Boeing Airbus Case

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How does a company become successful and stay successful?

Certainly not by playing it safe and


following the traditional ways of doing business!

The Boeing Company, well-known U.S.-based manufacturer of commercial and military aircraft, faced
this dilemma in 2004. Long the leader of the global airframe manufacturing industry, Boeing slowly lost
market share during the 1990s to the European-based Airbus Industries now incorporated as part of the
European Aeronautic &Space Company (EADS). The EADS board of directors in December 2001
committed the corporation to an objective it had never before achieved: taking from Boeing the
leadership of the commercial aviation industry by building the largest commercial jet plane in the world,
the Airbus 380.

 The A380 would carry 481 passengers in a normal multiple-class seating configuration compared
to the 416 passengers carried by Boeing's 747-400 in a similar seating configuration.
 The A380 would not only fly 621 miles further than the 747, but would also cost airlines 15-20
percent less per passenger to operate.

With orders for 50 A380 aircraft in hand, EADS announced that the new plane would be ready for
delivery during 2006. The proposed A380 program decimated the sales of Boeing's jumbo jet.

In response, Boeing's board approved the strategic decision to promote a new commercial airplane, the
Boeing 787 Dreamliner, for sale to airlines. The 787 was to be a mid-range, not a jumbo jet like the
A380. The 787 would carry between 220 and 250 passengers, but consume 20 percent less fuel and be
10 percent cheaper to operate than its competition. It was planned to fly faster, higher, further, cleaner,
quieter, and more efficiently than any other medium-sized jet. To improve customer comfort, it would
have larger windows, seats, lavatories, and overhead bins. Development costs were estimated at $8
billion over five years. The planes could be delivered in 2008, two years
after the delivery of the A380.

The Boeing 787 decision was based upon a completely different set of assumptions from those used by
the EADS board to approve the A380. EADS top management believed that the commercial market
wanted even larger jumbo jets to travel long international routes. They believed that over the next 20
years airlines and freight carriers would need a minimum of 1,500 more aircraft at least as big as the
B747. The A380, which would cost EADS almost $13 billion in development costs, was a large bet on that
future scenario.

In contrast, Boeing's management believed in a different future scenario. Noting the success of
Southwest and JetBlue, it concluded that no more than 320 extra-large planes would be sold in the
future as the airline industry moved away from hub-and- spoke networks toward more direct flights
between smaller airports. The new 787 was being designed in both short- and long-range versions.
Boeing's management predicted a market for 2,000 to 3,000 such planes.

Which vision of the future was correct? The long-term fortunes of both Boeing and EADS depended on
two different strategic decisions based upon two distinctly different assessments of the market. If EADS
was correct, the market would continue to demand ever-larger airplanes. If Boeing was correct, the
current wave of jumbo jets had crested and a new wave of fuel-saving mid-range jets would soon
replace them.

Which company's strategy had the best chance of succeeding? Boeing's situation suggests why the
managers of today's business corporations must manage firms strategically. They cannot make decisions
based on long-standing rules, historical policies, or simple extrapolations of current trends. Instead, they
must look to the future as they plan organization-wide objectives, initiate strategy, and set policies. They
must rise above their training and experience in such functional and operational areas as accounting,
marketing, production, or finance, and grasp the overall picture.

Boeing and the Airbus, airlines companies come up with two different strategies when they realized
there were some changes required in the business. Airbus’ objective was to become leader in airlines
and so came up with the strategy, introducing a largest commercial jet plane in the world, Airbus 380.
The A380 has capacity to carry 481 passengers that is more than the Boeing’s jumbo jet. Whereas the
strategy of Boeing was to introduced a commercial medium sized plane, Boeing 8,Dreamliner. The A380
has capacity to carry 220- 250 passengers.

But having a look at these, we can see that companies focus on different long-term strategies in order to
bring the changes into their businesses. Where Airbus predicts a big future for mass transportation with
very large airplanes like its A380, Boeing pins its hope on a different strategy to focus on giving better
customer experience by providing lager windows, seats, lavatories and overhead bins and also plane was
designed to fly fast and higher. Airbus strategy was made with the assumption that commercial market
wants larger planes to travel long routes whereas the Boeing made assumption that large planes would not
be succeed in future and boom in market of small and medium sized planes. Airbus followed hub-and-
spoke strategy whereas the Boeing 787 was designed both for short and long range destinations.

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