Case Air Bus X Boeing
Developing a larger version of 747 AIRCRAFT
If Boeing develops a larger version of 747, it would have to disburse a sum of U.S. $ 4 billion. When announced the decision to develop a larger version of 747, its shares fell 1.7% on the same day, giving signals to the company that it would not be accepted by its shareholders.
But if Boeing uses it, it would not be worth for Airbus to launch the A3XX, because it could not raise the price and still have to divide the market. Then the NPV would be U.S. $ 650 million to a negative value close to selling $ 225 million per unit, assuming sale of 34 units (30% loss of market), with operating margin of 20%, preventing the launch.
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Developing an Airplane Super Jumbo to compete with the A3XX
Boeing brings a negative past experience, which almost led to bankruptcy. The estimated investment would be U.S. $ 13 billion for this development, and that cause the fugue of its shareholders. Even with this high risk, if Boeing develops a super jumbo, Airbus would not launch the A3XX, because it could not raise the price and would have to divide the market. In this case the NPV U.S. $ 2268 million to a negative value close to selling U.S. $ 225 million per unit, assuming sale of 24 units, with operating margin of 20%, preventing the launch.
Ignore the Potential Threat
If Boeing has no reaction against Airbus it will open its monopoly in the hands of the VLA and leaving a space for the Airbus. The market becomes a duopoly. For Airbus, Boeing ignore the threat of all is the best option as it enters the market of the VLA (Very Large Aircraft) and with a superior plane against its competitor. Can achieve a NPV of U.S. $ 1,614 million with the sale of 48 aircraft, the estimated price of 225 million per aircraft and 20% operating margin.
Analyzing the case study, there is no dominant strategy, since the Boeing develop a super jumbo size of the A3XX or even a larger version of 747, the launch will be prevented, due to strong competition.
If Boeing ignore the threat, or do a price war, it would be interesting to launch the Airbus A3XX therefore entering a new market with a differentiated product.
The Nash balance is at the launch of the Airbus A3XX, reducing the value of the Boeing 747 aircraft. That's because Boeing is interested to create a barrier with low investment and risk, and for Airbus to join the market.