Ã¢Â€ÂœAirbus vs. Boeing in Super Jumbos: A Case of Failed PreemptionÃ¢Â€Â

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Airbus vs. Boeing in Superjumbos:A Case of Failed Preemption*August 3, 2001Rev. February 14, 2002Benjamin C. EstyPankaj GhemawatMorgan 381 Morgan 227Harvard Business SchoolHarvard Business SchoolBoston, MA 02163 Boston, MA 02163Tel: (617) 495-6159 Tel: (617) 495-6270e-mail: besty@hbs.edue-mail: pghemawat@hbs.edu*Acknowledgements: Ramon Casadessus-Masanell, Bruno Cassiman, Richard Caves, Ken Corts, TarunKhanna, Julio Rotemberg, Vicente Salas Fumas, Xavier Vives and seminar/workshop participants atBoston University, Copenhagen Business School, Harvard Business School, INSEAD, New YorkUniversity and Universitat Autonoma de Barcelona provided helpful comments. So did senior executives atboth Airbus (Adam Brown, John Leahy) and Boeing (Tim Meskill, Randy Baseler, and Jim Jessup),although their comments do not constitute an endorsement of the material in either the teaching case or thispaper. We also gratefully acknowledge help from Ed Greenslet, Don Schenk, and The Airline Monitor inobtaining data and insights about the commercial jet aircraft industry, Mike Kane’s assistance in preparingthe original teaching case, and financial support from the Division of Research at the Harvard BusinessSchool.
AbstractThis paper looks at competitive interactions between Airbus and Boeing in very largeaircraft. It concludes that Boeing attempted to preempt Airbus in introducing a newproduct in this space but failed to do so because of the incredibility, given the assumptionof value maximization, of self-cannibalization. A theoretical model is used to illustratethis credibility constraint, and an assortment of evidence—involving pro forma financialvaluations, product market data (on prices and quantities), capital market reactions to keyevents, and qualitative information on Boeing’s organizational structure and recentchanges to it—is assembled to support the hypothesis that the constraint on selfcannibalizationultimately proved decisive.2
Page 1: Harvard Business SchoolStrategy Wor
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Page 8 and 9: jumbo jet to compete with Boeing’
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Page 20 and 21: Let the net benefits of a customer
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Page 30 and 31: of 1-2%, perhaps exceeding the high
Page 32 and 33: impact of the Asian crisis on deman
Page 34 and 35: It is worth pointing out that these
Page 36 and 37: To put the sandbagging hypothesis i
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Page 40 and 41: collocated in Seattle. 70 As CEO Ph
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Page 44 and 45: Chan, S., Martin, J. and Kensinger,
Page 46 and 47: Industrial Organization (Elsevier S
Page 48 and 49: 5) Discount rate: The discount rate
Page 50 and 51: Appendix 2Valuation of Quasi-rents
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Table ISimplified Valuation Analysi
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Table II (continued)2011 2012 2013
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Table IIIEquilibrium in the Three L
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Table VCapital Market Reactions to
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Figure 4The Boeing Company's Free C
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11 Cole, J., ‘Boeing-led Allince
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considered in the previous subsecti
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number of shares outstanding is 807
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