“Airbus vs. Boeing in Super Jumbos: A Case of Failed Preemption”

ability to reverse engineer-realized prices improves over time as more data becomeavailable. 39With that background, several indicators of pricing pressure in the very largeaircraft segment can be cited. Starting with Airbus’ A380 which has a list price of $218-$240 million in 2000. Given the 17-21% discount typical for the largest Airbus planes,the realized prices should be around $176 million assuming a list price of $220 millionand a 20% discount. According to Airbus’ CFO, it expects to make pre-tax margins of20% over the next 20 years. 40 On a realized price of $176 million, this implies $35million of operating profit on top of operating costs of approximately $140 million. As itturns out, however, the early sales have occurred at prices as low as $135-140 million or,in other words, essentially at “steady state” cost. 41 While some of the early launchcustomers like Qantas and Virgin reportedly paid approximately $150 million per plane, 42Singapore Airlines reportedly paid only $140 million when it bought 10 aircraft inSeptember 2000. Furthermore, Boeing was also reported to have cut the asking price onits intermediate product to $140 million in its unsuccessful attempt to win the SingaporeAirlines order (off a list price of $185 million). 43One way of putting these prices in perspective is to note that they are on the lowend even for the smaller 747, the production of which must be well down its learningcurve. In a rare occurrence, Thai Airways disclosed in January 2001 that it paid $147million for new 747-400s, a 20% discount off list price. 44 The magnitude of thisdiscount, particularly for the limited number of planes on order, surprised industryanalysts, prompting one to observe, “It’s not the kind of number we have in our models.We are thinking that a 747-400 gets sold for more than that.” 45In fact, since 1996, when Airbus’ independent effort to develop a superjumbostarted to take definite shape, data from The Airline Monitor indicate a real annual rate ofdecline of 2% through 2000 in Boeing’s average realized price on the 747. This is adeparture from previous pricing dynamics: between 1978 (year 10 of deliveries of the747) and 1984, realized prices increased at an estimated real annual rate of 4%, andbetween 1984 and 1996 at 0.5% (helped by a model changeover to the 747-400, whichstarted to be delivered in 1989). 46 By way of comparison, application of an 80% learningcurve to 747 deliveries indicates that production costs have declined at a real annual rate26