Scott Hamilton has enjoyed a long career as a reporter and editor for commercial aviation trade magazines with a focus on airline finance and asset valuation. His recently published Air Wars: The Global Combat Between Airbus and Boeing (hereinafter Air Wars) draws on his deep experience and many contacts in the industry and as such will be an excellent addition to any aviation lawyer’s library. The book tells the story of the fierce competition between the two major airplane makers as Airbus rose from humble roots to become the equal of Boeing. Hamilton’s story is told, in his own words, as “a combination of a biography of [Airbus sales leader] John Leahy and the 1982 book, The Sporty Game.”
The latter portion of that description represents a daunting challenge because The Sporty Game, written by the late John Newhouse and published in 1982, is widely considered the best chronicle of the commercial aviation industry up to the point of its publication. Newhouse was an investigative journalist and an excellent writer; The Sporty Game was serialized in the New Yorker at the time it was published. In addition, Newhouse’s field of interest went far beyond aviation, as he explored the many complexities and nuances of international diplomacy with a focus on arms control. His knack for building friendships and his ability to both analyze and describe complex situations and relationships made The Sporty Game very informative and readable. In 2007, Newhouse published a sequel to The Sporty Game, titled Boeing Versus Airbus, which I reviewed in these pages in 2007 and which is every bit the equal of his prior book. Boeing Versus Airbus covers much the same ground as Air Wars, allowing direct comparisons.
The other angle of attack for Air Wars is the career of John Leahy, who joined Airbus in 1985 as a U.S.-based salesman and rose to become Airbus’s worldwide leader of sales. After opening with an account of negotiations between Leahy and Airbus, the first five chapters are devoted to Leahy’s early years. Leahy started at a time when Airbus was just emerging as a viable competitor on the world stage; he was one of a group of five salespeople hired to spur new sales efforts. Leahy was headhunted away from Piper Aircraft, a maker of general aviation aircraft, where he had worked for several years in finance, dealer training, and advertising, rising to become the head of marketing and leading a staff of 40. Leahy was born in New York City (Queens) and moved to Springfield, Massachusetts, at a young age with his family before returning to New York to study at Fordham. Later, while in business school at Syracuse, he took flying lessons, quickly obtained a multi-engine rating, and soon found work flying cargo for a small air freight company. The stories of Leahy’s journey from Springfield to Fordham to Syracuse and his experiences as a pilot are amusing and well told, especially the story of his first interview at a very buttoned-down American Airlines.
Airbus had started commercial airplane deliveries in 1974 and by 1978 had delivered a grand total of 38 aircraft to four airlines. Its multinational partnership structure frustrated decision-making. It had one product, the wide-body A300B, which was soon replaced by the slightly smaller A310.
By 1982 (when The Sporty Game was published), Airbus had made inroads into Asia, particularly the Middle East and the Asian “Silk Road.” But the United States represents the world’s largest market for airliners, and Airbus was determined to gain a foothold in a market then dominated by Boeing. At the time, McDonnell Douglas (MDC) was still a competitor with its venerable DC-9/MD-80 family of narrow-body aircraft and its DC-10/MD-11 three-engine wide-body model, but for a variety of reasons it was poorly positioned for the future. Lockheed had already ceased deliveries of its only commercial aircraft, the wide-body L-1011. Thus, at the time Leahy joined Airbus, Boeing enjoyed a near monopoly in the U.S. market, and that was worrisome for the U.S. airlines. It was Leahy who took command of U.S. sales efforts and found a way to make inroads into this lucrative market, and Air Wars is at its best when describing these adventures.
Leahy’s first major marketing success was closing a Pan Am wide-body order by offering lease-in-lease-out (LILO) financing. In the days before separate aircraft leasing companies, manufacturers were using their own balance sheets as the credit support for leases: a manufacturer would sell a new aircraft to investors, who would lease it right back to the manufacturer, who would then sublease the aircraft to an airline. On the one hand, this insulated the investors from credit exposure to the airline; on the other hand, it gave the airline the ability to acquire a new aircraft without having to pay or finance the entire purchase price. The tax laws at the time favored such structures as they allowed the investors, as the owners of the airplane, to claim depreciation and investment tax credit benefits. An element of borrowing was worked into these structures to give the investors additional interest deductions, and the economic benefits of all of those tax benefits reduced the lease and sublease rates. It was a real coup for Leahy—and a bold move by Airbus.
