Iberia Airlines Builds a BATNA

This is by far the best description of a high-level international business negotiation ever published in the popular press. The insights and lessons are most useful.

1. 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 contest including offering to fly the 14 hours to Seattle. 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. He did do well on the creativity dimension by guaranteeing GE concessions on engine maintenance.

Leahy (Airbus) probably gave away too much in price and had not bothered to include a confidentiality agreement about the final price.

2. 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 sell planes in that market.

3. It appears from the case that the strong personal and political relationships between the top executives at the European firms clinched the deal.

In future negotiations with Iberia real consideration has to given to bidding list price and leaving at that. Of course, remind the Iberia folks about how this last transaction went. But, let them pay list price to Airbus just once and perhaps in the next round Boeing will get the order finally.