11-21-13 Boeing Group Project - Final
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Pamela Herron (PH) Gloria Mueller (GM) Harold Parker (HP) Miguel Pavon (MP) Maricela Vargas (MV) November 21, 2013 Group Project
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Transcript of 11-21-13 Boeing Group Project - Final
Pamela Herron (PH)
Gloria Mueller (GM)
Harold Parker (HP)
Miguel Pavon (MP)
Maricela Vargas (MV)
November 21, 2013
Group Project
TABLE OF CONTENTS
EXECUTIVE SUMMARY (MV).............................................................................................6
INTRODUCTION (HP)..........................................................................................................8
Background / History (of the Company) (HP)..................................................................9
Mission Statement (PH)...................................................................................................10
Mission..............................................................................................................................10
Business........................................................................................................................... 10
Major Goals.......................................................................................................................11
Corporate Philosophy......................................................................................................11
Strategic Evolution (MV)..................................................................................................12
Intended Strategies..........................................................................................................12
Emergent Strategies.........................................................................................................14
Stakeholders (MP)............................................................................................................16
Internal.............................................................................................................................. 16
External.............................................................................................................................18
Company’s Organization and Structure (GM)................................................................19
Purpose of the Report (HP).............................................................................................24
Chart for Team Activities (MV)........................................................................................25
EXTERNAL ANALYSIS.....................................................................................................26
Basic Industry Information (MP).....................................................................................26Industry Growth:..............................................................................................................26Industry Profits:...............................................................................................................27Industry Segments:.........................................................................................................27
Industry Analysis/Porter’s Five Forces (GM).................................................................29Risk of Entry by Potential Competitors...........................................................................29
Entry Barriers:..........................................................................................................29Economies of scale:.............................................................................................30Product Differentiation:.........................................................................................30Capital Requirements:..........................................................................................30
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Switching Costs:...................................................................................................31Access to distribution Channels:..........................................................................31Cost Disadvantages Independent of Scale:.........................................................32Government Policy:..............................................................................................32
Expected Retaliation:...............................................................................................32Power of Buyers:.............................................................................................................33Power of Suppliers:.........................................................................................................33Threat of Substitutes:......................................................................................................34Intensity of Rivalry among Established Firms:................................................................34Industry Attractiveness/Profitability:................................................................................34Summary (Results) of Five Forces:................................................................................36
External/Macro Environment (HP)..................................................................................37Demographics:................................................................................................................37Economic:.......................................................................................................................37Technological:.................................................................................................................38Political/Legal:.................................................................................................................39Sociocultural:..................................................................................................................40Global:............................................................................................................................ 40Summary of Analyses and Impact:.................................................................................41
Strategic Group (PH)........................................................................................................42Competitor’s Objectives:.................................................................................................44Assumptions:..................................................................................................................44Capabilities:....................................................................................................................44Market Share:.................................................................................................................45Competitive Advantages:................................................................................................45Current Strategies:..........................................................................................................46
Opportunities and Threats (MV)......................................................................................46
INTERNAL ANALYSIS......................................................................................................49
Value Chain Analysis (HP)...............................................................................................50Primary Activities ...........................................................................................................50
Research and Development (GM):.......................................................................50Strengths:.............................................................................................................56Weaknesses:........................................................................................................56
Production (HP):....................................................................................................57Strengths:.............................................................................................................59Weaknesses:........................................................................................................59
Marketing and Sales (PH):....................................................................................59Strengths:.............................................................................................................59Weaknesses:........................................................................................................61
Customer Service (MP):........................................................................................61Strengths:.............................................................................................................61Weaknesses:........................................................................................................62
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Support Activities............................................................................................................62Materials Management (HP):.................................................................................62
Strengths:.............................................................................................................64Weaknesses:........................................................................................................64
Human Resource Management (PH):...................................................................65Strengths:.............................................................................................................66Weaknesses:........................................................................................................66
Information Systems (MP):...................................................................................67Strengths:.............................................................................................................67Weaknesses:........................................................................................................67
Firm Infrastructure (PH):.......................................................................................67Strengths:.............................................................................................................70Weaknesses:........................................................................................................70
Results of Value Chain Analysis (HP)............................................................................70Summary of Value Adding Activities (HP):......................................................................70
Competitive Advantage Indicators (GM & MP)..............................................................71(1) Efficiency (GM)..........................................................................................................71(2) Quality (GM)..............................................................................................................72(3) Innovation (MP).........................................................................................................72(4) Customer Responsiveness (MP)...............................................................................73
Financial Ratio Analysis (MV).........................................................................................74Liquidity Ratio:................................................................................................................75
Current Ratio:..........................................................................................................75Quick Ratio:.............................................................................................................76
Leverage Ratios:.............................................................................................................78Debt to Asset Ratio:.................................................................................................78Debt to Equity Ratio:................................................................................................80
Activity Ratios:................................................................................................................81Inventory Turnover Ratio:........................................................................................81Days Sales Outstanding Ratio:................................................................................82
Profitability Ratios:..........................................................................................................84Return on Assets Ratio:...........................................................................................84Return on Equity Ratio:............................................................................................85
Results of Financial Analysis:.........................................................................................87
Interpretation/Evaluation (MV)........................................................................................88Summary of SWOT Analyses (MV):...............................................................................88
BUSINESS LEVEL STRATEGY (GM).....................ERROR! BOOKMARK NOT DEFINED.
