Airbus x boeing

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Harvard Business School
Strategy Working Paper Series
Working Paper Number: 02-061
Working Paper Date: February 2002

“Airbus vs. Boeing in Super Jumbos: A
Case of Failed Preemption”
Benjamin Esty (Harvard Business School)
Pankaj Ghemawat (Harvard Business School

This paper can be downloaded without charge from the
Social Science Research Network electronic library at:

Airbus vs. Boeing in Superjumbos:
A Case of Failed Preemption*

August 3, 2001
Rev. February 14, 2002
Benjamin C. Esty

Pankaj Ghemawat

Morgan 381

Morgan 227

Harvard Business School

Harvard Business School

Boston, MA 02163

Boston, MA 02163

Tel: (617) 495-6159

Tel: (617) 495-6270


e-mail:*Acknowledgements: Ramon Casadessus-Masanell, Bruno Cassiman, Richard Caves, Ken Corts, Tarun
Khanna, Julio Rotemberg, Vicente Salas Fumas, Xavier Vives and seminar/workshop participants at
Boston University, Copenhagen Business School, Harvard Business School, INSEAD, New York
University and Universitat Autonoma de Barcelona provided helpful comments. So did senior executives at
both Airbus (AdamBrown, John Leahy) and Boeing (Tim Meskill, Randy Baseler, and Jim Jessup),
although their comments do not constitute an endorsement of the material in either the teaching case or this
paper. We also gratefully acknowledge help from Ed Greenslet, Don Schenk, and The Airline Monitor in
obtaining data and insights about the commercial jet aircraft industry, Mike Kane’s assistance in preparing
theoriginal teaching case, and financial support from the Division of Research at the Harvard Business


This paper looks at competitive interactions between Airbus and Boeing in very large
aircraft. It concludes that Boeing attempted to preempt Airbus in introducing a new
product in this space but failed to do so because of the incredibility, given the assumption
of valuemaximization, of self-cannibalization. A theoretical model is used to illustrate
this credibility constraint, and an assortment of evidence—involving pro forma financial
valuations, product market data (on prices and quantities), capital market reactions to key
events, and qualitative information on Boeing’s organizational structure and recent
changes to it—is assembled to support thehypothesis that the constraint on selfcannibalization ultimately proved decisive.


I. Introduction
In December 2000, Airbus formally committed to spend $11.9 billion to develop
and launch a 555-seat superjumbo plane known as the A380. Prior to Airbus’ formal
commitment, Boeing had started an initiative to develop a “stretch jumbo” with capacity
in between its existing jumbo (the 747) andAirbus’ planned superjumbo, had stopped the
effort, and then had restarted it. After Airbus’ formal commitment, Boeing cancelled the
stretch jumbo for the second (and apparently final) time.
It is worth digging deeper into this case, for at least two sets of reasons. First, the
superjumbo is a strategic commitment of more than average interest because of its sheer
size, irreversibility and potentialimpact on industry structure.

The superjumbo

represents one of the largest product launch decisions in corporate history given Airbus’
projected launch cost of $11.9 billion (a figure that also represented 26% of total industry
revenues—$45.6 billion—and more than 70% of Airbus’ total revenues—$17.2 billion—
in 2000).1 The riskiness of expenditures of this magnitude is magnified by thefact that
Airbus has to spend essentially the entire amount before it makes its first delivery, in an
industry in which many firms—e.g., Glenn Martin, General Dynamics, and, more
recently, Lockheed—failed as a result of bet-the-company product development efforts.
If, however, the launch succeeds, Airbus is expected to dislodge Boeing as the market
leader in commercial aircraft after more...