Our New Year’s Resolutions for Airbus

Our new year’s resolutions for Airbus focus on capitalizing on the weakness of a competitor and the once-in-a-century opportunity to exploit those weaknesses to strengthen their market leadership. Resolutions for Airbus One: Continue to Leverage a Unique Market Niche Airbus should continue to strongly leverage the two narrow-body segments in which Boeing does not compete against Airbus with key airlines worldwide. The A220-300 and A321neo family are segments in which Boeing has limited competitive offerings. The 737 MAX 10 cannot match the performance of the A321neo, and without the Embraer E2 jets, Boeing cannot effectively compete with the A220. The pairing of A220 and A321neo provides Airbus an entry into virtually every airline in the world, leveraging opportunities for airlines to “right-size” aircraft to markets, both domestic and even intercontinental narrow-body flights, without viable competition from Boeing. Resolution for Airbus Two: Launch the A220-500 Airbus should attack the competitor’s bestselling aircraft, the 737 MAX 8, by launching the A220-500. A larger, stretched version of the A220 would likely have better seat-mile economics than the 737 MAX 8. Bombardier had already designed three stretch models of the C Series before it was acquired by Airbus. A combination of A320neo for fleet commonality and a 165 seat A220-500 to attack non-A320 operators would be a difficult combination for the now-tainted 737 MAX to effectively compete with. Boeing essentially has one very successful MAX model in the 737-8. The others cannot effectively compete with A220-300 or A321neo. Attacking their only successful model with the A220-500 will force Boeing into a premature strategic dilemma of introducing a replacement before the next generation of propulsion technology or to wait, and lose more market share until that technology arrives. Resolution for Airbus Three: Rationalize A220 Supply Chain Airbus should utilize the A220-500 introduction to rationalize the A220 supply chain. The A220 is a very effective airplane but has higher costs than it should have in high-volume production. Introducing a new model provides an opportunity to revisit the cost structure and, with increased production volume, re-negotiate key supplier contracts to improve the profitability of the A220 family. Resolution for Airbus Four: Increase Production and Capture Market Share The company should not be afraid of producing 700 plus aircraft per year. With a large backlog that is likely to stretch 8-10 years and changing industry economics with respect to environmental performance, demand for new, SAF-compliant, aircraft is expected to continue to be strong for the next two decades. A long-term strategy to continue to gain market share isn’t going to keep competition away. While Boeing may currently be down, they won’t be forever. And if they are not, someone new will step-in to take their place. Companies like Raytheon can already produce most of an airplane from their own components, and it would not be that great a stretch for them to enter into the game. Airbus has no obligation to not exploit Boeing’s current weakness to keep them in the game. If the shoe were on the other foot, would you expect anything different? Resolution for Airbus Five: Become “Squeaky Clean” in Business Practices In recent years, Airbus has been charged with questionable behavior. While the vast majority of the problems have been corrected on the commercial side, and painful moves have been taken when necessary, there are outstanding issues on the military side that need to be addressed. As Airbus takes on the mantle of industry leadership, it needs to ensure that its conduct also reflects that leadership, with ethical and transparent business practices. Historic governmental relationships with Airbus have been a source of WTO subsidy complaints related to product development. Despite different techniques, these WTO complaints tend to wash out evenly between Boeing and Airbus. Airbus is now in a position of market superiority with a chance to gain a leg up on its competitor for the foreseeable future. Since only the lawyers win in these affairs, an opportunity to clear the air and finalize all outstanding issues should be taken in 2022. There is an opportunity for a “clean slate” in 2022 that Airbus should take. The Bottom Line If Airbus executes on the aforementioned resolutions, it will cement its market leadership over Boeing for the next decade. Airbus cannot afford to miss this opportunity.

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