Generic Business Level Strategy (HP, PH, & MP).........................................................90
Advantages and Disadvantages of Business-Level Strategy (HP & MV)....................97Advantages (HP):............................................................................................................97
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Disadvantages (MV):......................................................................................................97
CONCLUSION...................................................................................................................98
Strategic Issues................................................................................................................99Strategic Issue (HP)........................................................................................................99
Alternatives:.............................................................................................................99Alternative # 1 (PH)..............................................................................................99Alternative # 2 (GM)...........................................................................................103
Recommendation and Justification (MP)...............................................................108
Future Vision (MV)..........................................................................................................110
APPENDICES..........................................................ERROR! BOOKMARK NOT DEFINED.
BIBLIOGRAPHY / WORK CITED....................................................................................119
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EXECUTIVE SUMMARY (MV)
The Boeing Company was founded in 1916 by William Boeing in Seattle
Washington. It is the world’s leading aerospace and defense company and the largest
manufacturer of commercial jetliners. Boeing provides products and support services to
customers in 150 countries. Headquartered in Chicago, Illinois, Boeing employs over
170,000 people across the United States and 70 countries. Boeing’s commercial division
employs 80,000 people and posted an impressive $49.1 billion in revenue for 2012.
According to Porter’s five forces, the aerospace and defense industry is considered
to be intense. This is due to a small amount of very large companies which control the
price levels of the product. The five forces depicts that there is a low to high entry barrier,
low to high bargaining power of buyers, low bargaining power of suppliers, low threat of
substitutes, and a high intensity of rivalry among established firms. Boeing’s current
competition is largely from Airbus. A large threat Boeing is facing is that of emerging
foreign competitors from China, Japan, and Russia.
The value chain reveals added value in research and development, marketing and
sales, customer service, and information systems. A neutral value is found in human
resources and company infrastructure. Finally, a negative impact is found in production
and materials management.
The financial analysis shows that in the past four years, Boeing has been working
on reducing its debt and increasing their assets. Boeing is a heavily leveraged company,
however, the analysis suggests this is due to large investments in the new production of
the Dreamliner aircraft.
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The SWOT analysis depicts strength in innovation, multi-tasking ability in
production, customer service, and brand loyalty. Boeing’s weaknesses are outsourcing,
lack of consistency in plant finishing, and poor communication with suppliers.
Opportunities for will come from emerging foreign markets and airline profitability is a
major demand driver for commercial aircraft manufacturing. Finally, threats will come from
emerging foreign competitors and Airbus’ ability to deliver a product at a higher rate.
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INTRODUCTION (HP)
The company we have chosen to analyze is The Boeing Company. The Boeing
Company was founded in 1916 by William Boeing in Seattle, Washington. “Boeing is the
world's leading aerospace company and the largest manufacturer of commercial jetliners
and military aircraft combined. Additionally, Boeing designs and manufactures rotorcraft,
electronic and defense systems, missiles, satellites, launch vehicles and advanced
information and communication systems. As a major service provider to NASA, Boeing is
the prime contractor for the International Space Station. The company also provides
numerous military and commercial airline support services. Boeing provides products and
support services to customers in 150 countries and is one of the largest U.S. exporters in
terms of sales. Headquartered in Chicago, Boeing employs more than 170,000 people
across the United States and in 70 countries. This represents one of the most diverse,
talented and innovative workforces anywhere. More than 140,000 of our people hold
college degrees--including nearly 35,000 advanced degrees--in virtually every business
and technical field from approximately 2,700 colleges and universities worldwide. Our
enterprise also leverages the talents of hundreds of thousands more skilled people
working for Boeing suppliers worldwide (Boeing).”
