CASE 42Iberia Airlines Builds a BATNA to North America, where air travel is in tatters, and by dominating the large Latin American market. The Spanish carrier was looking to replace six Boeing 747-200 jumbo jets more than 20 years old. It wanted as many as 12 new planes to complete a 10-year modernization program for Iberias long-haul fl eet. Based on list prices, the 12-plane order was valued at more than $2 billion. Iberias Dupuy, a soft-spoken career fi nance man, fi rst needed to woo Boeing to the table. The U.S. producer had last sold Iberia planes in 1995, and since then, the carrier had bought so many Airbus jets that Boeing considered not even competing. But in late July, Dupuy met Toby Bright, Boeings top salesman for jets. Over dinner in London, according to both men, Dupuy told Bright that Iberia truly wanted two suppliers, not just Airbus. The Boeing sales chief was skeptical, and he recalled thinking at the time, “Youre running out of ways to show us.” Having worked as Boeings chief salesman in Europe, Airbuss home turf, he had heard similar lines from customers who eventually bought Airbus planes. So he wondered: “Are we being brought in as a stalking horse?” Yet replacing Iberias old 747s with new 777s would be Boeings last chance for years to win back Iberia. The argument against Boeing was that an all-Airbus fl eet would make Iberias operations simpler and cheaper. Still, going all-Airbus might weaken Iberias hand in future deals. Airbus would know that the carriers cost of switching to Boeing would require big investments in parts and pilot training. In early November, Airbus and Boeing presented initial bids on their latest planes. The four-engine Airbus A340-600 is the longest plane ever built. Boeings 777-300ER is the biggest twin-engine plane. The new A340 can fl y a bit farther and has more lifting power than the 777. The new Boeing plane is lighter, holds more seats and burns less fuel. The Boeing plane, with a catalog price around $215 million, lists for some $25 million more than the A340. Dupuy, whose conference room is decorated with framed awards for innovative aircraft-fi nancing deals, set his own tough terms on price and performance issues including fuel consump- tion, reliability, and resale value. He wouldnt divulge prices, but people in the aviation market familiar with the deal say he de- manded discounts exceeding 40 percent. As negotiations began, Dupuy told both companies his rule: Whoever hits its target, wins the order. The race was on. Bright, who had been appointed Boeings top airplane sales- person in January 2002, pitched the Boeing 777 as a “revenue ma- chine.” He insisted that his plane could earn Iberia about $8,000 more per fl ight than the A340-600 because it can hold more seats and is cheaper to operate. A burly 50-year-old West Virginian, Bright joined Boeing out of college as an aerospace designer. He knew the new Airbus would slot easily into Iberias fl eet. But he also felt that Dupuys target price undervalued his plane. At Airbus, Leahy also fumed at Iberias pricing demands. A New York City native and the companys highest-ranking Ameri- can, he pursues one goal: global domination over Boeing. Last year he spent 220 days on sales trips. MADRIDOne day last April, two model airplanes landed in the offi ces of Iberia Airlines. They werent toys. The Spanish carrier was shopping for new jetliners, and the models were calling cards from Boeing Co. and Airbus, the worlds only two producers of big commercial aircraft. It was the fi rst encounter in what would become a months-long dogfi ght between the two aviation titansand Iberia was planning to clean up. Airbus and Boeing may own the jetliner market, with projected sales of more than $1 trillion in the next 20 years, but right now they dont control it. The crisis in the air-travel industry makes the two manufacturers desperate to nail down orders. So they have grown increasingly dependent on airlines, engine suppliers, and aircraft fi nanciers for convoluted deals. Once the underdog, Airbus has closed the gap from just four years agowhen Boeing built 620 planes to Airbuss 294and this year the European plane maker expects to overtake its U.S. rival. For Boeing, Iberia was a chance to stem the tide. For Airbus, Iberia was crucial turf to defend. Iberia and a few other airlines are fi nancially healthy enough to be able to order new planes these days, and they are all driving hard bargains. Enrique Dupuy de Lome, Iberias chief fi nancial of- fi cer and the man who led its search for widebody jets, meant from the start to run a real horse race. “Everything has been structured to maintain tension up to the last 15 minutes,” he said. Throughout the competition, the participants at Iberia, Boeing, and Airbus gave The Wall Street Journal detailed briefi ngs on the pitches, meetings, and deliberations. The result is a rarity for the secretive world of aircraft orders: an inside look at an