I remember well the day that the Pan Am LILO deals were announced: I was in New York working on a similarly structured LILO deal in the maritime sector and can recall the awe with which the Airbus/Pan Am deal was greeted. At a time when America was struggling to escape a lingering recession, it was the kind of development that markets (and lawyers) like: a huge order for the upstart Airbus, placed by a legendary American airline and employing a relatively new and alluring financing scheme. The earth moved. Hamilton unfortunately captures none of that headiness.
At the same time, Airbus was developing the A320, its first foray into the single-aisle market. Leahy was campaigning at Northwest, which was looking for 100 aircraft but also understandably reluctant to order a new model from a new entrant. Here, Leahy came up with another innovative offer: commit to buy just 10 aircraft, take options on the other 90, and Airbus will give you the 100-volume discount price on the 10. It worked; Northwest eventually acquired all 100 aircraft.
The deals then started flowing for Leahy and Airbus: an A310 deal with Braniff that moved to America West, where Leahy established a relationship with Texas Pacific Group and especially Bill Franke, who would become a loyal Airbus purchaser; a deal with Delta as an adjunct to Delta’s acquisition of Pan Am’s Latin American routes (and the aforementioned A310s); and a deal with American involving turn-back rights if American did not like the aircraft.
In addition to risk-taking, Leahy also specialized in building relationships, utilizing the opportunities provided by protracted airline bankruptcy cases, and embedding high-quality sales personnel in regions and leaving them there for many years rather than rotating them out. And in a stroke of brilliant foresight, Leahy began forging relationships with the up-and-coming leasing companies, including the groundbreaking Irish company GPA (originally known as Guinness Peat Aviation), GE Capital Aviation Services (GECAS), and especially International Lease Finance Corporation (ILFC). Hamilton quotes Dana Lockhart, Leahy’s “financial guru” in the U.S. office: “John’s mission, undoubtedly conveyed to him by management above . . . was build a presence, build mass, build market share.”
While Leahy succeeded spectacularly in pursuing that mission, his success was all the more remarkable given both his “outsider” status as a U.S. citizen operating in Europe, and Airbus’s Byzantine approval process. Many of these deals required the approval of governmental representatives in Germany, France, and England (and Spain, then a minor participant). It has been said that the dealmaker’s process of nailing down a large aircraft (or engine) order requires as much internal negotiation as it does customer negotiation, but Hamilton leaves us wondering what Leahy’s role was, if any, in managing that internal approval process for the very aggressive deals that he was cutting. Surely there were dramatic moments.
From there, the book devotes chapters to various significant events in the growth of both Boeing and Airbus as they competed for market share. One theme running through these chapters is that decisions to develop new “clean sheet” aircraft are of a scale that puts an entire company at risk. The estimates of the time and cost to develop new aircraft are almost always too optimistic; these factors make those decisions nearly impossible to make, and bad decisions require years of recovery.
Especially compelling are Hamilton’s discussions of the Airbus decision to build the double-decker A380 and Boeing’s decision to build the B787 Dreamliner. Once the decisions to proceed were made, both projects were beset with enormous problems. The A380 suffered two years of delay and over $10 billion in additional costs associated with an electrical wiring issue involving 100,000 wires and 40,300 connectors that various subcontractors failed to measure consistently. Similarly, Boeing’s development of the Dreamliner, undertaken during a period of cost cutting and therefore underbudgeted to begin with, featured an all-composite body as opposed to aluminum, was all electric and included the use of lithium ion batteries, and entailed the push of component certification work to its subcontractors, resulting in years of delays—all of which, it turned out, was a recipe for disaster. Hamilton recounts the story of Boeing’s B787 rollout ceremony, which included an incomplete aircraft that, Hamilton tells us, was later referred to as a “Potemkin airplane.”
There is no way to determine accurately the true cost of an aircraft development program, but by any measure the A380 program was a failure, with only 251 built after incurring an estimated development cost of $25 billion. Conversely, Boeing’s Dreamliner is enjoying a higher degree of commercial success after a rocky entry into service and a worldwide grounding due to lithium ion battery fires.
