VISION OF THE FUTURE: AIRBUS 380 OR BOEING 787 DREAMLINER?

History of Boeing and Airbus

Boeing was incorporated in Seattle, Washington, by William E. Boeing in 1916 as “Pacific

Aero Products Company” and renamed the “Boeing Airplane Company” in 1917. Boeing has
consistently been at the forefront of commercial aircraft innovation, introducing the first truly
modern airliner, the Boeing 247, in 1933; the world’s first pressurized-cabin transport aircraft,
the Stratoliner, in 1938; and the first commercial U.S. jet airliner, the 707, in 1958. The Boeing
747, or “Jumbo Jet,” was launched in 1970 as the first wide-body commercial aircraft with a
capacity of about 360 passengers. It was the world’s largest-capacity passenger aircraft for
more than 30 years and dominated the industry in sales and deliveries with more than 1,400
built by 2008.

Airbus Industries started as a consortium of European aerospace companies in 1970 to compete

with the American companies Boeing, Lockheed, and McDonnell Douglas. The Airbus A300
was launched in 1974 with a capacity of about 250 passengers, the A320 in 1981 with a capacity
of about 150, and the A330 in 1987 with a capacity of about 295. All of these were twin-engine
medium-range aircraft. Boeing launched the twin-engine 767 in 1982 to compete against the
A300. The A340, launched in 1993, was Airbus’s first four-engine long-range aircraft with a
capacity of about 310 passengers. In 1995 Boeing launched the twin-engine 777, with a
capacity of about 350. The A330 outsold the 767, but Boeing’s 777 outsold the A330 and A340.

The longer history of Boeing notwithstanding, by 2003 Airbus surpassed Boeing in the number
of planes delivered to customers and remained ahead in 2008. However, on the measure of
orders and value of planes delivered, Boeing surpassed Airbus during the 2006–2008 period.

Next-Generation Products

In 1992 Airbus and Boeing began discussions to cooperate on joint design and manufacture of
the next-generation jumbo jet. In 1995 Boeing officials told their Airbus counterparts that the
latter’s project proposal was too risky. Airbus officials countered that the greater risk was in
not proceeding with the project. The two companies parted ways because of differing strategic
visions of the future. Airbus’s vision was that passenger traffic at the world’s busiest airports
would continue to grow and exceed airport capacity, creating demand for gigantic planes.
Boeing’s vision was that passengers would be traveling shorter distances point-to-point
between smaller airports, avoiding the really congested airport hubs.

Airbus decided to go ahead with developing the A380, a new-generation “Super Jumbo Jet”
capable of carrying 550 passengers, at a cost of $12 billion, planned for delivery in 2005. It
would be more like a cruise ship than an airplane—with spiral staircases, elevators, onboard
medical centers, and zoned seating for families. Airports would need to be redesigned to handle
disembarking passengers through two levels of jetways. By May 2004, Airbus had 129 firm
orders for the A380 at $280 million per plane. Boeing’s more modest vision (the 747-8) was to
stretch the 747 fuselage to accommodate about 510 passengers but make it more fuel efficient,
at a development cost of $3 billion. The Boeing 747-8 was planned for delivery in 2009. Airbus
380 was designed to be about 20% more fuel efficient than Boeing 747.
Change in Plans

After the events of September 11, 2001, airlines cut back capital expenditures and emphasized
fuel efficiency. Boeing designed the 787 Dreamliner to replace the 767 and meet the new
priorities of existing customers. The 787 Dreamliner is a twin-engine aircraft capable of
carrying about 250 passengers and is highly efficient because it uses lightweight composite
materials for most of its construction. The price per aircraft is less than $200 million. To
compete with the 787 Dreamliner, Airbus announced the A350, derived from the A330 but
with a composite body, to be available in 2013. Since December 2004 the A350 has received
100 firm orders compared to 291 for Boeing’s 787 Dreamliner (since May 2004). Analysts feel
there is a larger market for the 787 Dreamliner compared to the A380, but profit margins are
also lower.

From 2001, when development began on the A380, there have been problems with product
design and manufacturing. Initially the aircraft was overweight, which would lead to higher
fuel consumption and operating costs. So, Airbus engineers had to redesign the wings and
fuselage to be constructed from lighter composite materials instead of aluminium.
Manufacturing facilities were located in several countries; the fuselage was made in Germany,
the wings in Britain, and the tail section in Spain. These would all be shipped to Toulouse,
France, for assembly. Later, the plane would be flown to Hamburg, Germany, to add interior
elements such as seats, galleys, and toilets. The coordination of work teams across companies
in different countries turned out to be a major challenge for this technically complex
manufacturing process. For example, wiring of the 80-yard fuselage required 30,000 cables
extending 300 miles hidden behind walls. Wiring snafus led to a six-month delay in initial
deliveries. Cultural and political barriers also led to communications problems and further
delays. The company experienced two CEO changes in a three-month period. Eventually, the
first delivery to Singapore Airlines in October 2007 was two years behind schedule and $6.8
billion over budget.

The Boeing 787 also was plagued by delays. Parts and subsystems for the Dreamliner came
from Australia, Canada, France, Japan, India, and the United States, among others. The
company experienced technology glitches with the wireless network used to serve in-flight
entertainment, as well as a shortage of metal parts fasteners. Sections arrived for final assembly
with missing parts. There was a lack of documentation from overseas suppliers and flight
guidance software was not ready. Apparently, Boeing did not monitor and control its suppliers
well enough on this project, which lead to costly delays. Estimates indicate that Boeing may
have to pay its airline customers $4 billion in penalties for missed deadlines. On July 8, 2007
(the date coinciding numerically with the model number 787), Boeing had a launch party for
the Dreamliner with 15,000 guests hosted by Tom Brokaw. It wanted to have the real aircraft
on display but had to make do with a hollow mock-up. By then, it had received about 600
orders. Now the first delivery has been pushed back to late 2009, some 15 months behind
schedule.

Questions
1. Based on the class discussions, do the Airbus A380 and the Boeing 787 qualify as high-
technology products? Justify your position.

2. Both companies experienced severe delays in the development of their next-generation

products. What could Airbus and Boeing have done to prevent such delays?
3. Analyzing consumer behavior and other trends in the travel business, which company’s
vision of the industry’s future (Airbus or Boeing) do you think will materialize? Why?
How does this affect the firm’s positioning strategy?