6.11 The Rise of Airbus
Marcos Antonio de Lima Filho, PhD.
Airbus presents another example of creative destruction that the current disruption paradigm fails to explain. Established in the 1970s, the European conglomerate understood that significant investments in research and development were essential to regain market share lost to American manufacturers. Despite entering the market three decades after the Jet Age, Airbus effectively introduced a series of high-end disruptions. By the early 2000s, Airbus consistently secured a larger portion of new orders than Boeing, and in 2003, it even surpassed Boeing in airframe deliveries for the first time (Simons, 2014). Similar to Apple’s iPhone, Airbus exemplifies a high-end newcomer that incited creative destruction within its industry (Figure 6.11.1).
In this section, I explore how different paradigms of disruptive innovation interpret these historical events. For Christensen, no disruption occurred: the Jet Age represented a sustaining innovation, as did Airbus with its high-end innovation strategy. However, the idea of disruption introduced by other scholars provides a distinct interpretation of these events.
Like all high-end entrants, Airbus contradicts Christensen’s definition of a disruptive innovation, thus being categorised as a “sustaining innovation”. According to his predictive model, entrants that introduce sustaining innovations, targeting the most valuable segments of an established market, are expected to fail (Raynor, 2011). However, this prediction did not hold true for companies like Airbus, Boeing, or Apple, which all achieved remarkable success in their respective industries. Christensen justified this anomaly by saying that Airbus received massive subsidies from European governments (Christensen et al., 2004). This justification, however, ignores that both entrants and incumbents have received government subsidies for decades.
Every major commercial aircraft manufacturer, including Airbus, Boeing, Bombardier, and Embraer, receives financial assistance from their respective governments, though the form of support differs from one country to another (Spreen, 2020). Airbus’s financing for new program development, for instance, is partly reliant on loans provided by governments of countries where its production operations are based. In comparison, Boeing’s subsidies have been for aircraft production, which is prohibited by the World Trade Organisation (WTO) and is never required to be paid back (Simons, 2014). It is evident that Boeing’s commercial aircraft have greatly benefited from technology directly derived from military programs: the 707 airliner, for example, evolved from the KC-135 aerial refuelling tanker that Boeing developed for the US Air Force (Spreen, 2020). Nevertheless, without these subsidies, Airbus could never have established itself in the extremely capital-intensive business of aeroplane manufacturing, an industry that has long been dominated by American firms (Pandey, 2010).
Therefore, subsidies alone cannot explain the rise of Airbus and the disruption it triggered. Even with significant government backing, new aircraft models may fail to capture the market, as evidenced by the CSeries and A380 programmes. The US Department of Commerce observed subsidies of 220% by the Canadian government to the CSeries program. Even so, this new regional jet drove Bombardier to the brink of bankruptcy. Credit rating agencies rated the company as CCC, indicating a high-risk bond investment that some banks are unable to buy (Hamilton, 2021). Subsequently, Bombardier exited the commercial aviation sector in 2020 to focus on business jets. By 2021, its stock price had rebounded, increasing by over 500% from its lowest point. Similarly, Airbus faced difficulties in selling the A380. Having delivered just 251 units over a period of 14 years, the A380 programme fell short of breaking even, resulting in a failure to recoup the $25 billion invested.
Airbus was formed in 1970 when a group of companies in France, Germany, Spain, and the United Kingdom joined forces to design and build a new twin-aisle, wide-body 250-passenger aeroplane (Hamilton, 2021). Boeing, McDonnell Douglas, and Lockheed initially dismissed this European development. Given Airbus’s apparent reliance on direct government support, the Americans thought that this new player would be slow-moving, bureaucratic, and unable to match their competition. Boeing, in particular, believed in the enduring superiority of its aircraft and doubted that airlines would be enticed by this government-owned upstart (Hamilton, 2021). Boeing’s vice president, Jim Austin, even dismissed Airbus as a “typical government plane”, predicting that it would exit the industry after constructing a handful of planes (Goebel, 2022). The scepticism seemed reasonable, given Europe’s prior record of commercially unsuccessful aircraft programmes, the Concorde being the prime example (Hamilton, 2021). Despite its groundbreaking technological achievements, the Concorde was never going to be the saviour of the European aircraft industry because it was highly expensive to build and operate, and catered for relatively few people (Airbus, n.d.).
