John Leahy will retire in January and stay for a short transition to help his successor, Eric Schulz, who was named EVP, Chief of Sales, Marketing and Contracts. Leahy is Chief Operating Officer-Customers. During his three-decade long tenure at Airbus, the company moved from a single-digit market share to surpassing Boeing for more than a decade in sales. Leahy spoke with LNC about his retirement.
Nov. 28, 2017, © Leeham Co.: John Leahy was a salesman at Piper Aircraft, a small general aviation aircraft producer when he received a call from a headhunter to join Airbus North America as its top salesman.
Leahy was head of marketing at Piper. With a pilot’s license, he would take various Piper aircraft to conventions or air shows and on sales calls for demonstration.
“It was great fun,” he said. “It was really an enjoyable job.” Leahy said Piper was consolidating everything in Vero Beach (FL) and he wasn’t sure he wanted to move there. He wanted a more direct sales role and accepted a position with Piper in Geneva, Switzerland, as Director of the Eastern Hemisphere. “I felt that was pretty cool.”
Before moving, the headhunter called.
“If you want some international experience, before you go live in Europe five or 10 years, you’ll still be an American working for an American company in Europe, that’s
like military guys who go over there and say they lived three years in Europe,” Leahy says the headhunter told him. “They didn’t live in Europe at all. They lived in an American air base,” the headhunter said.
The headhunter said Leahy should work for a European company if he wanted a European experience.
“I thought that sounded intriguing,” Leahy said. The short-term irony, of course, is that he was hired by a European company, Airbus, working in America—initially in New York City at Rockefeller Center and then in Herndon (VA), a distant suburb of Washington (DC).
That was in January 1985. Leahy worked out of Herndon until the summer of 1994, eventually rising to president of Airbus North America, when he and his family transferred to Airbus headquarters in Toulouse, France, as head of commercial for Airbus Worldwide.
Leahy now holds the title of Chief Operating Officer-Commercial.
“I guess I’m an example of the Peter Principal,” he says, with his typical wry humor. “I can’t get promoted above that. I stayed essentially in the job of commercial for 23 years.”
The positions above that are president and COO or CEO of Airbus or of what used to be known as Airbus Group. These positions were traditionally held by French or German nationals until a few years ago when Tom Williams, a UK citizen of Scotland, was named president and COO of Airbus commercial.
One person close to Leahy once quoted him as saying he held the wrong passport (American) as the reason why he wouldn’t become president.
Leahy’s first deal was selling to Northwest Airlines, which until then had been a solid Boeing customer with a sidetrack to the McDonnell Douglas DC-10-40 (one of two customers for the Pratt & Whitney-powered DC-10.)
Northwest ordered the A320.
Making the pitch to Northwest presented Leahy with a special challenge, he recalls. No carrier in the US had ordered the A320. Breaking precedent was a problem.
Nobody ever lost their job by buying IBM in data processing, Leahy said. “If you bought Boeing, and it didn’t turn out to be right, well, it was Boeing’s fault,” he recalled three decades later. “If you went out on a limb and bought this crazy European airplane and it didn’t turn out, people’s careers would be over at that point in time.”
The safest bet, he said, was always going with Boeing.
“We had to get that turned around. To a lesser degree, we had the same thing with McDonnell Douglas, which was still around. By the time I came over to Toulouse, Douglas was basically a shadow of itself.”
Then Leahy sold the A320 to United Airlines.
“We were probably responsible for the [Boeing] 737NG because a lot of people thought the 737 Classic could outsell the A320,” he said. “At least the guys in Seattle thought that. But when the dyed-in-the-wool, 100% Boeing customer United switched over to the A320, that’s when they panicked and decided they needed to update the 737.”
Boeing offered the 737-400 in the competition. Impartial observers noted that the -400 was slower and shorter-ranged than the A320. Secure in the assumption the Boeing-only operator United wouldn’t stray, the order from Airbus indeed prompted Boeing to redesign the 737 into the Next Generation. The 737-800, the successor to the -400, was given a new wing and 12 more seats than the A320. Generally, it’s agreed that the -800 has a better seat-mile cost than the A320 (before later improvements).
Leahy subsequently sold the A300 to American and Continental airlines.
Selling the A300-600s to American required some innovation. American’s wide-body fleet was principally the DC-10-10/30 and 767-200/ER. Boeing pitched the new 767-300ER against the A300. The CEO, Bob Crandall, was the hard-charging, cost-focused executive at American but the CFO, Jack Pope, and his lieutenant, Gerard Arpey, were tough negotiators.
Pope negotiated walk-away leases for 25 A300-600s, shocking Boeing (and the industry). The deal allowed AA to return the airplanes after a specified period at little or no penalty. Pope then turned around and negotiated walk-aways with Boeing for a similar number of 767-300ERs.
The deals were extremely rare but not unheard of. McDonnell Douglas did five-year walk-aways for American’s first deal for MD-80s, a deal that ultimately led to American buying hundreds of MD-80s.