Boeing’s corporate offices are located in Chicago, Illinois and focus on: “Global
growth strategies, Financial goals and performance, Sharing best practices, technologies
and productivity improvements, Leadership development, and Ethics and compliance
(‘The Boeing Company Overview”, pg. 7).” Boeing Commercial Airplanes headquarters is
in the Puget Sound area of Washington state and is run by CEO Roy Conner. The
Commercial Airplane unit, “comprises five airplane programs, VIP-derivative airplanes,
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extensive fabrication and assembly facilities and a global customer support organization
(Boeing, pg. 1, para. 3).” Boeing Commercial employs over 80, 000 people and posted
2012 revenues of $49.1 billion. They represent three quarters of the market with over 12,
000 jetliners in operation, while 70 percent of commercial sales are from customers
residing outside of U.S. borders (‘The Boeing Company Overview”, pg 8).
Background / History (of the Company) (HP)
The Boeing Company originally Pacific Aero Products Company was founded in
1916 by William Boeing in Seattle, Washington. With the help of Navy engineer Conrad
Westervelt, William Boeing would build the companies first plane, the B&W seaplane,
which had the capability of flying 320 nautical miles. With contracts from the Navy Boeing
would provide its Model 40 as trainers to pilots and HS-2L to help patrol the skies during
World War I. After the war Boeing would get into the airmail delivery business which was
very successful until 1934, when the government suspended airmail contracts and forced
the delusion of the business disallowing aircraft manufacturing and airline companies to be
involved in the same business. During World War II Boeing would produce bombers most
notably the B-17 (Flying Fortress) and B-29 (Superfortress). After World War II Boeing
would launch the Jetliner Age which began with the 707 and is still going strong.
Today the Boeing Company is an Aerospace company comprised of two business
units Commercial Airplanes and Defense, Space & Security with the Boeing Capital
Corporation providing funding to facilitate these functions. With Boeing Co.’s acquisitions
of Rockwell International Corporation, McDonnell Douglas, Hughes Space &
Communications, and Jeppesen it helped them become the largest manufacturer of
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commercial jet transports (‘The Boeing Company Overview”, pg 2). The company also
produces helicopters, missiles, and space vehicles.
Vision Statement (PH)
The mission of Boeing is a combination of vision and values. Boeing’s vision is
“People working together as a global enterprise of aerospace leadership”. Boeing plans to
get here by running healthy core businesses, leveraging their strengths in new product
and services, and to open new frontier (Boeing.com).
Vision
Boeing has become a leading producer of military and commercial aircraft and
undertook a series of strategic mergers and acquisitions to become the world’s
largest, most diversified aerospace company. (“The Boeing Company Overview”,
pg. 2).”
Business
Boeing has business imperatives that they place a strong emphasis on, such as:
Detail customer knowledge that anticipate, understand, and respond to the
customer’s needs.
Systems integration that continually develops and advances technical
excellence.
An enterprise characterized by efficiency, supplier management, short cycle
times, high quality and low transaction costs.
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Major Goals
Boeing is committed to a set of core values that not only define who they are, but
also serve to help them to become the company they would like to be. They aspire
to live these values every day.
Leadership- Boeing thrives to be a world-class leader in every aspect of
business. Developing team leadership skills at every level; management
performance, in design, build and support their products, and in financial
results.
Integrity- by practicing the highest ethical standards, and by honoring
commitments, taking personal responsibility for our actions, and treat everyone
fairly and with trust and respect.
Quality- Striving for continuous quality improvement so they will rank among
the world's premier industrial firms in customer employee and community
satisfaction.
Customer Satisfaction- Satisfied customers are essential to success. To
achieve total customer satisfaction, it’s imperative to understand what the
customer wants and delivering it flawlessly.
Company Philosophy
Boeing recognizes their strength and our competitive advantage is due to people.
People working together- Boeing encourage cooperative efforts at every
level and across all activities in our company.
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A diverse and involved team- Boeing fosters a participatory workplace that
enables people to get involved in making decisions about their work that
advance our common business objectives.
Good corporate citizenship- By providing a safe workplace and protect the
environment, promoting the health and well-being of Boeing people and their
families, and by working with our communities by volunteering and financially
supporting education and other worthy causes. (Boeing.com).
Boeing’s vision defines what the company inspires to be. Boeing history has shown
to be a world class leader that lives up to its vision. The vision includes the four elements
of why Boeing exist, what Boeing is striving to become in the future, their key values and
the goals for Boeing. The vision, key values, and goals are clear and concise. The goals
are important and attainable. Overall Boeing is an exceptional company who has a
reputation that stands behind their vision, goals, and values.
Strategic Evolution (MV)
Boeing’s strategic evolution for its product is a combination of intended strategies
which has carried over from the early 1900s as well as emergent strategies necessary
during difficult eras of economic change and competition.