Airbus A300
Airbus showed great vision by bringing out a big two-engine aeroplane (twin) in the early 1970s before any of the established aviation behemoths had the foresight to do it (Pandey, 2010). The A300 was the first wide-body airliner to fly with only two engines (two turbofans) and two cockpit crew; this configuration made all its variants impressively economical to operate (Grant, 2002, p. 397). At the time, wide-body aircraft were predominantly designed with three or four turbofan engines. The A300 was positioned to compete directly with American trijets, such as the McDonnell Douglas DC-10 and the Lockheed TriStar (Figure 6.11.2). The two-turbofan configuration of the A300 offered superior fuel efficiency compared to its competitors, a feature that gained immense importance following the 1970s oil crisis. As fuel costs surged, airlines were compelled to adapt, and the economic advantage of operating a wide-body twin-engine aircraft like the A300 became increasingly attractive.
Since its inception, the founding fathers of Airbus insisted that a high level of technology should be built into the A300 to give it the edge over competing aircraft (Airbus, n.d.). The A300 became a reference architecture, bringing together an array of unprecedented technologies that would set the standard for future airliner design:
The A300 made history as the world’s first twin-engine, twin-aisle wide-body aircraft;
In another first, the A300 used composites in its construction, marking the first time such materials were used in a passenger aircraft. Key parts of the aircraft such as the leading and trailing edges on the tail fin, along with the radome, were constructed using glass fibre reinforced plastic (Airbus, n.d.);
The A300 was the first to feature automatic wind-shear protection, a full-flight-regime autopilot, an aft-loaded wing design, triplex power, and control systems (Simons, 2014).
Later A300s eliminated the need for a flight engineer, thus enabling a two-pilot crew to command the aircraft alone. This was a world-first for a wide-body aircraft;
The A300 was also the first to introduce a computer-based digital flight management system (FMS), which significantly reduced pilot workload (Simons, 2014). Other firsts included the centre-of-gravity control, achieved by transferring fuel between the aircraft’s fuel tanks.
The A300B4 model, introduced in 1977, became the first Extended Twin Engine Operations (ETOPS) compliant aircraft. Its superior performance and safety standards enabled it to perform overwater operations, providing operators with greater flexibility in routing (Airbus, n.d.);
The Airbus A300, with its array of innovations, represented a new dominant design that arrived at an opportune moment (Figure 6.11.3). Over the following decades, two-turbofan aircraft came to dominate the market, first displacing the demand for trijets, and then, a few decades later, rendering four-turbofan planes obsolete. This evolution in design and technology demonstrates the profound impact that the A300 had on the aviation industry.
Airbus A320
Airbus, however, did not stop with the A300. The company would repeat its proven strategy of a high-end disruption with a new aircraft family. As it emerged, the A320 had a somewhat conventional architecture: being a low-wing design, made of aluminium alloy with considerable use of composite materials, featuring all-swept flight surfaces, and a turbofan engine podded under each wing (Goebel, 2022). However, beneath its familiar exterior, the A320 was packed with new game-changing technologies: it was the first commercial airliner to feature digital fly-by-wire flight controls and active ailerons (Simons, 2014). It was a bold step for Airbus, indicating their willingness to push boundaries and challenge the status quo. As Roger Béteille, a key figure in the foundation of Airbus, put it: “Perhaps we were too bold, but we had no choice. Either we were going to be first with new technologies, or we could not expect to be in the market” (Learmount, 2017).
This audacious approach underscored Airbus’s commitment to innovation and its determination to be a leader in the aviation industry. However, the A300 and A320 high-end strategies and the disruptions they caused run counter to Christensen’s model of disruptive innovation. Instead of focusing on advanced technologies, the theory prescribes that Airbus should have started by making a simpler, less expensive airliner. As Christensen and Raynor (2003) argue, “the challenge is to commercialise a simpler, more convenient product that sells for less money and appeals to a new or unattractive customer set.”