Before Leahy, Airbus had literally loaned four A300B2 to Eastern Airlines for a test run. This led to an order for what was then a large number of aircraft.
These deals all paid off. American kept the 25 A300s and ordered 10 more.
“It was a pretty cheeky gamble on our part, but we had faith in the airplane. Sure enough, they over the years gave up on the walk-aways. It worked out.”
American also bought a large number of -300ERs.
Airbus was willing to make high-risk deals to gain market share. Not all turned out well. One was with Pan Am.
When Leahy came on board Airbus, Pan Am had ordered the A300 and A310 but the contracts weren’t completed. Leahy wrapped these up.
“The 310s probably kept Pan Am alive longer than they would have stayed alive otherwise,” Leahy said. “At least they could fly internationally across the Atlantic with less than half the operating costs of those old 747-100s.”
Pan Am ordered A320s to replace its aging Boeing 727-200s used to feed its New York and Miami hubs, but neared collapse before taking delivery. Leasing company GPA purchased the contract and began leasing the aircraft to Braniff II. Braniff took delivery of about six before it collapsed. Then the contract and aircraft were assigned to America West Airlines.
“I wasted Christmas to New Year’s in [the law offices for Airbus]. We were helping them sell that contract to [lessor] GPA and America West. We got it done at one minute before midnight on New Year’s Eve.”
America West later went through bankruptcy. Airbus provided some exit financing. AWA later acquired US Airways, also an A320/A330 customer, becoming the largest operator of Airbus aircraft in the world. AWA adopted the US Airways name. It later acquired American Airlines, taking American’s name. American by then ordered some 400 A320 family aircraft to replace its aging MD-80s.
So, it all worked out in the end.
One Leahy deal that didn’t turn out well was selling nine A310-300s to Delta Air Lines after Delta acquired the type with its purchase of Pan Am’s European assets, including airplanes. These also had walk-away provisions. Delta exercised them in a massive cost-cutting program under then-CEO Ron Allen during the 1990-91 airline industry disastrous period in which 40% of the US seating capacity was operating under bankruptcy. Delta avoided following other airlines into Chapter 11 then, but those nine A310s Leahy sold Delta were returned in the process. All the Pan Am Airbuses were disposed of.
Delta would never operate another Airbus aircraft until acquiring Northwest in 2010. It wouldn’t place an order for Airbus until 2013 (for the A321ceo.)
The reason Delta would buy another Airbus aircraft was a controversial set of deals Boeing struck, first with American, then with Continental, Delta and United.
These were, for the time, unprecedented exclusive supplier contracts to eliminate competition and bind the four airlines to buying airplanes in their categories only from Boeing.
Leahy and Airbus were taken by surprise by the first, the American deal.
“I was actually pissed off by the exclusive deal,” Leahy recalled more than 20 years later. (At the time, this was what might be described as a vast understatement, according to those close to Leahy then.)
“That was probably about the beginning of 1994, or late 1993, right when I was beginning to move over here [Toulouse]. I was in a state of shock. I remember [American Airlines officer Gerard] Arpey called me up and said, ‘John, you better think of something to do. Bob’s sitting there with Ron Woodard, who was running Boeing [Commercial] at the time, and they’re cooking up something that’s going to keep you out of competition until both you and I are long retired.”
(That turned out not to be the case. Both Leahy and Arpey outlived the exclusive supplier agreement at Airbus and American.)
“I said, ‘you must be joking. Why would any company eliminate competition going forward?’” Arpey didn’t have an answer, Leahy said.
“We tried to come in, but at this point, basically I think Boeing came to the conclusion that no matter how painful it was, it was better to give the current management anything they wanted to agree for 20 [Boeing] years [for exclusivity]. Because it might be painful now, but over 20 years, [Boeing] will find a way to get it back. Sure enough, they did.”
Boeing went ahead and signed similar 20-year exclusive deals with United, Delta, Continental and Southwest, Leahy said.
The European Union had to review the merger between Boeing and McDonnell Douglas three years later and found the agreements to be illegal. Boeing agreed to abrogate the agreements, but one CEO—Crandall—years later acknowledged he did a side letter agreeing to honor the terms. It’s likely the other airlines did, too.
United didn’t buy an Airbus airplane again until Glenn Tilton was CEO and ordered the A350. Delta stayed true to Boeing until 2013—about 20 years. Continental remained an exclusive Boeing customer and, except for playing with the A350 orders and ultimately upping them to 45, United has remained exclusively Boeing. United is now populated by Continental management, following its acquisition of United.
“We finally broke back into Delta [in 2013],” Leahy said. “I remember we did lose a deal (the A321ceo vs 737-900ER).”
Airbus won the next round for the A321ceo. Delta since reordered the 737-900ER and the A321ceo, buying more than 100 of each. The airline is running a competition between the A321neo and the 737 MAX. A decision is due next month.