Boeing Versus Airbus

by John Newhouse

  “This will be a good airplane,” said Jean Pierson a week or so after it had been unveiled. People in Toulouse had been consulting him quietly in preceding months about the design. “I recommended it,” he continued. “The nine-abreast seating is what it should have. I am confident. I’m sure it will be competitive. Singapore Airlines bought the airplane because it will compete with the high end of the 787 [the longer-range version] and the 777—both of them.”39 Many airlines, of course, had hoped to see a new Airbus that would compete on price with the 787.

  The first of the big problems was finding an engine for the new airplane; there was nothing usable on the shelf. The best of the current designs were ten years old, and none of the engines based on those designs would meet the thrust and performance characteristics required by the new Airbus. However, Rolls-Royce lost little time in committing to a new engine that would produce up to ninety-five thousand pounds of thrust, enough for the largest version of the A350 and usable in each of its three versions. GE is expected to create an engine that will work with two of the versions, but not with the largest. That version will be competing against Boeing’s extended-range 777, an airplane for which GE is the exclusive engine supplier.

  Finding $10 billion to develop the A350XWB became the tough but soluble question—soluble provided the binational EADS management agreed to give the airplane priority over the distressed superjumbo program. Boeing, too, has questions to think through—questions that are unavoidable in this business. Management will have to decide when to shift the company’s focus to the new-generation single-aisle airplane. More immediately, there have been design problems with the 787; weight is one of them. “We worry about it [the 787] every day,” said Jim McNerney, Boeing’s boss, during the Farnborough show. “Only the paranoid survive when you are doing airplane programs.”40 McNerney must also think about the flawed corporate culture of a company that began losing its bearings in the mid-1990s.

  Boeing’s luck was shown to be holding when McNerney changed his mind and agreed to take the helm. All sides agree that he is an exceptional talent with no apparent weaknesses and that Boeing is capable of coherent, unitary decision making. Conversely, EADS-Airbus is a jumble of moving parts, too many figures of authority in different places. In Paris, Noel Forgeard, before he was shorn of his role as cochairman of EADS, had said that Airbus didn’t need launch aid from governments for the A350. Then he said that Airbus would take the aid anyway. Talk like that creates confusion. Communication about Airbus issues between Peter Mandelson, the EU’s commissioner for trade, and Airbus member governments is often rancorous. That, too, has created confusion in the market for Airbus products, especially the A350.

  The intimidating question for Airbus and its patrons had become how much to spend on remaking the company’s products and how soon. But the larger and persistent question is about leadership—about corporate restructuring; about whether, and if so how, the conflicted Airbus-EADS family can create a management style that, like Boeing’s, is based on strong, unitary leadership, or some close approximation. If, under pressure, it does so, the company will one day recover its balance. Interested parties—customer airlines, engine makers, and others—will take comfort. They need two healthy airplane suppliers, as do airline passengers.

  NOTES

  All unattributed quotations come from personal conversations with the author.

  CHAPTER ONE. BEING NUMBER ONE

  1. Conversation with Robert Kiley, May 9, 2004.

  2. Conversation with anonymous GE executive, July 15, 2005.

  3. Conversation with Jean Pierson, June 13, 2004.

  4. Conversation with Robert Alizart, June 9, 2004.

  5. Kevin Done, “The Big Gamble: Airbus Rolls Out Its New Weapon in Its Battle with Boeing,” Financial Times, January 17, 2005, p. 15.

  6. J. Lynn Lunsford and Daniel Michaels, “New Order: After Four Years in the Rear, Boeing Is Set to Jet Past Airbus,” Wall Street Journal, June 10, 2005, p. A1.

  7. Chew Choon Seng, interview, Focus (German language), August 8, 2005.

  8. Paul Betts, “Airbus Chief Prepares for EADS,” Financial Times, December 4, 2004, p. 21.

  9. David Gauthier-Villars, “France Studies Steps to Fix Airbus Problems,” Wall Street Journal, June 22, 2006, p. 6.

  10. Conversation with Robert Alizart, July 22, 2006.

  11. Conversation with Jean Pierson, July 26, 2006.

  12. Jonathan R. Laing, “The Right Stuff,” Barron’s, March 13, 2006, pp. 24–27.

  13. Conversation with Bob Conboy, April 29, 2005.

  14. Conversation with Jean Pierson, June 13, 2004.

  15. Conversation with Henri Courpron, June 27, 2005.

  CHAPTER TWO. TRADING PLACES

  1. Caroline Daniel, “Boeing Places a Cautious Bet on Rival,” Financial Times, December 16, 2003, p. 15.

  2. David Bowermaster, “Boeing, Japan Say Aerospace Deals Now Official,” Seattle Times, May 27, 2005, http://seattletimes.nwsource.com.

