Airbus’s Decision to Build the A380 and Boeing’s Sonic

Cruiser Response and the 747-8

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BLEMBA-18

BACKGROUND

• “Boeing is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military”

• It was established by William Boeing in 1916 in Seattle, Washington. Its international headquarters now has been located in Chicago, Illinois.

• The major products are commercial airliners, military aircrafts, munitions, space systems and computer services (Wikipedia, Boeing).

• With respect to its commercial airplanes, this company has launched into the world market such these models: 737, 747, 767, 777.

• “The European Aeronautic Defense and Space Company EADS N.V. (EADS) is the large European aerospace corporation” and was founded on July 10, 2000 from the merger among Aerospatiale-Matra of France, Construcciones Aeronauticas SA (CASA) of Spain and DaimlerChrysler Aerospace AG (DASA) of Germany (Wikipedia, EADS).

• IThis company mainly focuses on developing and producing the civil and military aircrafts, missiles, space rockets, satellites and related systems.

• Airbus is one of its important divisions and has penetrated into the global market the five big aircraft families including A320 family (A318, A319, A320, and A321), A300/A310 family, A330/A340 family, A350 family

KEY DRIVERS IN AIRLINES INDUSTRY COST DRIVERS

• Both Airbus and Boeing aim at launching their products into the global market. The initial investment capital for R&D activities and production of per aircraft is so high.

• The technology used in the aviation industry develops rapidly. The new model of aircraft is given birth always is followed by the more improved and modern technology.

• Uses the minimum of distribution channels and centralizes in purchasing and supplying of its products to lower its costs.

MARKET DRIVERS

• Their domestic markets or the “single-country market” including Spain, Germany, France and United States of America nearly were saturated;

• Airlines cannot provide many opportunities for their growth and be not “large enough for the local business to achieve all possible economies of scale and scope” (Chatterjee, 2003).

• the emerging markets such as China, India and United Arab Emirates progressively become their big and potential customers .

• The differences in tastes, preferences, cultures, ethics, geographies and so forth are almost flat in this industry

• Additionally, the brand names-Airbus and Boeing-have been well-recognized by the whole world.

GAME THEORIES – THE PRISONER DILLEMA

150

0 50

50

120

120 200

0 BOEING

AIRBUS Build A380 No A380

Jumbo Jet

Sonic Cruiser

ANALYSIS ON THE DECISION OF BUILDING A380

• Under this interpretation, Boeing was not caught in the Developer's Dilemma in the first place, because an untapped new market meant monopolistic profits in the old.

• Airbus even claimed that high profits on jumbo sales allowed Boeing to subsidize sales of medium-size jets. In game-theory terms, Boeing's payoff for leaving the new market untapped was positive, Airbus's payoff was negative.

• Boeing's best interest was to slow development of other jets in the 400-plus category, while Airbus's interest was to end Boeing's jumbo monopoly.

ANALYSIS ON THE DECISION OF BUILDING A380 (Cont’d)

• To avoid such losses that are predicted through game theory, Boeing and Airbus formed an alliance to develop a Very Large Commercial Transport (VLCT).

• Developer’s Dilema still threatened Airbus because of the possibility that Boeing would leave the alliance and dominate the superjumbo market using some of Airbus’ ideas.

• As a result of Boeing’s lack of commitment in the alliance, Airbus backed out and decided to develop the “superjumbo” on its own.

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