6.8 Christensen’s Prediction for Boeing and Airbus

Marcos Antonio de Lima Filho, PhD.

Unlike his predecessors, Christensen’s theory offers a limited explanation for the impact of the jet engine (see The Jet Age Disruption?, Section 6.6). With his redefinition of disruption, the jet engine ceased to be considered a disruptive innovation, instead being viewed as a “radical but sustaining innovation relative to the piston aircraft engine” (Christensen & Raynor, 2003, p. 69). The sustaining innovation category is rather vague, covering a wide array of innovations from incremental to radical levels. Consequently, supporters of the dominant paradigm can dismiss the Jet Age as a disruptive period their theory cannot explain, simply by claiming the jet engine is a sustaining innovation.

However, even if these conceptual issues are set aside, the aviation industry continues to present multiple challenges to the existing paradigm of disruptive innovation. In his efforts to “predict ex ante whether an innovation will disrupt the leaders”, Christensen projected that regional jet manufacturers could disrupt the Boeing and Airbus duopoly. This forecast is more than just a personal opinion; it’s an exercise and test of Christensen’s predictive model of disruption. In this section, I compare this prediction to market data, which can be used to test the predictive accuracy of some of the theory’s core insights.

In the early 2000s, Christensen published certain predictions based on his framework in an attempt to test the validity of his theory. “We need to do anomaly-seeking research, not anomaly-avoiding research” (Christensen & Raynor, 2003). The scholar predicted that regional jet manufacturers (namely Bombardier and Embraer) would be potential disruptors to the Boeing and Airbus duopoly. However, the disruption never materialised, and Bombardier ended up leaving the commercial aviation business.

“In the future”, said Christensen & Raynor (2003), “the most profitable growth in the airframe industry will probably come from firms with disruptive strategies, such as Embraer and Bombardier’s Canadair, whose regional jets are aggressively stretching up-market from below”. Christensen, Anthony and Roth (2004) later reiterated and expanded this prediction in the book Seeing What's Next: Using the Theories of Innovation to Predict Industry Change:

If traditional customers begin migrating to smaller airplanes, Boeing and Airbus could be in big trouble. They would have to fight against their own skills and motivation to win this battle. Regional jet manufacturers make money on lower-priced planes. Regional jets largely exist within a freestanding value network, with almost no points of interaction with incumbent manufacturers. Regional jet manufacturers have developed the unique ability to build small and midrange planes profitably. Boeing’s and Airbus’s cost structures and capabilities support building large, sophisticated planes (Christensen et al., 2004, p. 133).

In brief, their assessment was that “regional jet manufacturers pose a legitimate disruptive threat to the industry’s leading manufacturers, Boeing and Airbus” (Christensen et al., 2004, p. 129).

Back in 2004, Christensen had all the chances in his favour that his prediction would come true (see Figure 6.8.1). The market for regional jets had undergone rapid growth in the previous decade, with its market share increasing from 7% in 1990 to 35.5% in 2004. With these facts in mind, Christensen and colleagues wondered whether Boeing and Airbus would continue to lose market share to Bombardier and Embraer: “Can Boeing and Airbus respond to the onslaught of regional jet manufacturers such as Bombardier and Embraer?” (Christensen et al., 2004, p. 133).

Based on his predictive model of disruption, Christensen and colleagues made the following prognostic:

The theories of innovation suggest that Boeing and Airbus will continue to miss much of the industry’s real growth and face increasing pressure unless they take proactive corrective action to adapt to the disruptive forces (Christensen et al., 2004, p. 133).

(…) unless Boeing and Airbus take corrective action, they face the prospect of spending the next decade focusing their growth investments on an increasingly expensive and inexorably dwindling pie (Christensen et al., 2004, p. 134).

On the manufacturing side, Boeing and Airbus will continue to slug it out for control of the high end of the market. Their own head-to-head battle is likely to distract them from the threat they need to worry about the most. Regional jet manufacturers will continue to soar up-market. One day Boeing and Airbus could wake up and realise they are fighting over a declining market (Christensen et al., 2004, p. 149).

However, the projected disruption did not happen as regional jet manufacturers did not soar up-market. Since 2004, regional jet sales have continuously declined, with fewer aircraft deliveries and a shrinking market share. In addition, this trend reversal was not the result of corrective action taken by Boeing or Airbus. The duopoly extended its dominance over the mid- and high-end markets, and one of the disruptors ultimately left the commercial aircraft industry (see Figure 6.8.2).

