AIRBUS & BOEING: SUPERJUMBO DECISIONS Harvard Case Solution & Analysis

AIRBUS & BOEING: SUPERJUMBO DECISIONS Case Solution

Problem Diagnosis

This case focuses on the launch or no launch decision from the viewpoints of Airbus and Boeing, set in 1999. Boeing is considering that how it needs to respond to the decision made by Airbus regarding its plans of proceeding with or not with a $ 10 billion investment in the development of the company’s first commercial super jumbo jet which would also be the first super jumbo jet in the market.

In order to respond to this launch decision, Boeing was also considering developing or stretching its current 747 jumbo jet and transform it into a large super jumbo jet called as 747-X. At the time of this decision, the 20 year forecasts for both the companies had also been published which were completely divergent. There are several alternatives which could be pursued by Boeing in order to respond to the decisions of Airbus.
The 20 year forecasts for both the airlines have also been provided but they are totally divergent and the decision of the launching the development effort for one airline has an impact on the decisions of the launch decision of the other airline and in this case the several alternatives available to Boeing were all related to the final decision of Airbus about whether to develop the super jumbo or not. However, before a recommendation is made, an assessment of the risk profiles, net present valuations, game theory application and sensitivity analysis needs to be performed in detail.

Analysis

Before the analysis of the actual decisions is made, the risk profile for both the companies has been assessed.

Risk Profiles

The competition between both the airliner companies, Airbus and Boeing, has been considered to be as a duopoly in the much larger airliner jet market since the 1990 s. This case focuses on one of the biggest investments planned by Airbus in order to launch super jumbo in the market which was basically a class of the aircraft with a total capacity available for about 500 to 1000 passengers. The management of the company had committed large chunks of the company’s resources to this development project.
The decision to launch the development of this superjumbo would pose many threats and risks to the already established business of Boeing in the jumbo VLA market. Therefore, the decision of Airbus of whether to initiate this $ 10 billion development cost project or not is risky not only for Airbus, but also for the business of Boeing.This is because already the Boeing was facing production difficulties and it was also reducing its production due to severe financial difficulties as Airbus was overtaking the orders of Boeing for the first time in the last 10 years.
This decision was risky from the point of view of both the companies, as currently the estimated share of the super jumbos in the VLA market of 30% could be higher or lower than this percentage. Moreover, there would also be fluctuations in the estimated average annual VLA passengers. Nevertheless, Airbus seemed to be more confident on its launch of the super jumbo jet and its issue of the launch was also hot at the momentum.
Therefore, this posed additional risks for Boeing with regard to its development decision for super jumbo jet. If Boeing goes ahead with the launching decision, and Airbus does not then this would result in cannibalization of the revenues from its current jumbo jet. This could cost the company a lot. On the other hand, if its launches the project along with Airbus and fails to capture the expected market share, then again the consequences would be severe. Overall, the risk profile of Boeing shows that it is undergoing a tough situation with much higher risks as compared to Airbus................

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