In stark contrast, Airbus opted for a path of high-end disruption, leveraging advanced technologies to redefine the industry’s standards. Both the A300 and the A320 were technological pioneers: the A300 was the first wide-body aircraft with two turbofans, and the A320 was the first commercial plane to feature fly-by-wire controls. Thus, instead of targeting less demanding and overlooked segments, Airbus aimed at the most demanding, high-end customers by offering superior performance. With the launch of the narrow-bodied A320 in the early 1980s, Airbus was competing with the Boeing 727 and 737, and with McDonald Douglas and their DC-9 derivations (Simons, 2014). Boeing referred to the single-aisle segment as “the heart of the market” because it concentrated the highest profits and greatest rivalry (Hamilton, 2021).
The current paradigm of disruption also predicts that “an entrant that launches a sustaining innovation — one that targets the most valuable segments of an established market — can expect to fail” (Raynor, 2011). In these circumstances, say Christensen and Raynor, “we found that incumbents almost always prevail”:
It doesn’t matter how technologically difficult the innovation is, however: The established competitors almost always win the battles of sustaining technology. Because this strategy entails making a better product that they can sell for higher profit margins to their best customers, the established competitors have powerful motivations to fight sustaining battles. And they have the resources to win (Christensen & Raynor, 2003).
Yet, the actual course of events diverged significantly from these predictions as Airbus progressively secured its position as the market leader in both the wide-body and narrow-body segments (Figure 6.11.4). Despite its modest appearance, the A320 was highly disruptive in terms of technology. When Airbus introduced the A320 in 1988, the twin-turbofan configuration already dominated the single-aisle segment. Nevertheless, Airbus would dramatically change this architecture by incorporating pioneering new features into the A320. These included fly-by-wire controls, full flight envelope protection, and electronic flight instrument systems. Thus, labelling these advancements as merely sustaining or incremental innovations could lead to erroneous interpretations.
Since then, the high-end disruptive strategy of Airbus has paid off. Through the use of advanced technologies to seek performance advantages in its products, Airbus has risen to the forefront of the global aircraft industry. The advent of Airbus has also allowed the European civil aerospace industry to rival, and ultimately surpass, the American dominance.
The A320’s success story is a testament to this. Despite starting from zero market share, Airbus managed to capture 50% of the delivery share within a span of less than two decades (see Figure 6.11.5). In a significant milestone, the A320 family overtook the Boeing 737 in October 2019 to become the best-selling airliner globally. There are currently more A320s flying than 737s, and the order book for the latest A320neo is nearly double that of the 737-MAX.
Despite the profound disruption observed during Airbus’s ascent, Christensen’s theory provides scant insight into the industry transformations that ensued. The rise of Airbus is just another case of sustaining innovation, as is the rise of Apple with its iPhone, or Tesla with its electric vehicles. For Christensen, “Airbus has pursued Boeing with a sustaining innovation strategy” (Christensen et al., 2004). Yet, within this context, the term “sustaining innovation” is not a compliment (Mui, 2016). It conveys the dismal prediction that “an entrant that launches a sustaining innovation can expect to fail” (Raynor, 2011). This strategy, which revolves around creating superior products that can fetch higher profit margins, tends to incite fierce competition from incumbent industry leaders, who are typically equipped with the motivation and resources necessary to win (Iyer, 2018).
Contrarily, empirical evidence paints a different picture than such theoretical predictions. Companies like Airbus, Apple, Boeing, and Tesla, which adopted strategies of sustaining innovation and focused on premium, technologically advanced offerings, did not fail as Christensen’s model suggests. Instead, they have risen to the forefront of their respective industries.
The Boeing-Airbus Disruption Explained
The rise of Boeing and Airbus aligns more coherently with the concepts of architectural innovations and dominant designs articulated by scholars like William Abernathy, Kim Clark, James Utterback, and Rebecca Henderson. During the 1980s, these scholars advanced a series of frameworks that commonly incorporated the concept of disruption. Indeed, their pioneering efforts formed the groundwork for Christensen’s PhD thesis examining disruption in the disk drive industry (1992a).
