Competition has been good for Boeing

The US-EU trade war over government subsidies to Boeing and Airbus — well, mostly Airbus — blows hot and cold, it’s worth stepping back and seeing how the rise of Airbus has affected Boeing. Fortunately, the Chicago Tribune has been doing periodic stories on this very question in its “Battle for the Skies” feature. The latest installment by Michael Oneal makes two interesting points. One is the extent to which this competition is driven by the extent to which both companies cater and listen to their customers’ needs:

After getting feedback from miffed customers last year that [Airbus SAS sales chief John] Leahy’s sales team was much more responsive to their needs, Boeing has gone to school on its European rival. It has sped up decision-making, while dispatching senior executives and board members into the field to drum up sales. It has made winning back market share a priority and is enabling its salesmen to take more risks in pricing…. The problem for Boeing has been that Leahy and his team are everywhere. The Airbus chief has created a sales organization that performs more like the extension of a scrappy Silicon Valley start-up than the front end of an enterprise founded by four plodding European governments. It acts like a spy network, building relationships with airline executives and passing crucial information back to headquarters. It’s not so much that friendships sealed through expensive dinners and golf outings swing billion-dollar decisions. The issue has more to do with customer insight. In the big-ticket business of selling airplanes, the countless hours spent schmoozing with people at all levels of an airline allow a sales organization to ferret out what’s really important to the key decision-makers. Leahy spends more than 200 days a year away from Toulouse, France, where he lives with his wife and the youngest of their three children. Over a 10-day period in March, he flew back and forth to the U.S. twice to tend to three different sales campaigns–Korean Air, Northwest and International Lease Finance Corp., a giant leasing company that is considering the [Boeing] 787 and the [Airbus] A350…. Customers say Leahy’s sales style falls somewhere between a well-prepared debating champion and a snarling pit bull. Though he speaks with a slight New York accent, he has cultivated a certain European elan, favoring well-tailored suits and shirts with French cuffs. His first triumph in the U.S. market was selling 100 narrow-body A320s to Northwest Airlines. Steven Rothmeier, the airline’s chairman at the time, remembers being enthralled by Leahy’s presentations, which seemed to anticipate all of his questions and supply well-thought-out answers. “He would quickly figure out what the real issues were for us and address them,” Rothmeier said. “With Boeing, you always got the feeling that all they had to do was show up.” ….Leahy’s game plan had several key dimensions. First of all, he tore down the walls in the marketing department and created specialty teams to chase specific customers. He had those teams analyze lost deals to figure out where a campaign had gone wrong and how to improve the effort in the future. He also kept the lines of decision-making short and gave his salespeople lots of room to cut deals. Nick Tomasetti, an aerospace industry veteran who replaced Leahy as head of the North American organization, remembers a time when Leahy authorized a design change in a freighter model Airbus was trying to sell to United Parcel Service Inc. The change meant the airplane could hold more cargo but also would force the Airbus production department to find a way to absorb the cost. Leahy gave the green light. “He would say, `OK guys, go ahead,'” Tomasetti said. “Then he’d go fight the internal battle.”

The second interesting fact is that Airbus’ success has prompted Boeing to do more than have Washington threaten a trade war. They’ve respnded to the competition by improving their productivity and their customer relations:

When it swept past Boeing to become the world’s largest jetmaker two years ago, Airbus roused the long-slumbering giant. And now the chase is on. On Monday… Korean Air announced it had ordered 10 Boeing 787s, while taking options on 10 more, partly because Boeing agreed to buy parts for the plane from the Koreans, souces say. Northwest Airlines is also within days of buying 787s to update its aging fleet. Boeing and Northwest won’t comment, but sources say a key part of the deal may be upfront financing from Boeing. The two orders give Boeing’s new program a major leg up in a battle that it had been losing badly for the past several years…. Boeing is fighting back hard with lower costs, an impressive new airplane and an all-out strategy focused on preventing Airbus from launching its own new product to compete. If Boeing can win enough orders from airlines like Korean and Northwest, it might be able to kill the A350, which has yet to win launch authority from the Airbus board. “They seem to be doing everything they can to stop the A350 from being an industrial launch,’ said Leahy. “My job is to make sure that doesn’t happen.” Airbus, he promised, will have 100 orders for the A350 in hand by the end of the year. Ironically, Boeing may have Leahy to thank for many of the changes that allowed it back into the game. Watching Airbus soar from 18 percent of the market to 57 percent over the past decade has shaken Boeing from its bureaucratic torpor. After getting feedback from miffed customers last year that Leahy’s sales team was much more responsive to their needs, Boeing has gone to school on its European rival. It has sped up decision-making, while dispatching senior executives and board members into the field to drum up sales. It has made winning back market share a priority and is enabling its salesmen to take more risks in pricing. In addition, it has revamped its production lines to make them more competitive with Airbus’, and it finally has rolled out a compelling new product in the 787, the first commercial airplane with a fuselage and wings built almost entirely from carbon-fiber composites…. When Airbus launched its A330 in the late 1990s, the new plane rendered Boeing’s 767 obsolete. The A330 took more than three-quarters of the midsize wide-body market and proved a major win for the Europeans. But last year, when Boeing rolled out plans for its highly efficient 787, Airbus pooh-poohed the new plane. “When you’ve got 80 percent of a given market, ” Leahy said, “you aren’t spending a lot of time thinking about how to improve that position.” By fall, as Boeing began to generate real interest in its new plane, Airbus had to scramble to retrofit its A330 with new composite wings and high-thrust engines to create the A350. Now it has fallen behind in a key market, and Leahy is scrambling to get his board to spend $5.3 billion to build it, even as the company runs over budget on the $12 billion effort to get its giant A380 in the air this year.