INNOBLOG

Each issue of S&I, we take a look back at a past Innovators Insight to see how our analysis has held up. Recently, we took look at Insight #3, Boeings High-Flying Bet. The Insight suggested that Boeings Dreamliner project was a risky bet for the high end of the market and that the company ought to develop a disruptive plane to fuel the creation of an air taxi industry. You can read the entire article by subscribing here, but an excerpt is available below.

At the end of 2003, Chicago-based Boeing was reeling. A high-profile scandal had claimed its CEO. Its fiercest rival, Airbus, had surged past Boeing to become the worlds largest airplane manufacturer. Analysts expected the upcoming launch of Airbuss massive A380 super jumbo jet to further consign Boeing to also-ran status. What has happened since?

Boeing has bounced back by fighting Airbus in a creative way. It didnt try to one-up Airbus with an even bigger plane than the A380, which will seat 550. It announced its plans to create a 250- to 350-seat, super-fuel-efficient plane. Boeing expects its 787 Dreamliner to be on the market in 2008.

In November, Boeing announced another attack against Airbus: Plans to expand its jumbo 747 to compete against the A380. The 747-8 will cost about $4 billion to develop (versus close to $15 billion for the A380), will have 450 seats, will be more fuel economical than the A380, and will not require airports to redesign gates to accommodate the planes.

In December, Boeing scored several large sales wins as Asian carriers pinched by record high fuel prices chose the Dreamliner over the A380. Boeings momentum has led investors to believe that its bet on planes that let airlines efficiently and economically transport passengers over moderate to long distances will trump Airbuss bet on pure size. Boeings stock price, which stood at $41.04 when our Insight came out, this year reached $68.17 on January 20, a gain of nearly 70 percent.

So Boeings bet in its core business has thus far turned out better than we expected. Is it smooth sailing ahead? Not exactly. The battle for the high end is certainly not over: Airbus still booked more orders than Boeing in 2005. And Boeing still has to fight against Airbus for every deal, which means providing deep discounts to carriers. In this Innovators Update, we examine Boeings future prospects and suggest a disruptive strategy that can help them confront not only Airbus, but companies competing in the emerging light jet market, such as Eclipse Aviation, Adam Air, Embraer, and Cessna.