  3. Conversation with Gordon McKinzie, May 2, 2005.

  4. Conversation with Jeff Shane, April 12, 2004.

  5. Christopher Buckley, e-mail to author, September 23, 2004.

  6. Conversation with John Patterson, September 30, 2004.

  7. Conversation with Christopher Buckley, September 23, 2004.

  8. Conversation with David Neeleman, April 6, 2004.

  9. Conversation with Christopher Walton, September 2, 2004.

  10. Conversation with anonymous Airbus executive, September 5, 2005.

  11. Conversation with anonymous, October 19, 2004.

  12. Conversation with anonymous Boeing vice president, December 23, 2004.

  13. J. Lynn Lunsford, “Dog Fight—Behind Slide in Boeing Orders: Weak Sales Team or Firm Prices?” Wall Street Journal, December 23, 2004, p. A1.

  14. Conversation with anonymous Boeing executive, January 7, 2005.

  15. Conversation with Harry Stonecipher, July 27, 2006.

  16. Conversation with anonymous Boeing executive, January 7, 2005.

  17. Lunsford, “Dog Fight.”

  18. Ibid.

  19. Conversation with anonymous Boeing executive, January 14, 2005.

  20. Lunsford, “Dog Fight.”

  21. Communication with anonymous Airbus executive, January 19, 2005.

  22. Lunsford, “Dog Fight.”

  23. “Lucky 8 Pays 60 in Boeing Deal,” New York Times, January 29, 2005, p. C2.

  24. Conversation with Scott Carson, May 4, 2005.

  25. Conversation with anonymous, April 24, 2004.

  CHAPTER THREE. FOLLY AND HYPOCRISY

  1. Conversation with anonymous Boeing executive, March 17, 1993.

  2. Conversation with Frank Schrontz, March 18, 1993.

  3. David Greising, “Arming for Trade War: Boeing Sleuths Seek Proof of Improper Subsidies to Airbus Series,” Chicago Tribune, May 20, 2005, pp. 1, 12.

  4. R. Jeffrey Smith, “Emails Detail Air Force Push for Boeing Deal,” Washington Post, June 7, 2005, p. 1.

  5. Stanley Holmes, “Boeing vs. Airbus: Time to Escalate,” BusinessWeek Online, March 21, 2005, http://www.businessweek.com/bwdaily/dnflash/mar2005/nf20050321_4418_db046.htm.

  6. Greising, “Arming for Trade War,” p. 12.

  7. Conversation with Henri Courpron, June 27, 2005.

  8. Conversation with anonymous, February 10, 2005.

  9. Richard Aboulafia, newsletter, June 2004, http://www.richardaboulafia.com/shownote.asp?id=164.

  10. Conversation with anonymous vice persident of GE Aeronautics, August 18, 2004.

  11. Conversation with anonymous, September 17, 2004.

  12. Tobias Buck, “Bush Fuels US-EU Aircraft Subsidies Dispute,” Financial Times, August 16, 2004, p. 6.

  13. John Gapper, “Boeing Has Not Mastered the Art of Griping,” Financial Times, September 9, 2004, p. 13.

  14. Ibid.

  15. Jeffrey Garten, “How to Head Off a Battle of Aerospace Titans,” Financial Tim
es, January 10, 2005, p. 13.

  16. David Armstrong, “In-Flight Online Systems Take Off: Airlines Install Broadband Connections,” San Francisco Chronicle, October 31, 2004, p. D4.

  17. Dominic Gates, “U.S., EU Resolve to Settle Dispute,” Seattle Times, January 12, 2005, p. E1.

  18. Kevin Done, “Airbus Asks European States for A350 Aid,” Financial Times, January 13, 2005, p. 1.

  19. Peter Mandelson, “Not an Issue for the WTO,” Washington Post, April 1, 2005, p. A27.

  20. Edward Alden, Daniel Dombey, and Ralph Minder, “Zoellick Accuses Mandelson of Using Spin in Dispute over Aircraft Subsidies,” Financial Times, April 7, 2005, p. 1.

  21. Conversation with anonymous Airbus official, July 25, 2005.

  22. Elizabeth Becker and Mark Landler, “Fortunes Are Reversed in a Dogfight at the Airshow,” New York Times, June 15, 2005, p. C10.

  23. Michael Mechan, “Range Wars,” Aviation Week, June 13, 2005, pp. 64–65.

  24. Ibid.

  25. Conversation with Larry Clarkson, May 26, 2004.

  26. Conversation with Henri Courpron, February 7, 2006.

  27. Kevin Done, “Boeing Chief Hopes Talks Can Resolve Airbus Dispute,” Financial Times, July 20, 2006, p. 5.

  CHAPTER FOUR. MARKET SHARE—THE AIRLINES’ ENEMY

  1. Adam Brown, “Airbus’ View of the Future,” keynote speech delivered at International Air Transport Association Conference for the 21st Century, Frankfurt, Germany, May 26, 2004.

