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Case study in the INTERNATIONAL MARKETING course. Presented by: Ashraf Hatem Hlouh

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IBERIA AIRLINES BUILDS A BATNA

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Leahy (Airbus) : who is fumed at Iberia's pricing demands. A New York City native and the company's
highest-ranking American, he pursues one goal: global domination over Boeing. Bright (Boeing) : who had
been appointed Boeing 777 as a "revenue machine" He insisted that his could earn Iberia about $8,000 more
per flight than the A340-600 because it can hold more seats and is cheaper to operate. Enrique Dupuy : chief
financial officer and the man who led its search for wide body jets, meant from the start to run a real horse race.
Dupuy made it very competitive, His rule: Whoever hits its target, wins the order. Iberia wanted to buy new
jetliners THE CASE

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Two competitors: 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 counsel collusion between the aircraft makers. But, both firms would be better off with less aggressive price
discounting. One of Boeing's failings is to not have a European working on business in that part of the world.
Notice how Airbus has hired an American (Leahy) to

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whom does it serve? In 1944, the civil Aviation Conference was held in Chicago, where fifty two states
sighed an International Convention that established the basic principles for the functioning of the air market:
each country could negotiate bilateral agreements with other countries in order to regulate the market
conditions that would govern air traffic. Before the 1980 s, the planning system used was basically point to
point, that is to say, direct flights from one city ofIBERIA AIRLINES

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What value does Iberia Airlines deliver? They used medium and low capacity aircraft on low density
routes. Generally they only made domestic flights and rarely international ones. They competed with flag
carriers and also with low cost carriers, which had caused a decline in their per passenger income. For that
reason, some regional companies decided to go into partnership with flag carriers which results to also low cost
carriers.

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What is Iberia Airlines ambition? Its ambition is to suffice the need of its passengers while giving low
cost in a way that their service will be still in the Why does Iberia Airlines matter? It matters with the 1.9 billion
passengers carried safely by the airline, because of the low cost but efficient carrier. The strategic master plan
II 2000-2013, established customer service as one of its priority objectives which in fact result with the
passengers satisfaction that would be converted to profit.

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What is its difference? Its difference is that it gives low cost flights which gives the customers the right
satisfaction. They managed flights point- to-point, both..Re: Sales Cycle Analysis. Iberia's Dupuy played the
game to perfection. His critical task was to strengthen his BATNAs (best alternative to a negotiated agreement).
It had been a long time since Iberia had bought Boeing. He went to great lengths to bring the Boeing folks into
the bidding

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Another stroke of genius was to bring the used Singapore Airlines 747s into consideration. He also had
done a good job during the 1995 (another bad market year for the aircraft makers) negotiations with airbus by
including the resale price guarantees Bright (Boeing) was in trouble from the start. But, in a down market he
could hardly ignore a big order even from a European airline with cozy connections to Airbus.

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Both firms would be better off with less aggressive price discounting. One of Boeing's failings is to not
have a EuropeanAirbus 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 counsel
collusion between the aircraft makers.
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Make multiple equivalent offers simultaneouslyLeave yourself room to concede Make the first offer
and build a rationale Negotiate at the package level Carefully analyze the clients BATNA Create a scoring
system Establish a reservation price Improve your BATNA Set an aggressive goal Prepare TOP TEN
STRATEGIES FOR NEGOTIATION

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Bright: Revenue Machine, Wanted to be considered on more than priceLeahy: Better investment
return Dupuy: Manipulative, Strategic CRITIQUE THE NEGOTIATION STRATEGIES AND TACTICS OF ALL
THREE KEY EXECUTIVES INVOLVED: DUPUY, LEAHY, AND BRIGHT

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Boeing (USA) Revenue Machine, More seats allowing additional earnings of about $8,000 more
per flight Airbus (Europe) Better investment return Could be more easily integrated with their current planes
Helping to save money in the long run Already less expensive to purchase CRITIQUE THE OVERALL
MARKETING STRATEGIES OF THE TWO AIRCRAFT MAKERS AS DEMONSTRATED IN THIS CASE

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Later, Foreyard got on the phone with Iberias Irala, who said he still needed two concessions on the
financial terms and economics of the deal. Airbus had already agreed to most of Dupuy s terms on asset
guarantees and, with engine maker Rolls- Royce PLC, agreed to limit Iberia s cost of maintaining the jets.
forgeard asked if relenting would guarantee Airbus the deal.They met the requirements Dupuy set up in the
beginning WHAT WERE THE KEY FACTORS THAT ULTIMATELY SENT THE ORDER IN AIRBUSS
DIRECTION?

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In the end, Airbus nosed ahead thanks to its planes lower price and common design with the rest of
Iberias fleet. By offering guarantees on the planes future value and maintenance costs, plus attractive
financing terms, Airbus edged out Boeings aggressive package. The deal s final financial terms remain
secret.

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QUESTIONS 1. Critique the negotiation strategies and tactic Another brilliant move was to bring the
used Singapore Airlines 747s into consideration. He A good answer will recognize the skill and
professionalism of Iberias Dupuy who appears to have played the game to perfection. His critical task was to
strengthen his BATNA (best alternative to a negotiated agreement). It had been a long time since Iberia had
bought Boeing aircraft. He went to great lengths to bring the Boeing executives into the bidding contest,
including offering to fly the 14 hours to Seattle. s of all three key Executives involved: Dupuy, Leahy, and Bright.

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Leahy (Airbus) probably gave away too much in price and had neglected to include a confidentiality
agreement regarding the final price. He did do well on the creativity dimension by guaranteeing GE
concessions on engine maintenance. Bright (Boeing) was in trouble from the start but, in a down market he
could hardly ignore a big order even from a European airline with strong connections to Airbus.

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Both firms would be better off with less aggressive price discounting. A good answer would explore
other avenues for winning industrial accounts such as after sales service, guarantees, staff training etc. One of
Boeings failings is to not have a European working on 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. 2. Critique the overall
marketing strategies of the two aircraft makers as demonstrated in this case.

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A good answer will recognize that the strong personal and political relationships between the top
executives at the European firms clinched the deal. This emphasizes the great importance of relationship
building .3. What were the key factors that ultimately sent the order in Airbuss direction?

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Without proper consideration there could be Transaction, in terms of the positive and minor effects of
massive discounts on list prices coupled with asset guarantees on the re-sale of second-hand aircraft,
maintenance agreements etc. A good answer will recognize that price cutting has its problems and
competition for capital intensive products can also take place on other levels. In future negotiations with Iberia,
real consideration has to be given to bidding list price and perhaps concentrating more on a bundle of other
benefits such as after sales service, pilot training etc. One needs to consider all the aspects of Airbus policy in
this particular 4. Assume that Iberia again is on the market for jet liners. How should Bright handle a new
inquiry? Be explicit.