CASE ANALYSIS

IBERIA AIRLINES BUILDS A BATNA

MBA 1st Year

Submitted to
Mr. Haresh Pursnani
Sales and Channel Management

Submitted by

GROUP 2

Aiyush Bahl (E008)

Shubham Duggal (E022)
Aman Jha (E030)
Priya Megotia (E040)
Vineeth Sai Paritala (E047)
Tanmay Tiwari (E061)
 1. Critique the negotiation strategies and tactics of all three key executives involved:
Dupuy, Leahy, and Bright.

The key executives involved in this case are John Leahy, the sales executive of Airbus;
Toby Bright, sales executive of Boeing and Enrique Dupuy de Lome, the CFO of Iberia.

 Dupuy is a shrewd man and one should recognize his skill and professionalism with
which he appears to have played the game with perfection. HIs primary and most
critical task was to strengthen his BATNA (Best alternative to a negotiated agreement)
and was clear about Iberia’s requirements and was aware about the economics of
running air travel business. It had been a long time since Iberia had bought Boeing
aircraft and Dupuy went to great lengths to bring them into the bidding contest,
including offering to fly the 14 hours to Seattle. Another brilliant move was to bring
the used Singapore Airlines’ 747s into consideration with an innate motive to meet the
demands of the market and balance the profitability while fueling the bidding contest
at the same time. He had also done a good job during the 1995 (another bad market year
for aircraft manufacturers) negotiations with Airbus by including the resale price
guarantees.
 Leahy as a salesperson seems was relying on the preferences they enjoyed from the
European buyers.The Airbus fleet owned by Iberia was formidable wall against Boeing
in many respects. However, Airbus was keen to keep away the American aircraft
company from their customer base and worked hard to meet the requirements of the
customer. Leahy heavily emphasized on the advantages of the integration of A340’s
and did not give up on the price point either being very keen on securing the bid with
the intention of not losing the turf to Boeing and in line with his goal of global
dominance over Boeing at that particular point of time. All said, he probably gave away
too much in price and had neglected to include a confidentiality agreement regarding
the final price.
 Bright though not certain about the prospects of getting an order from Iberia, gave a
try to penetrate into the improbable market. But, Bright could make the competitor
shiver with their arguments of extending number of seats and low maintenance cost.
Bright also seemed to have not wanting to go too overboard when it came to negotiating
a price as is evident when he was willing to give up the deal on account of not able to
conform to the aggressive demands of Iberia even after getting significant financing
options and discounts as well from GE.

2. Critique the overall marketing strategies of the two aircraft manufacturers as

demonstrated in this case.

Airbus and Boeing are competing for market share through price cuts. In a volatile industrial
market this guarantees major advantages in the bidding process. We, of course, cannot and
would not advise collusion between the aircraft manufacturers. But both firms would be
better off with less aggressive price discounting. They could also explore other avenues for
winning industrial accounts such as after sales service, guarantees, staff training etc. One of
Boeing’s failings is to not have a European working on their business in that part of the
world. We also have to notice how Airbus has hired an American (Leahy) to market
aircraft/to sell aircraft in the American market.
 Those two aircraft makers have different advantages.

Airbus:
 It is better investment return
 Could be more easily integrated with their current planes that are helping to save money
in long run
 Already less expensive to purchase.

Boeing:
 The more seats allowing additional earnings of about $8,000 more per flight
 Less expensive to operate and maintain
 Emphasized comfort and operating costs

3. What were the key factors that ultimately sent the order in Airbus’s direction?

The key factors are as mentioned below:

• Airbus had an edge being an old seller to the airlines, having sold Iberia more than 100
planes since 1997. As a result of which purchasing the A340s would have saved the airlines
costs on pilot training, maintenance, parts and switching costs in addition to making its
operations simpler and cheaper.
• The airbus was cheaper the than the Boeing 777 and its four engines helped it operate
better in some high altitude Latin American airports, a market space that Iberia airlines
dominated.
• A major factor that concerned the buyers was the maintenance cost, as maintaining a
777 was 8% cheaper than maintaining an A340. But, with engine makers Rolls Royce PLC
agreeing to limit their cost of maintenance along with other guarantees, drew the deal towards
Airbus.
• Another important aspect of the deal was the guarantees of resale floor values the
Airbus had offered. It had helped Iberia boost world sales in the past along with lowering their
risk of buying and freeing the airlines of the trouble of selling the planes at good prices

While the Boeing planes had a greater number of seats and could have helped boost revenues
for Iberia, but their prices were much higher than that of the A340s. The A340s could fly
farther, were bigger in size and quieter than the 777s making them relatively more comfortable
for the passengers. Though, Boeing was a close competitor, they couldn’t match up the benefits
Airbus offered to the airlines

4. Assume that Iberia is again in the market for jetliners. How should Bright handle
a new enquiry? Be explicit.

Even though Boeing offered aircrafts which were lesser expensive to operate and maintain, and
allowed more seats resulting in additional earnings of about $8,000 per flight, the order had
ultimately gone to Airbus. Earlier in order to get the deal, both Airbus and Boeing had gone
through excessive price bidding. This resulted in Enrique Dupuy getting the deal at a price he
had initially wanted. This price cutting competition can be harmful to both Airbus and Boeing
in the long run.
Hence, if Iberia is again in the market for jetliners, Bright can ensure that instead of just giving
real consideration to bidding list price, he can perhaps concentrate more on a ‘bundle’ of other
benefits such as better investment return, after sales service, pilot training etc.
Airbus offered a number of benefits like maintenance guarantees and attractive financing
terms; the biggest being asset guarantee on re-sale of second hand aircrafts. Airbus also had an
edge that it was already dealing with Iberia and its planes could be integrated more easily in
the existing system.
While Bright could not change the existing integrated system, he could play around the other
terms and conditions putting in consideration of those of Airbus, and add value to his offer.
Bright could compete with Airbus in providing maintenance guarantees and financing terms.
He could provide value in terms of pilot training and after sales services. This all could have
been done considering the final impact of it on Boeing’s cost as well as net impact to Iberia’s
deal. Bright hence can handle the new enquiry more vigilantly by forming a strategy before-
hand by analysing his competition and his stance and putting out a deal tactfully.

END