Top Airbus officials scoffed at Leahy’s 50% market share goal

John Leahy, the chief operating officer-customers for Airbus, will retire in January after 33 years with the company. LNC’s editor, Scott Hamilton, has known Leahy for most of this time. This is the second of a series of reports derived from interviewing Leahy about his pending retirement. The first article appeared Nov. 28.

By Scott Hamilton

Dec. 14, 2017, © Leeham Co.: When John Leahy was promoted from his position as head of Airbus sales in North America and moved to headquarters in Toulouse,

John Leahy, COO-Customers Airbus. Reuters photo via Google images.

France, to assume the world-wide position as head of sales, he had an ambitious goal to achieve 50% market share by 2000.

He had a little over five years to go from low-double digits to this lofty goal.

The Airbus executive board initially laughed at him, Leahy recalls 22 years later.

Get real with a realistic goal

Leahy’s goal of achieving a 50% market share was key to Airbus’ future.

“That was very important, because [McDonnell] Douglas was failing in its strategy of ‘we’ll be a small player over in the corner and just take the small, profitable deals.’ That lasted about three or so years. They rapidly marginalized their whole company,” Leahy says.

“I said we can’t do that. We need to be in a band of 40% to 60%.” Leahy said the goal of 50% was plotted out, much to the skepticism of the Airbus executive board.

“I can remember going to the executive board meeting, which was the CEOs of the government entities and manufacturers that owned us, like Aerospatiale, Deutsche Aerospace, British Aerospace and CASA. They listened to my presentation in January [1995] and why this was so important,” Leahy recalls.

“They said that sounds very motivating for your sales team. But we want to know what is the real and realistic goal of market share that we should be aiming for. I paused, and I said ‘50%. That’s what we need to do.’ They started laughing. Somebody said, ‘you can’t be serious. Twenty-five percent, maybe 30% would be a more reasonable, more attainable target.’”

Genuine debate

A genuine debate ensued about whether 50% was ever attainable under any circumstances, Leahy says.

The first year of Leahy’s new position ended with Airbus at an 18% market share. Leahy speculated that in an American corporation, the executive board would have concluded he didn’t do well and would have booted him out, or at the very least, given him one more year.

When he went to the next board meeting in January [1996], “there was none of that. I thought that I’d be heavily criticized. But they wanted to know what was happening in the market and what was Boeing doing, their pricing strategies against us. Everybody seemed quite comfortable that this was a long-term strategy,” he says.

“It might take the next five years getting there, and if you start off with a bad year, you recover. I was very impressed with that.”

Boeing’s mistakes

By 1997, McDonnell Douglas was down to about a 7% market share in commercial aviation. Boeing and MDC merged. Through the early 2000s, Boeing—following MDC strategy, critics said—focused on derivatives instead of investing in new airplanes.

Boeing came under a lot of criticism during this period, particularly by noted consultant Richard Aboulafia, for starving spending for research and development. Aboulafia routinely pointed to Boeing’s stingy R&D spend and the larger funding at Airbus as one of Boeing’s strategic mistakes.

But to some degree, it’s not this simple.

Boeing, and Airbus and others, pursue derivatives following costly new airplane programs because this is where the profits are. The question was whether Boeing made a strategic mistake in producing the 757-300, 767-400 and 747-900 (standard), none of which sold well, or Boeing tried the proverbial push to a bridge too far.

“I hate to go into whether Boeing got it right or wrong,” Leahy says. “We’ve got enough strategic mistakes we’ve made. I focus on those more than my competitor’s strategic mistakes.

Price, market share war

Pressed, Leahy says, “If you go back to mistake number one, is why did we have 18% market share in 1995, I think Ron Woodard [then president of Boeing Commercial Airplanes] and his management team were absolutely appalled at this concept that Airbus would even dream of the possibility of having a 50% market share by 2000. They were determined that they were going to crush us.”

Woodard believed Boeing had an “enormous industrial might” and Europe didn’t, allowing Boeing to go into the market and cut prices (“which he was doing in 1995”), based on high volume, lower production costs and the ability to pass through lower prices.

“He also offered very early delivery slots,” Leahy recalled. Woodard offered airplanes the next year or in 18 months. “He knew we couldn’t.”