These forerunners of disruptive innovation theory aimed to understand how technological innovations lead to the evolution of industries. They observed that new entrants often challenged incumbents by introducing architectural innovations — those that reconfigure the way components of a product or system interact, without necessarily altering the components themselves. These architectural innovations often lead to the establishment of new dominant designs, which subsequently set the standard for future product developments in the industry.
The concepts of architectural innovation and dominant design provide a more coherent explanation for the ascent of Airbus and Boeing, one that is more aligned with historical production figures. These concepts highlight that such disruptions can not be attributed to the development of incrementally improved aircraft, grounded on existing architectures and technologies. Rather, the triumph of these companies lay in their ability to reshape the prevailing architecture of the aviation industry. In doing so, their innovation efforts led to the emergence of new dominant designs, which have since continued to define the essential features of an aircraft.
Building on the concept of architectural innovation, Henderson offers a deeper understanding of why these transformations can be so challenging for established companies. For Henderson, there are some sorts of technologies or innovations that established companies cannot respond to (Gans, 2016). She termed these innovations “architectural innovations” (Henderson & Clark, 1990). For successful and established firms, such as Boeing with its 737 airliner, thinking about how to recognise and deal with a new architecture is a challenge. Henderson saw that established firms could, indeed, deal with technological jumps so long as they impacted only specific components (Gans, 2016). However, when these advancements entailed a substantial overhaul of the existing architecture, it created a significant barrier for these firms.
Indeed, instead of an entirely new aeroplane program, Boeing countered Airbus with a series of incremental innovations. To match the performance improvements achieved by the A320 and later the A320neo, Boeing re-engined the 737 twice: the 737NG and the 737 MAX. With the new engines, Boeing was integrating a new component into an old architecture: the company was extending the life of the 737 family, introduced in 1967. The incremental update avoided the need to invest billions of dollars in a new aircraft programme. In addition, time to market would be faster. A new programme “would take a long time to ramp up the production to the same level”, said a Boeing executive (Hamilton, 2021). Thus, like many established firms, Boeing continued to rely on an obsolete architecture.
This strategy of incremental innovation is a wise path of least resistance for established firms, but according to Utterback (1994), sustained success in this form of innovation results in a management trap: “In a stable and effective but conservative organisational environment the reward for improving existing technology, products, and processes is greater than the incentive to turn the world on its head. Thus groundbreaking changes are viewed as difficult, disruptive, unpredictable, and risky, while incremental innovations are seen as reliably producing more predictable results more quickly” (Utterback, 1994, p. 224). Consequently, the drive for incremental innovation can make top management short-sighted, resulting in a conservative and risk-averse approach to product design:
Established firms with massively profitable businesses are almost invariably more conservative and risk averse than are fledgling competitors with none (…) As firms grow larger, their top managers necessarily function more as conservators than as creators; they have income-producing products that must be nurtured and preserved to continue the benefits of shareholders and fellow employees (Utterback, 1994, p. 224).
In my view, the principal factors that led to the downfall of the 737 MAX programme were internal and human-related, thus entirely preventable. Boeing grew overly focused on fine-tuning and extending its established 737 business, but in doing so, it overlooked new technological opportunities. Reportedly, Boeing was considering an entirely new aircraft programme before deciding to simply re-engine the 737NG: “Boeing indeed was studying such a design, but the focus was on a twin-aisle aeroplane starting at 180 seats. A composite aeroplane with an elliptical design, with the aim of a cost basis, sales price and economics of a single-aisle aircraft, was the goal” (Hamilton, 2021). Senior management, however, rejected such a brilliant design.
As Abernathy and Utterback noted many decades ago, a persistent emphasis on efficiency and incremental innovation transforms the once-creative company into a change resister: “Major new products do not seem to be consistent with this pattern of incremental change. New products which require a reorientation of corporate goals or production facilities tend to originate outside organisations devoted to a ‘specific’ production system; or, if originated within, to be rejected by them” (Abernathy & Utterback, 1978).
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