LONDON — You can almost pinpoint the day everything started to shift.
Precisely a decade (and a day) ago, journalists were being shuttled around the soggy Farnborough Airshow grounds by golf cart on their way to a press conference for the launch of an airplane then called the Bombardier C Series.
It’s clear Bombardier intended to influence the industry. In 2008, the company’s leadership believed they were going after an underserved and ignored part of the airliner market long-neglected by Airbus and Boeing. The pair wouldn’t mind a few thousand airplanes of inconsequential size filling fleets at a time when they wanted to be selling bigger planes.
However, Bombardier set in motion a series of changes nearly unimaginable a decade ago. Airbus came down on Bombardier with the explosive force of an atom bomb. Thirty months later Airbus launched the A320neo and Boeing, on its way to a new airplane, followed eight months later with the 737 Max. The pair sold nearly 11,000 airplanes. And just as Bombardier was emerging from the cloud of its protracted and expensive development, Boeing filed suit at the ITC, threatening a fatal blow.
The magnitude of the response from Boeing and Airbus fractured Bombardier, revealing a miscalculation in its strategy. It was forced to massively overhaul its operations, shedding people and programs, completely altering its business model. It accelerated the Canadian plane maker’s course toward market exit. As of July 1, Bombardier was left controlling just over a third of the airplane that was supposed to be its future.
Airshows tend to be about tactics. What airlines will buy new planes? Will a new product be launched? But all those are the moves companies make to deliver on their respective strategies. A decade after the C Series’ launch set in motion the new superduopoly we see today, the Farnborough Airshow in 2018 is a gathering all about strategy.
Strategy is the fundamental underpinning of how a firm – a company, a country – crafts the relationships with those that have a stake in its success.1Piepenbrock 2009And at nearly every level, the stakeholder lines of this business are being redrawn, seemingly overnight.
Smart strategy, at its core, is the ability to understand which direction the air current is gusting and creating an organization that can fly with the wind and evolve when it shifts. And both halves of the superduopoly have major strategic challenges amidst shifting winds. Some are within their control, others are not.
For Airbus, the political union that created the consortium has come undone. The last time the aerospace industry gathered at Farnborough two years ago, the U.K. was just weeks after a vote to leave the European Union. Now Airbus is on the verge of feeling the full effect of the U.K.’s departure. “Her Majesty’s government still has no clue how to execute Brexit without causing severe harm,” said Airbus CEO Tom Enders (who departs in early 2019) last week. “Brexit in whatever form – soft or hard, light or clean – will be damaging…for our industry, and damaging for the U.K.”
And for Boeing, its own stakeholder relationships are being shaken. The U.S. government seems it is doing everything in its power to fracture the bonds with Boeing’s most important customer.
A steadily escalating trade war with China has already ensnared Gulfstream and its business jets. Chinese tariffs will apply to everything from a 737-700 on down. Notably, Embraer’s E-Jets may eventually face tariffs of their own should the current situation not be resolved by the end of 2019 when Boeing’s 80-20 joint venture with Embraer is finalized.
The company’s own relationship with its suppliers is also being redefined. By all outward appearances, Boeing’s strategy is comprehensive reformation of its old way of doing business.
The company is now five years into this redesign of its supply chain. Retired chief executive Jim McNerney spoke in 2013 of a recognition of Boeing’s size and “using corporate leverage” to get its suppliers buy into its new vision — or else. It was one that gave it both intellectual property rights and broader pricing control. Analysts have concluded Boeing’s own actions have encouraged a wave of consolidation — most visibly in the roll up of United Technologies. The trend has intensified. There were 411 M&A deals in 2017 (up from 366 in 2016 and just 219 in 2013), according to Alix Partners.
And all of this comes at a time during the most ambitious aircraft production ramp up since World War II when manufacturers need more from its supporting stakeholders more than ever.
As Farnborough kicks off here with the industry’s new shape, strategic uncertainties and new realities will dominate the news – but precisely who has planned wisely and who is miscalculating may not be known for another tumultuous decade.
An earlier version of this article misstated the timing of the 2016 Brexit vote. It occurred just prior to the 2016 Farnborough Airshow, not after.
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