Intended Strategies
In 1915, William E. Boeing envisioned a more practical airplane than what
was being manufactured. By 1916, with the help of Westervelt, they designed and
built a twin-float seaplane which was named the B&W. Boeing intended to
manufacture these seaplanes to average American’s who shared his love of flight.
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As time went on and technology advanced, so did the airplanes Boeing
manufactured. The airplanes were larger, faster, and were able to carry several
passengers with cargo. In the 1930s, biplanes became outdated and the era of
monoplanes was now at the top of the companies agenda. Boeing began
manufacturing monoplanes which were used to deliver cargo and mail.
During the height of commercial airlines, Boeing’s Stratocruiser airplanes
were the first to be used as luxury airliners in 1944. From 1957 until 1970 the
commercial airline market was evolving and in order for Boeing to compete it too
had to evolve its product. During that time, they introduced the 707 with turbofan
engines which reduced noise and increased power and range. The 727 was a tri-
jet which was made to accommodate smaller airports with shorter runways. The
737, Boeing’s most ordered airplane by 1987 was a smaller, short range, twin
engine jet. Boeing’s 747 was a jumbo airplane built during the height of air travel
which offered great payload and range.
As the economy began to recover from the recession, airline travel increased
and Boeing introduced the 757 and 767. They were more fuel efficient and offered
further noise reduction. By 1990, Boeing launched the 777 which was a wide-body
transport and was the first jetliner to be 100% digitally designed. In 2003, the 787
“Dreamliner” was introduced. This would be Boeing’s most fuel efficient and
technologically advanced airplane to date. Today, Boeing continues to
manufacture a variety of commercial airplanes staying true to its original intended
strategy and in the process has become one of the largest suppliers. (Boeing.com,
History)
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Emergent Strategies
Although Boeing did very well manufacturing “practical airplanes”, the
company was not shielded from economic downfall and competitors. In order for
the company to succeed, Boeing knew it had to change its product and
manufacturing plants and adapt them to what the country needed at that given time.
As World War I approached, Boeing adapted its seaplanes to become training
airplanes for the military. After, WWI the plane was no longer needed and as the
economy shifted into a depression Boeing needed to shift gears. In order to survive
they began to “build dressers, counters and furniture for a corset company and a
confectioner’s shop, as well as flat-bottom boats called sea sleds” (Boeing.com,
History).
Once the economy began to bounce back, Boeing received a military
contract to build Navy trainers. This kept Boeing at float until the world again
entered into World War II. In 1942, Boeing was now building B-17s and B-29
(Superfortress) for the military. By 1944, they were producing 362 planes per
month (boeing.com). As the world emerged victorious from the war, once again
Boeing knew it had to expand its product line in order to survive. In the late 1940s
and early 1950s, they began to build develop operations in missile production. In
1958, Boeing would enter in the space business when it was awarded the
government contract for the Dyna-Soar development program. In the early 1960s,
Boeing continued to develop newer and more sophisticated jet bombers and a jet
aerial tanker as well as the presidents Air Force One airplane. Boeing also
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provided the overall systems integration for the entire Apollo project. (Boeing.com,
History)
In the 1970s, to attract new revenue during the recession Boeing expanded
its business to include electronic technology services, designed and built a personal
transit system, light rail vehicles, rapid transit cars, and wind turbines. In the late
1970s and early 1980s, Boeing began building satellites and a supersonic
transport. In the 1990s, they found success in International Space Station program
for NASA. Today, Boeing continues to find success in a vast array of products such
as electronics, defense systems, military aircrafts (including Air Force One),
missiles, satellites, space crafts, tankers, and many others. (Boeing.com, History)
Throughout Boeing’s history, they have found that in order to have a
successful company they must constantly change in order to keep up with the
innovations and their customer’s needs. They are not afraid to branch out from
their intended strategy and enter into new markets. Boeing is also aware that
buying out the competition can make the company stronger. In making strategic
acquisitions of Rockwell International Corporation, McDonnell Douglas, Hughes
Space and Communications, and Jeppesen have made The Boeing Company
stronger and diversified. Boeing continues to adapt and reconfigure the company in
response to the changing market with new emergent strategies while not losing its
original intended strategy of commercial aviation. (Boeing.com, History)
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Stakeholders (MP)
Stakeholders include individuals such as employees, board members (past and
present), groups, and entities that have an interest in the positive performance of an
organization. Boeing’s internal and external stakeholders are identified below.
Internal
The concept of the section is to identify Boeing's Internal Stakeholders which are
individuals or groups with an interest, claim, or stake in the company.