  2. John Newhouse, The Sporty Game (New York: Alfred A. Knopf, 1982), p. 14.

  3. Ibid., p. 15.

  4. Conversation with Edward Colodny, February 16, 2005.

  5. Kevin Frieberg and Jackie Frieberg, Nuts!: Southwest Airlines’ Crazy Recipe for Business and Personal Success (New York: Broadway Books, 1996), p. 49.

  6. John Newhouse, “The Battle of the Bailout,” The New Yorker, January 18, 1993, p. 42.

  7. Ibid., p. 46.

  8. Ibid., p. 51.

  9. Micheline Maynard, “Lenders and U.S. Tighten Screws on Struggling Airlines,” New York Times, December 7, 2004, p. C2.

  10. Susan Carey, Kathryn Kranhold, and Melanie Trottman, “GE’s Bailouts of Troubled Carriers Divide Airline Industry,” Wall Street Journal, March 31, 2005, p. B1.

  11. George Hamlin, presentation to Transportation Research Board, January 11, 2005, p. 3.

  12. Robert L. Crandall, address at 57th Annual Wright Memorial Dinner, December 17, 2004, p. 4.

  13. Conversation with Louis Miller, March 11, 2005.

  14. Claudia H. Deutsch, “For Many Pilots the Thrill Is Gone,” New York Times, October 15, 2004, p. C1.

  15. Caroline Daniel, “The Death of a Golden Goose: US Airlines and Unions Clash over Pay and Benefits,” Financial Times, December 28, 2004, p. 7.

  16. Ibid.

  17. Ibid.

  18. Norma Cohen, “Pension Safety Net’s $78bn Hole,” Financial Times, November 19, 2004, p. 21.

  19. Caroline Daniel, “Losses Mount for US Carriers Despite Cost-Cutting Efforts,” Financial Times, February 7, 2005, p. 18.

  20. Dan Roberts and Kevin Done, “Delta Goes Head-to-Head with Low Cost Rivals by Cutting Air Fares Up to 50%,” Financial Times, January 6, 2005, p. 1.

  21. Micheline Maynard, “Big Fare Cuts Made by Delta Turn Industry on Its Head,” New York Times, January 7, 2005, pp. C1, C6.

  22. Frieberg and Frieberg, Nuts!, pp. 57, 98.

  23. Conversation with David Neeleman, April 6, 2004.

  24. Barbara S. Peterson, Blue Streak: Inside JetBlue, the Upstart That Rocked the Industry (New York: Portfolio, 2004), p. 15.

  25. Ibid.

  26. Ibid., pp. 15–16.

  27. Ibid., p. 39.

  28. Ibid., pp. 39–40.

  29. Conversation with with Benoit Debain, June 11, 2004.

  30. Conversation with Richard Branson, June 15, 2004.

  31. Caroline Daniel, “Airlines Reveal Merger Details,” Financial Times, May 20, 2005, p. 20.

  32. Caroline Daniel, “Southwest Aims at 10% Expansion,” Financial Times, March 22, 2005, p. 23.

  33. Micheline Maynard, “Latest Target of Airline Cuts: Number of Seats,” New York Times, March 29, 2005, p. C4.

  34. Conversation with Hubert Horan, March 11, 2005.

  CHAPTER FIVE. PLAYING THE GAME

  1. Conversation with Jean Pierson, June 13, 2004.

  2. Ibid.

  3. Conversation with Richard Branson, June 15, 2004.

  4. Conversation with John Rose, June 4, 2004.

  5. Conversation with Alan Boyd, August 16, 2004.

  6. Conversation with Jean Pierson, June 13, 2004.

  7. Conversation with John Leahy, June 14, 2005.

  8. Conversation with Jean Pierson, June 13, 2004.

  9. Conversation with Clyde Kizer, March 4, 2005.

  10. Conversation with Gerard Blanc, June 9, 2004.

  11. John Newhouse, The Sporty Game (New York: Alfred A. Knopf, 1982), p. 50.

  12. Conversation with John Hayhurst, April 27, 2005.

  13. Conversation with Stanley Little, March 14, 2004.

  14. Conversation with Jean Pierson, June 13, 2004.

  15. Conversation with Robert Alizart, June 8, 2004.

  16. Conversation with Jean Pierson, June 13, 2004.

  17. Conversation with Robert Alizart, June 8 2004.

  18. Conversation with Gerard Blanc, June 10, 2004.

  19. Stephen Aris, Close to the Sun: How Airbus Challenged America’s Domination of the Skies (London: Aurum Press, 2002).

  20. Conversation with Jean Pierson, June 13, 2004.

  21. Conversation with Alan Boyd, August 16, 2004.

  22. Conversation with Steve Rothmeyer, April 21, 2004.

  23. Ibid.

  24. Bill Richards, “Boeing Plots Course; Schrontz Foresees a Rough Ride If Economy Slows,” Seattle Post-Intelligencer, September 21, 1990, p. A1.

