Figure 4The <strong>Boe<strong>in</strong>g</strong> Company's Free Cash Flow ∗$2,500$2,000Free Cash Flow ($ Millions)$1,500$1,000$500$0($500)1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000($1,000)($1,500)∗ Free Cash Flow = EBIT (1-tax) + Depreciation – Capital Expenditures – Increases <strong>in</strong> Net Work<strong>in</strong>g Capital(Source is <strong>Boe<strong>in</strong>g</strong> Annual Reports, various years). Because <strong>Boe<strong>in</strong>g</strong> does not report work<strong>in</strong>gcapital on a divisional level, the calculation ignores changes <strong>in</strong> new work<strong>in</strong>g capital.57
Endnotes1 Data based on <strong>Boe<strong>in</strong>g</strong>’s 2000 Current Market Outlook. See also The Airl<strong>in</strong>e Monitor,July 2000.2 Airbus’ Global Market Forecast (GMF) def<strong>in</strong>es the VLA market as consist<strong>in</strong>g <strong>of</strong>passenger aircraft with more than 500 seats and cargo aircraft capable <strong>of</strong> handl<strong>in</strong>g morethan 80 tones <strong>of</strong> freight. In contrast, <strong>Boe<strong>in</strong>g</strong>’s Current Market Outlook (CMO) def<strong>in</strong>esthe VLA market as aircraft seat<strong>in</strong>g more than 400 passengers, the size <strong>of</strong> the 747.3 Most <strong>of</strong> the background material conta<strong>in</strong>ed <strong>in</strong> Sections II and III comes from Esty andKane’s (2001) teach<strong>in</strong>g case on the Airbus A3XX, later renamed the A380. In an attemptto verify the teach<strong>in</strong>g case's representation <strong>of</strong> facts, we sent copies to and receivedcomments from senior executives at <strong>Boe<strong>in</strong>g</strong> and Airbus as well as equity researchanalysts at <strong>in</strong>vestment banks who follow both companies and <strong>in</strong>dustry consultants. Whiletheir comments corrected some factual errors and highlighted alternative <strong>in</strong>terpretations,they do not constitute approval <strong>of</strong> the case or its content.4 Accord<strong>in</strong>g to The Airl<strong>in</strong>e Monitor, Jan/Feb 2001 and CSFB Global CommercialAerospace Monthly, May 2000.5 Cole, J., ‘Airbus Prepares to ‘Bet the Company’ as It Builds a Huge New Jet’, The WallStreet Journal, 11/3/99, p. A1.6 Cole, J. and B. Coleman, ‘Airbus Denies it Has Been Cut From Jet Talks’, The WallStreet Journal, 1/7/93, p. A4; Coleman, B., ‘Accord With Airbus to Study <strong>Super</strong>jumbo aW<strong>in</strong> for <strong>Boe<strong>in</strong>g</strong>’, The Wall Street Journal Europe, 1/28/93, p. 3.7 Cole, J., ‘<strong>Boe<strong>in</strong>g</strong>, Two Airbus Members In Talks to Develop New Jet’, The Wall StreetJournal Europe, 1/5/93, p. 3.8 Coleman, B., ‘Accord With Airbus to Study <strong>Super</strong>jumbo a W<strong>in</strong> for <strong>Boe<strong>in</strong>g</strong>”, The WallStreet Journal Europe, 1/28/93, p. 3.9 ‘Airbus, <strong>Boe<strong>in</strong>g</strong> Reportedly scrap Plans for <strong>Super</strong> Jumbo Venture, AFX News, 5/15/95.10 ‘<strong>Boe<strong>in</strong>g</strong> Delays May Force Review <strong>of</strong> Venture’, Nihon Keizai Shimbun, 4/8/89, p. A3;‘Dropp<strong>in</strong>g Japan for Ch<strong>in</strong>a’, The Economist, September 9, 1995, p. 66.58
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Harvard Business SchoolStrategy Wor
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AbstractThis paper looks at competi
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commercial aircraft industry, the t
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jumbo jet to compete with Boeing’
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