Major Institutional Shareholders (GM)
Holder Shares % Held Date Reported
Capital World Investors 73,464,500 9.74 June 30, 2013
Evercore Trust Company, N.A. 55,925,358 7.42 June 30, 2013
BlackRock Advisors LLC 36,536,140 4.84 June 30, 2013
Vanguard Group, Inc. 34,874,740 4.63 June 30, 2013
State Street Corp. 33,133.482 4.39 June 30, 2013
Major Fund Shareholders (GM)
Holder Shares % Held Date Reported
American Funds Washington Mutual A 28,130,000 3.73 June 30, 2013
American Funds American Balanced A 15,525,000 2.06 June 30, 2013
American Funds Fundamental 12,255,000 1.63 June 30, 2013
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Invs A
Vanguard Total Stock Market Index 10,843,842 1.44 June 30, 2013
SPDR S&P 500 6,707,085 0.89 June 30, 2013
(www.finance.yahoo.com/q/mh?s=PG+Major+Holders)
The top five internal stakeholders for Boeing are John F. McDonnell, Corporate
Director, W. James McNerney, Chief Executive Officer, James F. Albaugh, former
Executive Vice President of The Boeing Company and former Chief Executive Officer of
Boeing Commercial Airplanes, Dennis A. Muilenburg, President and Chief Executive
Officer of Defense, Space and Security, and James A. Bell, former President, Executive
Vice President and Chief Financial Officer of The Boeing Company. The biggest
transactions that help Boeing are with their top stock holders which are mutual and
institutional funds. Some of the top institutional funds are "Capital World Investors with
73,464,500 stocks bought with a total of 7,525,793,380 valued in the stock". Evercore
Trust Company stocks bought with a total of 55,925,358 and the value of the stock
which was 5,728,993,673." This information was stated by Yahoo Finance. Two of the
top Mutual Funds that hold most of the market for Boeing's stock are "Washington
Mutual Investors Fund which bought a total of 28,130,000 in stocks and had a value of
2,888,637,2000. Another Mutual Investor Fund is American Balance Fund that bought
15,525,000 which has a stock value of 1,590,381,000. (Yahoo Finance). These big time
investors own much of the company and whatever decisions they make, even if they
don't work directly with Boeing, are able to have somewhat control and have the
company’s future reports on their hands besides other reasons.
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Major Individual Officers (GM)
Holder Shares Date Reported
McDonnell, John F. 1,154,926 January 31, 2012
McNerney, W. James, Jr. 463,467 August 8, 2013
Albaugh, James F. 241,092 May 10, 2012
Muilenburg, Dennis A. 120,170 August 8, 2013
Bell, James A. 116,174 March 2, 2012
(www.finance.yahoo.com/q/mh?s=PG+Major+Holders)
External (MP)
The other concept of this section is to identify Boeing External Stakeholders
which are individuals or groups with an interest, claim or stake outside the
company.
Boeing’s External Stockholders can be customers, suppliers, unions, local
communities and general public. One external stakeholder is the amount of
suppliers Boeing is partners with. Articles provided by Boeing website itself states
that "Outside Manufacturing which is Folsom Tool Com- Aston, Penn, Interiors by
Teague- Seattle, and Avionics by Ball Aerospace & Technologies Corp. -
Westminster. In Colorado there are a few suppliers that were recently recognized
and honored for their exceptional performance with all of the work and support they
bring to Boeing. Another external stakeholder is the unions since they make up
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39% of all total workforce which is approximately 68,000 employees which was
provided by the Boeing Annual Report 2012. These employees work very hard to
make a difference in the world and Boeing is pleased to have them in their
company. Boeing’s largest customer which is another external stakeholder is
International Lease Finance Corp. (ILFC) which "buys new jets from Boeing and
Airbus, then leases them to airlines around the world. It also provides asset value
guarantees and a limited number of loan guarantees to aircraft buyers," (Seattle pi
website).
Company’s Organization and Structure (GM)
The Boeing Company is divided into two major business units: Boeing Commercial
Airplanes and Defense, Space and Security. Two additional units support these two
major business units: Boeing Capital Corporation, which provides global financing
solutions, and the Shared Services Group, which provides a wide range of services to
Boeing worldwide and Boeing Engineering, Operations & Technology, which helps create,
develop, acquire, apply and protect its innovative technologies and processes.
At the top business level, Boeing uses a divisional structure which is appropriate for
a business that wants to react quickly to ever-changing environments and grow its
workforce with a broader skillset. In a divisional organization, each business unit has its
own accounting department, sales force, research and production teams and human
resource department.
