Airbus and Boeing: Superjumbo Decisions

7 Pages Posted: 23 Jun 2009

See all articles by Samuel E. Bodily

Samuel E. Bodily

University of Virginia - Darden School of Business

Kenneth C. Lichtendahl

University of Virginia - Darden School of Business

Abstract

Set in 1999, this case allows students to put themselves in the positions of both Airbus and Boeing as Boeing considered how to respond to Airbus's decision to announce its plans to proceed or not with the $10 billion development of the world's first commercial superjumbo jet, the Airbus A3XX. Boeing was considering a development effort to "stretch" its 747 jumbo jet into a larger superjumbo version, the 747-X. At the time, the two companies' widely available 20-year forecasts for jumbo- and superjumbo-jet demand were particularly divergent. In light of this very public "agreement to disagree," Boeing could pursue several alternatives, all of which were related to Airbus's decision about whether or not to develop the A3XX. This case presents an opportunity for students to make a real downstream decision. It was prepared as a final exam for an introductory decision analysis course involving subjective probability assessment, decision tree modeling, simulation, real options, and game theory. In the analysis of this case, a student is expected to utilize ideas from all five of these areas.

Excerpt

UVA-QA-0720

Rev. Mar. 25, 2014

AIRBUS AND BOEING: SUPERJUMBO DECISIONS

By the summer of 1999, Boeing was considering how to respond to Airbus's decision to announce by year's end whether or not it planned to proceed with a risky and costly project to develop the world's first commercial superjumbo jet. Airbus had been considering investing in such a project since the early 1990s. Its goal was to challenge the Boeing 747's 30-year monopoly on the very-large-aircraft (VLA) market—the market for passenger jets with more than 400 seats. The proposed project, if launched by Airbus, would lead to deliveries of the world's first superjumbo jet—the 550-seat A3XX—which was even larger than the Boeing 747. The superjumbo segment represented those planes that would carry more than 500 passengers in their standard configuration. Airbus's development effort was expected to cost $ 10 billion and take five years to complete.

Boeing had all but ruled out a new, full-scale development effort for its next-generation VLA. In the late 1990s, it had “lost control of its factories, upset its customers with late deliveries, and plunged into its first loss in 50 years.” Instead, Boeing was considering a more modest development effort to “stretch” its current 416-seat 747-400 plane into a new 440-to-520-seat “747-X” plane, which would take an estimated five years and cost $ 7.5 billion. How Boeing reacted to Airbus's announcement could affect its position in the VLA market for years. After all, Boeing had delivered 1,189 jumbo jets since the 1969 inception of the 747 jumbo jet.

Recent History

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Keywords: subjective probability, decision trees, simulation, real options, game theory

Suggested Citation

Bodily, Samuel E. and Lichtendahl, Kenneth C., Airbus and Boeing: Superjumbo Decisions. Darden Case No. UVA-QA-0720. Available at SSRN: https://ssrn.com/abstract=1423306

Samuel E. Bodily (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4813 (Phone)
434-293-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/bodily.htm

Kenneth C. Lichtendahl

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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