Air Wars is not limited to Boeing and Airbus; it also covers other airplane makers and how their actions impacted Boeing and Airbus. Two chapters are devoted to Bombardier’s move into the small end of the market with its 110- and 130-seat C-Series family aircraft. This is an especially compelling story because Bombardier’s early and successful efforts to obtain orders from Republic Airways no doubt contributed to the Airbus decision finally to launch the A320neo (“neo” stands for “new engine option”), discussed below. A large order Delta placed for the Bombardier aircraft then prompted Boeing to petition the Commerce Department and the U.S. International Trade Commission (ITC) to intervene, alleging that Bombardier engaged in unlawful dumping in the U.S. market by slashing prices for the C-Series far below Bombardier’s production costs. Although the Commerce Department initially imposed a 300 percent tariff on C-Series imports, the ITC later struck down the tariff (thereby bringing the dispute to an end), finding that Boeing’s business was not harmed by the C-Series. That Hamilton viewed Boeing’s legal efforts as an overreaction is best captured by the fact that he titled this chapter “Smashing a Bug with a Sledgehammer.” Ironically, Airbus ended up acquiring the entire C-Series program from Bombardier after Boeing rejected a prior effort by Bombardier to sell the program to Boeing. An Airbus executive’s reaction, as quoted by Hamilton, is priceless.
The Airbus A320neo was a re-engining program that, because of considerable advances in engine technology, provided very significant improvements in A320 performance. The A320 operates in the narrow-body market and is the direct competitor of the Boeing 737 family of aircraft. While Airbus was trying to decide whether to proceed with the neo program, Boeing was contemplating whether to re-engine the 737 or instead to take on the much more costly and time-consuming job of developing a new midmarket aircraft. Unfortunately for Boeing, the neo was almost immediately and widely accepted by the market and generated great sales once Airbus committed to it, placing pressure on Boeing to make a decision. As Hamilton recounts, this is when Leahy made his move, negotiating a deal with American for 400 neos. American, however, was hard to pin down and was also concerned about violating an exclusivity arrangement that it had with Boeing, prompting American to split the order—but because of the urgency with which Boeing had to act, splitting the order essentially forced Boeing to re-engine the 737 rather than build a new model. By forcing Boeing to make this decision, Airbus secured its foothold in the narrow-body market for the foreseeable future. Thus just as Bombardier’s initial success prompted Airbus to launch the A320neo, so too did Airbus’s success with the A320neo prompt Boeing to decide to re-engine, rather than develop an entirely new airplane.
The Boeing/Embraer attempt at a joint venture is also discussed. It is interesting to learn that although many viewed this as Boeing’s answer to the Airbus acquisition of the C-Series program, it was actually Embraer that needed it more due to the heft of Airbus now supporting the sales of C-Series aircraft. Hamilton cleverly concludes Air Wars by returning to the same negotiations between Leahy and Airbus described at the beginning of the book, after we have the full context. This is admirable.
Air Wars has a very different style and focus than Newhouse’s The Sporty Game and its sequel. For example, Newhouse was interested in the people who have to make decisions to approve a new aircraft or engine program and the consequences of those decisions. Hamilton, on the other hand, has no patience for the dithering of decision-makers—he can be critical. Moreover, although Boeing Versus Airbus observes that Leahy was generally regarded as ”friendless but much admired and relied upon” at Airbus, Leahy comes across as anything but friendless in Air Wars. Finally, Boeing Versus Airbus focuses on leadership, exposing readers to raw front-office politics such as Leahy’s role in forcing a decision on the A350 program in a way that Air Wars does not.
John Leahy retired from Airbus in January 2018, leaving a legacy of success. During his tenure, Airbus rose to hold more than 50 percent of both the narrow-body and the wide-body worldwide markets—remarkable achievements. It is fitting that Hamilton devotes his last chapter to Leahy’s farewell, relating numerous—and mostly humorous—war stories of deal closings and retirement accolades. Air Wars successfully captures the personality of a man driven to succeed. Leahy loved the industry, bonded with his customers, and cared about his people, and his record is likely to remain unmatched.