W. James (Jim) McNerney, Jr. currently serves as Chairman of the Board,
President and Chief Executive Officer overseeing the strategic direction of The Boeing
Company Business Units and Services.
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For the purpose of this report, we illustrate how Boeing’s corporate hierarchy is
structured from its top business units and services and the individuals who oversee those
business units, the functions supporting those business units, and then our main focus--
Boeing Commercial Airplanes.
Boeing’s corporate organizational structure and leaders are depicted in the chart
following this narrative. To ensure efficiency of the company’s operations, the corporate
functions are segregated into eight areas: Communications, Engineering, Operations and
Technology, Finance, Government Operations, Human Resources and Administration,
Internal Governance, International and Legal.
Communications
Communications delivers accurate and timely information key stakeholders,
employees, shareholders, governments, partners, vendors and customers and the
community on a global basis.
Engineering, Operations & Technology (EO&T)
EO&T is responsible for defining and implementing corporate strategies to maintain
functional and technical excellence across the enterprise. Areas within this function are:
Engineering, Operations, Supplier Management and Quality Assurance, Information
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Technology, Phantom Works, Intellectual Property Management, and Environment, Health
and Safety.
Finance
Finance is responsible for developing and maintaining financial management
systems in for the company to conduct business.
Government Operations
This organization is responsible for influencing public policy and opinion in support
of Boeing’s business objectives.
Human Resources and Administration
Human Resources and Administration is responsible for labor relations, leadership
development, executive protection and security investigations, diversity in the workplace,
corporate contributions, global corporate citizenship and executive flight operations.
Internal Governance
This area is responsible for Internal Audit, Import-Export Compliance, Foreign Sales
Consultants and Sarbanes-Oxley (SOX) governance requirements.
International
Boeing International is responsible for assisting with ongoing globalization efforts.
The organization is composed of Strategy Development, Europe Relations, Asia Relations
and numerous country and regional operations.
Law Department
The law department is responsible for resolving legal matters, mitigating risk to the
company and protecting the interest of Boeing stakeholders across the globe.
(Boeing.com)
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.
Boeing Commercial Airplanes (BCA), a business unit of The Boeing Company, is
committed to being the leader in commercial aviation by offering airplanes and services
that deliver superior design, efficiency and value to customers around the world. The
President and Chief Executive Officer of BCA is Raymond L. Conner. He also serves as
Executive Vice President of The Boeing Company, and reports directly to Jim, McNerney,
CEO.
As illustrated in the organizational chart below, BCA has a matrix structure which
“groups employees in two ways simultaneously by function and by product or project to
maximize the rate at which different kinds of products can be developed” (Hill 447).
“Matrix structures were first developed by companies in high-technology industries such as
22
aerospace and electronics” (Hill 449). To be successful, Boeing uses the matrix system to
streamline efficiencies and to have a better flow of communication across the enterprise.
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Purpose of the Report (HP)
As we move forward we plan to further analyze Boeing’s Commercial Airplane
business unit. In this report you will find: an external analysis of the industry to include
trends, opportunities available, and threats in the market, an internal analysis to include
value chain analysis providing strengths and weakness of the company, along with a
summary SWOT analysis, business level strategy to include the advantages and
disadvantages, a conclusion including strategic issues and recommendations, and
finishing with the future vision to include where the company and commercial airplane
manufacturing industry will be in the next five years.
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Chart for Team Activities (MV)
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EXTERNAL ANALYSIS (MP)
This section identifies all of the necessary steps to find out what the external
environment consist of. To get a little bit more in depth on the Industry values, the analysis
of the industry environment, external and or macro environment; as well as, the
competitor’s industry analysis. While the industry analyzes these statistics, they are
looking out for red flags that would indicate whether the industry is currently attractive to
earn profits, and revenue or unattractive where it will be much harder to earn a profit at all
The industry is main focus is on Opportunities and Threats of the industry externally.
Opportunities such as the economic aspect like the fact that the airline profitability is a
major demand driver for commercial aircraft. Another opportunity is the continuous
development of new technological innovations to increase fuel efficiency for the aircraft. In
addition the industry is now opening to new markets in Asia, Middle East, Eastern Europe,
and Latin America, since this industry is seeing a demand for business and personal
travel. This increases global spending on the aerospace and defense industry suppliers.
Some threats that will be explained on the industries threats are the increase in raw
material, weakness in job markets, high unemployment, sluggish U.S economy, energy
prices, and weak household income levels. Another big threat is that the Chinese are
entering the aircraft manufacturing business. Not only are they but so is Japan is and
Russia is developing a MC 21 which competes' with 150-201 passenger carriers.
