you respond
to Boeing?
Should Airbus collaborate with Boeing in the
development of VLCT?
 Developers Dilemma(to produce or not to
produce)
• Each player has two options
 to invest in the development of a new product or not to invest
 If only one of the players decides to develop, he will reap superior profits from unchallenged
future market dominance
 If both players go ahead, the product is likely to generate losses for both players
 If neither goes ahead, a profitable market remains untapped

Boeing/ Airbus Develop VLCT Don’t Develop VLCT

Develop VLCT High risk / Risk Gain/loss
(Individually - (Boeing Dominant
loss/loss strategy)
Cooperatively -
gain/gain)
Don’t Develop VLCT Loss/ Profit Gain/ loss
(Airbus Dominant
Strategy)
 Scenario 1 : European Subsidies
Boeing/Airbus Develop Don’t
VLCT Develop • In spite of Boeing going
VLCT for the VLCT option
Airbus can afford to
Develop VLCT (-) (+) (+) (0) develop due to
subsidies offered by
European countries
• US government could
Don’t Develop
VLCT
(0) (+) (0) (0) retaliate ?
• Boeing could use better
technology?
 Scenario 2 : Uniform subsidies/Same
technology
Boeing/Airbus Develop Don’t
VLCT Develop • US and Some European
VLCT nations sign accord
governing subsidies
Develop VLCT (-) (-) (+) (0)
• Developers dilemma
• Entry deterrence will
need to be used by
either Airbus or Boeing
Don’t Develop (0) (+) (0) (0)
VLCT • Lowering of Price
Collaboration of Airbus and Boeing?
• Pros
– Both could avoid prisoner’s dilemma
– Shared resources so reduced development costs
– More profits for both
– Improved and Advanced aircraft with Airbus’s fuselage and
Boeing’s wings.
– Shared core competencies
• Cons for Boeing:
– Boeing might lose its market dominant position to Airbus
– Collaborating with Airbus would mean sharing their core
technologies
– Boeing’s current market share for mid sized planes could be
affected
 What should Airbus do?
• Could consider collaboration as it would increase
chance for profits.
• However Boeing’s commitment to this collaboration
could be questioned.
• Boeing would stand at advantage even if it did not
enter the new market of large planes.
• Airbus has to develop large planes.
• Its dominant strategy would be to do it alone and at
the same to ensure Boeing does not get into the
market.
 Airbus’s Response
• Airbus respond by announcing to develop its
own large plane with latest technology.
• It could challenge Boeing with this
announcement.
• If Airbus entered this segment, Boeing would
be better off collaborating with Airbus
 Feasibility of Co-operation
• Historically Airbus suspected that all the Americans
were really interested in was to split Airbus up, and
hamper its growth as a competitor
• The threat remained that one of the parties would
acquire the other's crucial technical expertise
• develop an advantage and defect
• going for outright dominance
HOW TO MAKE MUTUAL ASSURANCES
CREDIBLE ?
 Developers Dilemma(to produce or not to
produce)
• Each player has two options
 to invest in the development of a new product or not to
invest
 If only one of the players decides to develop, he will reap superior
profits from unchallenged future market dominance
 If both players go ahead, the product is likely to generate losses for
both players
 If neither goes ahead, a profitable market remains untapped
• Competitive landscape reinforces game-theory
modeling, where decisions by one player are
dependent on the moves expected of the other player
 Potential Value add through JV
• More control over suppliers
• Risk mitigation
• Collaboration to facilitate high level of
resources
• Take advantage of currency swaps and interest
rate fluctuations between the U.S. and Europe
• Combining Airbus’s fuselage and Boeing’s
wings
THANK
YOU