The result was a disaster for Boeing. Leahy said Boeing could have sustained the low pricing, and it did. But as Woodard upped production of the 737, everything fell apart. The supply chain couldn’t keep up with a dramatic increase in the production rate (from 21 737s a month to 27, at the time an unprecedented rate). Production lines fell behind, quality control suffered and deliveries were late. Boeing took the unprecedented step of shutting down the 737 line for 30 days to catch up. Boeing reported its first loss in 40 years. Woodard lost his job over the snafu.

“I think that set Boeing back quite a few years,” Leahy says. “That would be the first strategic mistake, at least during my career over here I think they made.

Boeing hubris

“The next step was the continued hubris when we got to 50%, which we did in 1999,” a year ahead of Leahy’s target. “They said this was a one-off, every dog has his day. One year you could hit 50% but it’s impossible every year. They never really internalized the fact that we were here to stay as a 50% player until probably it was too late.”

Leahy also pointed to Boeing’s “hubris” that United would never buy anything but the 737 and their belief that the 737 was so superior to the A320. United shocked Boeing and the industry by ordering Airbus. (This is described in the first part of the Leahy interview.)

Strategic mistakes at Airbus

If Boeing had its strategic mistakes, so has Airbus. Leahy didn’t want to go into detail for this article (“I’m saving that for my book”), but observers widely believe the A340 was one. This four-engined airplane entered service just ahead of the twin-engine Boeing 777-200 and about the same time as the three-engine McDonnell Douglas MD-11.

The A340 sold fewer than 300 aircraft.

“The 340 was a damn good airplane for a four-engine airplane,” Leahy says. “We got it wrong. To a large degree, we got it wrong by listening to some very important customers, about whether long-range, intercontinental, trans-oceanic flying would go to twins or would it stay with four-engine airplanes.

“Even when I got over here in December of 1994, I was appalled by the fact that people didn’t even want to look at the concept of intercontinental twins. They really were focused on the four-engined airplane. They had customers who were pushing the fact that it would always be four engines. It’s no secret Lufthansa was one of them.”

Leahy said some Asian customers admitted there might be twins across the Atlantic, but not across the Pacific. “It’ll never happen,” they said. “We listened too much to that, rather than seeing where the future was going,” Leahy says.

Missed opportunity

“I can remember being at one meeting with senior management of GE and Airbus. At one meeting, GE’s Brian Rowe [then-CEO of GE Aviation] was so desperate to do something with the GE90 because he had gotten himself into a situation where he was trapped in being one of three engines on the 777, which wasn’t really selling that well.”

At that point, the 777 were “A” and “B” models. Leahy says the A330/340 combination was selling well against those early 777s. “It was a regional airplane that nobody really wanted.”

(Leahy’s memory is a little selective on this point. A review of the history of the orders during these early years for the 777-200 vs the A330/A340 favors the 777.)

GE, he says, would have paid for the development of putting the GE 90 on an A330.

“I can remember [Airbus] just rolling their eyes, saying ‘no, why would we want to do that? We’ve got a proper strategy: a four-engine airplane for long-haul, planes for regional flying, all with the same fuselage, all with the same wing, this is an unbeatable strategy.’

“I was flabbergasted. I was stunned by that. It was one of the biggest strategic mistakes we made, missing the turn to twins vs quads,” Leahy says.

Initial A350 development

Airbus also stumbled with the initial development of the A350. Airbus was caught flat-footed by the Boeing 787, which Leahy initially ridiculed as another Boeing “paper” airplane concept. Airbus’ first response was to develop the A350 as a derivative of the A330: a new wing, the GEnx engine and other upgrades—a concept that resurrected with the launch of the A330neo more than a decade later, only using Rolls-Royce Trent engines.

The initial A350 drew a few orders compared with the greater success of the 787.

An incident at a large industry conference in 2006 blew up the original A350 concept.

Steven Udvar-Hazy, then CEO of the mega-lessor ILFC, had ordered 20 A350s—but 74 787s. At a delivery ceremony at the Boeing wide-body factory in Everett (WA) between ILFC and customer Aeromexico for the airline’s first 777-300ER, the local newspaper aerospace reporter asked Hazy what he thought of the A350.

Hazy said something to the effect that it was insufficient compared with the 787. The write up was just a short paragraph in the local paper the weekend before the industry conference began on Monday.

Leahy spoke at the conference immediately before Hazy. After Hazy made his presentation, I asked Hazy about the A350 comments, noting they didn’t go into detail. What was Hazy referring to in his criticism, I asked?

“Is John Leahy still in the room?” Hazy asked. Leahy, standing all the way in the rear, said he was.