  25. Conversation with Gordon McKinzie, May 2, 2005.

  26. Conversation with Clyde Kizer, March 4, 2005.

  27. Conversation with Alan Boyd, August 27, 1993.

  28. Conversation with Frank Schrontz, March 18, 2003.

  29. Conversation with Jean Pierson, June 13, 2004.

  30. Ibid.

  31. Conversation with Alan Boyd, August 16, 2004.

  32. Conversation with Jean Pierson, June 13, 2004.

  33. Conversation with Jack Schofield, May 24, 2005.

  34. Teal Group, presentation, Boeing 777: Program Briefing, p. 6.

  35. Conversation with Boyd Givan, March 15, 2004.

  36. Conversation with John Leahy, June 14, 2002.

  37. Conversation with Dean Thornton, March 18, 1993.

  38. United States and Europe, Rolls-Royce Subsidies from the UK Government, p. 1.

  39. Conversation with anonymous GE executive, March 29, 2004.

  40. Conversation with Jean Pierson, June 13, 2004.

  41. Conversation with anonymous GE executive, April 20, 2005.

  42. Newhouse, The Sporty Game, p. 56.

  43. Conversation with anonymous GE executive, April 20, 2005.

  44. Newhouse, The Sporty Game, p. 53.

  45. Conversation with anonymous former Pratt executive, July 31, 2005.

  46. Conversation with anonymous GE executive, April 20, 2005.

  47. Conversation with anonymous Pratt executive, January 24, 2004.

  48. Conversation with anonymous GE executive, April 24, 2005.

  49. Newhouse, The Sporty Game, p. 53.

  CHAPTER SIX. MELTDOWN AND MERGER

  1. Conversation with retired Boeing executive, May 3, 2005.

  2. Stanley Holmes, “Boeing’s Sonic Bruiser,” BusinessWeek Online, July 2, 2001, http://www.businessweek.com/magazine/content/01_27/b3739179.htm.

  3. Conversation with Gordon McKinzie, May 2, 2005.

  4. Conversation with Frank Schrontz, March 18, 2005.

  5. Conversation with Mike Little, March 16, 1993.

&nbs
p; 6. Conversation with Phil Condit, March 15, 1993.

  7. Conversation with Ron Woodard, March 6, 2003.

  8. Conversation with Mike Little, March 16, 1993.

  9. Conversation with James Johnson, March 1993.

  10. Conversation with anonymous Boeing vice president, August 4, 2004.

  11. Conversation with Phil Condit, March 15, 1993.

  12. Conversation with Mike Little, March 16, 1993.

  13. Conversation with Alan Mulally, March 1993.

  14. Ibid.

  15. Conversation with Ron Woodard, March 6, 2003.

  16. Conversation with Boyd Givan, March 15, 2004.

  17. Conversation with Gerard Blanc, June 8, 2004.

  18. “Boeing Rival Airbus Won’t Rest on Laurels,” Bloomberg News, September 29, 1999.

  19. Conversation with James Womack, March 2004.

  20. Conversation with anonymous, April 19, 2004.

  21. Conversation with Larry Clarkson, May 26, 2004.

  22. Conversation with Ron Woodard, March 6, 2003.

  23. Conversation with Jean Pierson, June 13, 2004.

  24. Conversation with anonymous, April 2004.

  25. Conversation with anonymous, April 4, 2005.

  26. Stanley Holmes and Mike France, “Boeing’s Secret,” BusinessWeek Online, May 20, 2002, http://www.businessweek.com/magazine/content/02_20/b3783001.htm.

  27. Conversation with Stanley Holmes, August 11, 2005.

  28. Ibid.

  29. Class Action Complaint for Violations of Federal Securities Laws, U.S. District Court, Western District, Seattle.

  30. Holmes and France, “Boeing’s Secret.”

  31. Stanley Holmes, “What Really Happened,” BusinessWeek, December 15, 2003, pp. 35–39.

  32. Paul Proctor and Anthony L. Velocci Jr., “Woodard Ousted in Boeing Shake Up,” Aviation Week, September 7, 1998.

  33. Conversation with Phil Condit, December 5, 2005.