On 18 January 2018, Airbus and Emirates agreed a $16 billion (current market price) deal for up to 36 A380 aircraft, Airbus’ largest and most expensive commercial plane. This deal was however, preceded by a delicate series of closed-door negotiations.
Emirates is Airbus’ largest and predominant customer for the A380 range, with 101 operating planes. At the same time, Emirates has built its service’s future strategy almost entirely on this range of aircraft. Huge investments have been made by the airline company in the form of maintenance equipment, spare parts and qualified personnel. On the other hand, Airbus’ investments were also significantly high in terms of research and development. Clearly, both parties are heavily dependent on each other in respect of the A380.
In such situations of heavy dependency, the bargaining power’s direction is ambiguous and unstable, and each company will try to influence the situation to its advantage.
Looking at the time frame preceding the deal, it has been commonly assumed that Emirates stopped placing orders for a certain time with the aim of putting pressure on Airbus to get a significant discount. At the same time, Airbus had presumably communicated to Emirates that it would stop producing the A380 and completely shut down the production line, should it not receive additional high-volume orders.
Should these assumptions hold, both parties are said to have engaged in a “chicken game”, a famous game theory framework that models situations where both parties have no incentives to cooperate.
The following scores matrix gives a good overview of the chicken game (also known as the Hawk–Dove game):