Basic Industry Information (MP)
Industry Growth (MP)
Some of the drivers, in this article, explains that the industry growth is based
mainly on the demand for aircraft; which is said to link to the increase in wealth,
26
increasing per capita income, and positive Gross Domestic Product. The Industry
growth is due for many things; for instance, GDP global affected this industry; as
well as, the oil prices that this kind of industry uses a lot of to keep their aircrafts
running (capgemini.com).
Industry Profits (MP)
Aerospace and defense industry is growing by the year, and seems to be
very successful; especially, when the airline industry is always booming, and there
is so much rivalry between companies. The need for the new and advanced aircraft
is to call upon by aerospace and defense. This diagram below shows the Net
Profits of Aerospace and Defenses over the last three years. Based upon this chart
I can infer that the trend throughout the years wasn't profitability at all. By 2011 the
Net Profit was negative. (Key Business Ratios D&B)
2009 2010 2011
Net Profit After
Tax
2373647 1.50% 494903 2.10% -721083 -2.20%
Industry Segments (MP)
The industry is considered “Highly Scaled Segmented”. The industry is
segmented into Large Commercial Aircrafts, Regional Aircrafts, Business Jets, and
Helicopters (biz.yahoo). This industry is definitely highly segmented because many
airlines, companies, and military use these aircrafts on a day-to-day basis. The
Business jets are uses for company’s executives, for example. Helicopters are used
in the military for coast guards, or the police, or government. Large Commercial
27
Aircrafts are used for the people globally. The first charts below show the sales of
the last 11 years. Just in 2013 alone airplane made 1,014 planes which cost Boeing
10.4 billion dollars which is 8.9% higher than the year prior in 2012. The second
chart show the huge amount of order form buyers the US. mainly their commercial
airlines and military defense purchase 39% of the planes, Europe purchases 21%
of the airplanes, Middle East purchase 5% of the planes, China purchase 3% of
aircraft, India purchase 2% of planes and the Rest of the world other than the ones
listed purchase 30% of the planes. (biz.yahoo)
28
Industry Analysis/Porter’s Five Forces (GM)
Michael E. Porter developed a model of five forces to help businesses identify
competitive strategy. The idea behind this model is to determine a firm’s competitive
strength and position in the marketplace. Many business strategists use Porter’s five
forces to gain an understanding as to whether products and/or services are profitable.
Porter’s framework outlines the forces that drive competition among various businesses.
He suggests that the intensity of competition is determined by the comparative strength of
five forces which shape every industry. The five forces are rivalry among competitors,
bargaining power of suppliers, bargaining power of buyers, threat of new entrants and
threat of substitutes. The objective is to identify and modify competitive forces in such a
way that the market position of an organization is improved. Based on the information
derived from the analysis of the five forces, business managers can make a decision on
how to influence or to take advantage of particular characteristics within their industry.
Risk of Entry by Potential Competitors (GM)
Porter states, “rivalry among competing firms is usually the most powerful of the
competitive forces” (David 75). Intensity of rivalry is the most valuable contribution of
Porter's five forces model and is a determinant for industry attractiveness. Both
potential and existing competitors can influence the industry’s profitability. In the
commercial airplane industry, rivalry is strong because airplane manufacturers carry
various products that sell to major airline companies across the globe (WSJ: Michaels).
“The commercial aircraft industry essentially exhibits the qualities of an oligopolistic
competition with intense rivalry” (Szymanski 8). Because rivalry is intense, entry
barriers are high.
29
Economies of scale:
The economics of the commercial aircraft industry in particular are marked
by “high start-up costs and the need to achieve economies of scale in order to
produce efficient aircraft” (Harrison). A low number of buyers of commercial aircraft,
along with the government and wealthy individuals create a demand structure so
that only the most efficient and the lowest-cost producers have a chance to
compete. For this reason barriers to entry are high for a potential competitor.
Product Differentiation:
The world’s dominant airplane makers continue to battle to maintain their
share of the $100 billion per year commercial airline market. Two main
manufacturers have been fighting over the performance of their latest refurbished
airplanes for market share by offering fuel savings to major airline companies. Both
plane makers are refurbishing 150-seat jets which should be ready for use toward
the middle of the decade. Manufacturers offer similar sized aircraft with similar
cruising ranges so product differentiation is low. The main driver for innovative
airplanes is fuel efficiency and lower raw material costs. Because of brand
identification and customer loyalty, new entrants would have to spend a hefty
amount of money to overcome this which will be difficult. Barrier entries for a
potential competitor are high (cnbc.com).