Hazy then launched into his criticism. The A350 had a metal fuselage, it didn’t have the advanced technology that the 787 did, and so on.

When he was done, I rushed back to Leahy for his reaction. It was muted, to say the least.

About a week later, the CEO of Singapore Airlines, which had ordered the plane, leveled similar criticisms, a public move highly unusual at the time.

Airbus went back to the drawing board. Leahy didn’t speak to me for a year.

“You were a rabble-rouser,” Leahy said in this interview, recalling the events.

(To this day there are some in Airbus who believe this was a set-up with Hazy; it wasn’t.)

“That wasn’t a strategic mistake,” Leahy said. “I’d put it in the tactical category. If it was a strategic mistake, we were caught blind-sided when they brought out the 787 with their work in composites and their engine technology.”

The story will continue.


41 Comments on “Top Airbus officials scoffed at Leahy’s 50% market share goal

  1. Very interesting interview Scott, – love to read it!
    Keeping in mind he is very good to talk, – and a salesperson, but still some interesting stories.

    Can’t wait for his book, – and maybe yours?!


      • This a typo too. The A340 sold 377 not ‘ fewer than 300’
        A more generalised phrase would be ‘didnt quite make 400’

    • The 747-900 is a bit strange.

      The best derivative that was considered by Boeings board in the mid 1990s was the 747-500/600
      ” The -600 will carry up to 515 passengers in a typical three-class arrangement over ranges of up to 13,700km (7,400nm).
      The smaller -500 will carry around 490 passengers over ranges of up to 15,725km.”

      The interim model launched in 2000 was the 747-400ER, known as the ‘910’ model, only order was from Qantas
      This may be the 747-900 referred to?

      • Thanks for the info, flew once in one of those to JHB form Aus. Nice to have four engines and a 747 when you flew the “artic-circle”, fantastic flight.

    • @keesje:
      “If Leahy claimed the improved A330 was up to to fight with the 787,”
      He likely did his best given his position but the noises in the industry against his claim was too loud @ the time…

      “..history proved him right.”
      Absolutely….thx largely to Boeing screwed up the 787 supply chain.

      “XWB dominates the A340/777 replacement market, not the 787.”
      4 major problems with such claim if we look @ the actual sales backlog of their replacements:
      1. Many 343/772ER are/will be replaced also by 789(703 sold) along with XWB359(681 sold).
      2. 345/77L never sold well due to niche status and many are/will be replaced by 359ULR(7 sold) along with 778(53 sold).
      3. 346 never sold well and many are already replaced by 77W(839 sold).
      4. Remaining 346 along with 77W will be replaced by XWB35K(169 sold) and 779(273 sold).

      I’m excluding the 342, 772 and 773 because:
      So few were sold but more importantly, no 777 nor XWB is in the same size class as the 342.
      Was more a competitor of 333 but more importantly, payload range is nowhere near any XWB. Its logical replacement is either 339 or 78J.
      So few were sold but more importantly, payload range is nowhere near any XWB. 78J is the closest replacement.

  2. This is as addictive as S.Town podcast. I’m hooked. I can’t wait for the next instalment.
    Leahy book turned into a movie. Di Caprio as Leahy? Brad Pitt? Johnny Depp?

      • Keeje: He tols a lof of A330 aft the 787 luacnh because Boeng hosed it all up.

        Boeing made a number of 767s to fill that gap as well.

        It was buying frenzy and Boeing was not able to provide a single aircraft let alone the numbers Airbus could (or Boeing in 767)

        Now with the 787 in full swing and a more sane market, we see where the real balance lies.

  3. Thanks Scott, interesting about the 340 “story”, hopefully we will find out his thoughts on the 380, past, present, future?

  4. I vaguely recall IBM’s threat to Bill Gates in the early 1980s that IBM would “crush” Microsoft. Look how that turned out. Arrogance and hubris often lead to the same conclusion. Good luck to Boeing.

    • .. and Microsoft really never had a quality product.
      IBM vs Microsoft was two “borgia” parties gyrating in competition.

          • you are lucky to have BSD, the Linux Kernel and the gnu infrastructure. All the alternatives build on those. _Free and Open Source_ . Commercial success again stems from lifting from the Commons.

  5. I was very interested to hear that JL places a lot of his success at the door of Boeing’s mistakes. If there is one thing I have learnt the propensity for your competitor’s doing something truly stupid is always quite high. I am also interested to hear of the mistakes he is admitting to in hindsight (ie the A340, presumably the A380 next instalment). Getting it ‘right’ is difficult and in this industry errors can haunt you for decades.

