Commercial Jet (A)
Embry-Riddle Aeronautical University
On June 23, 2000, Airbus Industries’ Supervisory Board approved an Authorization to Offer (ATO) the A3XX, a proposed super jumbo jet that would seat from 550 to 990 passengers, have a list price of $216 million, and cost $13 billion to develop hauls larger shipments. This paper compares Boeing and Airbus in very large aircraft.
In December 2000, Airbus committed to spend $11.9 billion to develop and launch a 555-seat superjumbo plane known as the A380. Prior to Airbus’ commitment, Boeing started an initiative to develop a “stretch jumbo” with capacity in between its existing jumbo (the 747) and Airbus’ planned superjumbo, had stopped the effort, and then had restarted it. After Airbus’ formal commitment, Boeing cancelled the stretch jumbo.
The superjumbo represents one of the largest product launch decisions in corporate history given Airbus’ projected launch cost of $11.9 billion. A risky expense of this extent is exaggerated by the fact that Airbus has to spend basically the entire amount before it makes its first delivery, in an industry in which many firms for example, Glenn Martin, General Dynamics, and, more recently, Lockheed has failed as a result of bet-the-company product development efforts. It seemed clear that if each competitor developed a brand new VLA, both would incur very large losses and that intense competition in the pricing of VLA would increase pricing pressures on Boeing’s 747 as well. Boeing, would earn higher operating profits if they could prevent Airbus, from developing a superjumbo. Airbus was committed to the super jumbo due to their large financial subsidies.
With total sales of $45.6 billion in 2000, the manufacture and sale of jet aircraft is the biggest single segment of the $140 billion commercial aviation industry. Two firms, The Boeing Company and Airbus Industry, dominate the manufacture of large commercial aircraft. Combined, they delivered 790 aircraft in 2000, ranging from single aisle jets seating 100-200 passengers to the twin-aisle Boeing 747-400 seating more than 400 passengers. The table below from airline monitor.com shows the projected delivery of aircraft for Airbus.
Boeing has been at the forefront of civil aviation for over 40 years. From the B17s and B29s of World War II through the B52s of the Cold War, it has leveraged its manufacturing and defense experience to become the world’s leading producer of commercial aircraft. Boeing’s commercial fleet consists of 14 models spread across 5 aircraft families. It has built approximately 85% of the industry’s current fleet and, until recently, regularly captured 60-80% of orders and deliveries. The flagship of the Boeing fleet, the 747-400, holds 412 passengers in the standard three-class configuration and as many as 550 in certain “high-density,” all-coach configuration used mainly on Asia routes. More than three decades after the jumbo was introduced, demand for it remains strong.
Airbus Industry, was founded in 1970 as a consortium of the principal aerospace companies of Germany (Deutsche Aerospace, now a Daimler-Chrysler subsidiary known as DASA), France (Aerospatiale Matra), England (Britain’s Hawker Siddeley, later BAE Systems), and Spain (Construcciones Aeronauticas, CASA). Airbus has a fleet of nine basic models, a customer base of 171operators, and an order backlog for 1,445 planes. All of its planes employ “fly-by-wire” technology that substitutes computerized control for mechanical linkages between the pilot and the aircraft’s control surfaces. This technology combined with a common cockpit design help explain why Airbus received over half the orders for large aircraft for the first time in 1999, even though its share of deliveries was...