Christensen’s theory holds that when traditional companies chase higher profitability at the high-end of the market, they often overshoot the needs of low-end customers. This leaves the door open for entrants, such as Bombardier and Embraer: “Regional airlines had been non-consumers of jet aircraft. Embraer and Bombardier found a way to reach these non-consumers with a relatively limited product” (Christensen et al., 2004, p. 132). Incumbents also tend not to respond vigorously: Incumbents are typically unmotivated to develop disruptive innovations that promise lower margins, target smaller markets, and introduce inferior products and services that their existing customers cannot use (Christensen et al., 2018). Therefore, for Boeing and Airbus, “the prospects of selling small planes at low prices couldn’t compare to the option of selling large planes at high prices” (Christensen et al., 2004, p. 133).

The disruption occurs when entrants move upmarket and challenge the dominance of the incumbents (Christensen et al., 2018). Following this logic, Christensen identified Bombardier and Embraer as disruptive threats, and advised how Boeing and Airbus could respond to “the onslaught of regional jet manufacturers”. Christensen suggested that Boeing should develop a small plane: “In this circumstance, the theories of innovation suggest betting on the attackers” (Christensen et al., 2004). According to his theory, Boeing had three alternatives to counter this threat: enter the regional jet market by setting up (1) an internal group, (2) a separate organisation, (3) or by acquiring a regional jet manufacturer.

Instead, Boeing ignored the needs of low-end customers. The company went head-to-head with Airbus, developing a series of larger wide-body jets, such as the 787, the 747-8, and the 777-300ER. Contrary to Christensen’s prediction, Boeing and Airbus have captured the majority of the industry’s growth over the last two decades. Boeing and Airbus production more than doubled between 2005 and 2019, increasing by 136% and 153%, respectively. Moreover, the wide-body segment, which is aimed at the very high-end of the market, grew 166% in the period. The production of wide-body aircraft went from 123 units in 2004 to 327 units in 2019 (see Figure 6.8.3).

As a result, instead of being disrupted, incumbents outperformed disruptors by doing exactly the opposite of what was prescribed. Despite a remarkable expansion that lasted until 2004, the regional jet segment has lost momentum, with its combined market share falling from 35.5% in 2004 to just 4.7% in 2019. More critically, this reversal has occurred without Boeing or Airbus implementing any of the “proactive corrective action to adapt to the disruptive forces” advised by Christensen.

From the perspective of the alleged disruptors, the contradiction is even worse. Due to weak sales, Bombardier chose to withdraw from the regional jet market. Its CSeries regional jet failed to secure enough orders to cover its program costs of more than 6 billion dollars. Then, Airbus stepped in to save Bombardier by acquiring 50.01% of the programme for just one Canadian dollar.

Now rebranded as the Airbus A220, the CSeries received substantial subsidies from Canadian taxpayers, totalling $4 billion according to Embraer, which filed a dispute with the World Trade Organization. In 2018, Bombardier announced the sale of its turboprop business along with 5,000 layoffs as part of a restructuring plan. Airbus acquired Bombardier’s remaining stake in the CSeries program for $591 million in 2020, marking Bombardier’s departure from the regional jet segment. Consequently, rather than becoming a disruptor with profitable growth, Bombardier was ultimately disrupted.

Finally, it is also possible to claim that the development of regional jet aircraft results from a high-end disruption rather than a conventional low-end disruption. The core technologies employed in these aircraft were all developed for mid- and large-sized aircraft. Over time, these high-end innovations trickled down from the most technologically demanding segments to the least demanding ones. The jet engine, for example, was first developed for military use during the 1930s. It was incorporated into the first commercial jets in the 1950s. The cost of the first Boeing jet, the 707, was double that of the piston-engine aircraft it replaced (Pandey, 2010). It took decades for this technology to spread from long-distance transatlantic flights to regional short-distance operations.

Moreover, Christensen (1997) holds that “disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use”. However, when the first regional jets were introduced, they were neither cheaper nor inferior to the dominant technology at the time. Initially, regional airliners were exclusively turboprops, which are cheaper to produce and are highly efficient over short-range, low-altitude routes; In the 1980s, more than 95% of regional airliners in service were turboprops (Spreen, 2020). Since 1990, the regional jets produced by Embraer and Bombardier have displaced turboprops in much of the regional market (Figure 6.8.3). Thus, given their superiority and high cost relative to turboprops, the rise of regional jets can also be attributed to a high-end disruptive innovation process.