  6. In hope that in John’s book, that he gives appropriate credit to the guy that made John’s career at Airbus: Tom McGinnity, VP Purchsing at Northwest Airlines. Without McGinnity, John may well have been a Beech salesman.

  7. I still say Hazy was actually wrong about how much better the 787 was. If the 787 had Aboulafia’s drug-like rush, then Hazy was a pusher.

    • @SomeoneInToulouse:
      “..Hazy was actually wrong about how much better the 787 was.”
      But no more or less wrong than folks who go on about how much better the 332 is against 763ER….

  8. I’m still not at ease with long overwater stretches on two engines… There are regular instances of engine failure requiring an emergency landing… The dices are being rolled and rolled… One day, the unthinkable will happen…

    • Statistics show that 2 engines are fine.The Trent 1000 does concern me a bit though,hopefully some one is doing some serious number crunching to determine the risk of 2 simultaneous failures.

  9. “Leahy also pointed to Boeing’s “hubris” that United would never buy anything but the 737 and their belief that the 737 was so superior to the A320. United shocked Boeing and the industry by ordering Airbus.”

    It’s crazy they could believe this given what a hot mess that aircraft is. Really speaks to institutional arrogance and blindness.

  10. Get that book out fast,or there might be another long and difficult chapter to write.Possibly in a distraction free environment.

  11. You have to wonder whether this Delta A321 order will push Boeing over the edge to start offering the MOM aircraft. They’re falling way behind in market share vs the A321. If they do, hopefully they’ve learned their lessons from the 787 development disaster so that it’s a smoother process.

  12. What is funny is the A300 broke the 4 engine my thing in Asia but then Boeing capitalized on it and took it to its logical conclusions to twin inter Continental between Asia, US and the rest of the world. .

    There is a lot to be said to be the second in line not the first early adapter.

    • Thats the ETOPs that changed over time, the airframes were much the same. The engines improved more gradually

    • ” second in line not the first early adapter.”

      That would be the 787-9/10. The 787-8 was the definitely flawed first try. Credit to Boeing that they doubled their expenditure to build a better version

  13. Very nice reading, thank you. Looking forward to Leahy’s book.
    On the chapter of Airbus’ mistakes, I would name the decision to shut down the A300 line while DHL was about to order a bunch of that class of ac.
    With no alternative, the deal went to the B767, giving it a lease of life.
    I think to remember that DHL would have preferred the A300 which they were using already in numbers (along with the A310).
    Maybe Airbus could not reverse the decision due to the supplier chain?

  14. I wonder if listening to Udvar-Hazy and SIA was the tactical mistake. Fact is, with a new wing the A330 based A 350 would have been very close to the 787 in fuel burn. They should have developed the SWB as a seperate platform. But when the 787 hit its development issues, the orginal 350 would have sold like hotcakes.

    • New wing on A330 would have pushed up the price considerably, the later choice to just do a NEO was the right choice. The fuel consumption is close enough.

      • I believe the 330NEO’s are batter aircraft that is perceived. Why its not selling could be a function of Boeing’s marketing against it and lack of Airbus promoting it?

        Don’t know where AB took out weight, and how much it was, for the 333-Regional. If similar can be done for a 5000-6000NM range 338-R, with de-rated engines and reduced MTOW, it could potentially find favor with many airlines.

        Lastly, how do you quantify the superior passenger comfort of the 330’s vs the 787’s? Personally I think is worth significantly more than the ~5% (?) or so than the 787’s better fuel burn figures.

  15. Except for the A320, Airbus jetliners are not really great commercial successes.

    When it comes to comfort, efficiency, resale value, the things that matters on the widebody market, Boeing rules.

    On the single aisle market, buying decisions are on the hand of CFO and they go by the price and Airbus can offer deep discounts thanks to French and German governments deep pockets.

    • @Philippe: The A330-200/300 sold more than 1,400 airplanes. How is this not a success, please?

    • The A300 started the large twin “revolution”. The 330Ceo’s did well, the 330NEO’s a casualty of marketing. Seat mile cost of an 330-900 will be better than an 789 if airlines operated the 787 in the designed/”intended” 8 abreast layout.

      …and the 350 is a bloody good aircraft and great from a passenger perspective.

Leave a Reply

Your email address will not be published. Required fields are marked *