Boeing v. Airbus—what will the next generation of airplanes look like?

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Stories about Airbus and Boeing capture the essence of the competition between these two industry behemoths.

The commercial aircraft business is one of the most complex and riskiest businesses. It is standard practice that each new model must incorporate the most advanced technology as a result of massive R&D budgets. The assemblies and parts are manufactured around the world; a small error in the timing of delivery of the inventory could cost percentage points of profit. Perhaps the most critical ingredient in making a plane is the vision—what size, performance and operating costs define the company’s next product. What senior management decides is the next correct configuration is basically a bet of the company’s net worth.

The A-380 was intended to carry large numbers of passengers from hub to hub. The capital invested to design the double-decker airplane was US$25 billion. That king’s ransom was less than $37B( only in 2004 dollars) committed to the B-747’s engineering and manufacturing. Now, as indicated in the first article linked below, the multi-national company’s Board will consider cancelling the production of the A-380.

One Airbus source intimated that the problem is that they allowed the airlines so much customization and the associated costs were not recovered adequately. An airline executive opined that the markets and airports (to accommodate its weight and size needed thicker runways, wider taxiways and different gates) which could handle this jumbo were too few in number. Probably the critical factor is the math: number of aircraft sold needed to breakeven = 1,200; number sold since 2000= 318.

The Toulouse CEO is Fabrice Bregier, an engineer. His official biography states that his predecessor gave Mr. Bregier the job of improving “the overall operational performance of the Group. His responsibilities included the company’s wide-ranging restructuring and change programme.” The review of the A-380’s future reflects his strong history of managing costs.

While this is going on, the company is designing and offering other new products. Airbus may decide to reengine the A-380 or drop it and/or develop new products. Its vision of the plane(s) needed to meet the airline markets will define its future.

The folks at Renton and Chicago are putting the breaks on the B-747 production line, too; the Boeing twin engine, long distance airplanes are exactly what the airlines wanted and hurt the sales of this new model of this venerable aircraft.. The company’s crystal planning ball says that the next generation fleet should include a New Small Airplane and a replacement for the B-757. The new concept plane is called the MOM and has been discussed in public by Boeing Chairman, President, and CEO James McNerney, Jr. As with the B-757/767, the architecture of these new designs will incorporate as much commonality as possible to reduce their breakeven targets.

McNerney’s background included McKinsey& Co., 3M and GE. He is described as a numbers guy whose relentless push for efficiency and lower costs has consistently delivered stellar profits in his decade as Boeing chairman and chief executive.” He has not created many fans within the company due to his hard-edged decisions. The last article makes it clear his leadership is much appreciated by the Board, investors and the rank-and-file who understands the nature of competition. How his strategic vision influences these aircraft choices will define his legacy.

How this Airbus v. Boeing strategic design battle plays out will be most interesting.

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