Capital Requirements:
The commercial aircraft industry requires very large capital requirements for
new entrants. A new airplane manufacturer would need sizable facilities for
production, research and development and overhead expenses. Since a
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substantially large amount of capital is needed, many new firms don’t enter the
aircraft market because the potential profits don’t justify the investment. The risk is
too high and capital cannot be obtained. For this reason, entry barriers are high
(Vasigh 188).
Switching Costs:
The bargaining power of buyers can be low or high depending on the
situation at a particular point in time. Airplane manufacturers have tried to offer
buyers lower cost airplanes and better services to increase their competitiveness;
however, switching costs for buyers from one plane manufacturer to another can be
high because of the training involved. It is costly for airline companies to train pilots
and crewmembers on completely different operating systems (Unagwuna 187). For
this reason, barriers for entry are high.
Access to distribution Channels:
The distribution channel for delivering a finished airplane has two
components--the manufacturer and the customer. Access to distribution channels is
relatively easy because the airplane itself does not need a distribution channel. A
“ferry flight” will get the aircraft from the manufacturer’s facility to the customer
location. Airplane manufacturers provide services that accompany the product such
as maintenance, training of pilots and crewmembers and after-delivery customer
service (Ferreri 276). Airplane manufacturers today have a reputation for their
products. Airline companies rely on name brands making it difficult for new entrants.
For this reason, access to distribution channel barriers is high for potential
competitors.
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Cost Disadvantages Independent of Scale:
Current airplane manufacturers have cost advantages that cannot be
duplicated by any new entrant. The factors that support this include knowledge and
experience, product innovation and technology, access to raw materials and
government subsidies. For this reason, barriers for entry are high.
Government Policy:
Government has the ability to control entry into any industry by limiting it or
preventing it. “Historically, government regulations have constituted a major entry
barrier for many industries” (Hill 52). Government has various controls on licensing
requirements and limitations on access to raw materials. For this reason, entry
barriers can be high for potential competitors.
Expected Retaliation:
It is natural to expect a response when new entrants try to obtain market
share. The prospect of a threat by a new competitor can cause retaliation. A
number of factors involve retaliation to new entrants such as:
● A history of retaliation
● Established firms with substantial resources (excess cash, distribution
channel leverage, and excess productive capacity
● Established firms with a commitment to the industry and highly illiquid
assets
● Slow industry growth
(www.marsdd.com/articles/barriers-to-entry)
32
Overall, the commercial aircraft industry has very high barriers to entry, and
firms have to sell a significant number of aircraft in order to make any profit at all.
“The large commercial jet aviation market is a duopoly shared by the U.S. aircraft
manufacturer Boeing and the European aircraft maker Airbus, with fierce
competition between the two companies. The regional jet market is dominated by
two non-U.S. headquartered manufacturers, Brazil’s Embraer and Canada’s
Bombardier, both of which utilize a high level of U.S. produced content in their
products. The general aviation market includes companies such as Cessna and
Gulfstream” (FAS.org). The commercial airplane industry is well-established and
any new entrant would have a difficult time penetrating this industry, along with the
capital investment that is involved.
Power of Buyers (GM):
The buyers in the commercial airplane industry include major domestic and
international airline companies, the U.S. military and government. The bargaining
power of buyers can either be high or low depending on the current economic situation.
At times of economic downturn such as the 9/11 terrorist attacks, the bargaining power
of buyers resulted in a decrease of orders. Airline companies repositioned themselves
strategically and streamlined operations which reduced their investment. In turn, this
placed competitive pressure on aircraft manufacturers (Investopedia).
Power of Suppliers (GM):
The power of suppliers can either be low or high depending on the circumstances.
Boeing and its competitors can obtain raw materials and components from competitive
supplier markets. However, most part suppliers do more business by selling
33
replacement parts to airlines directly than selling original equipment and parts to
aircraft manufacturing firms. “There are few suppliers with whom Boeing and Airbus
hold the upper hand”. Boeing’s suppliers include General Electric who competes
directly with Pratt & Whitney and Rolls Royce in the manufacturing of airplane engines.
When Boeing does well then these companies can negotiate more favorable contracts.
Currently, more than half of Boeing’s workforce is unionized, and this gives laborer’s
supplier power through strikes which can cause Boeing to lose substantial profits
(Besanko 343).
Threat of Substitutes (GM):
The threat of substitutes is relatively low because alternative means of travel are
constrained by distance and time. There are limited forms of transportation in
geographical locations. For instance, you can travel across the pond by ship but the
time involved would take longer than by airplane. Other forms of transportation could
include public transportation versus a personal automobile but again if the distance is
long, this means of transportation does not get you to your destination quickly.
Business travelers can cut back on traveling domestically and internationally and rely
on mobile meeting devices such as iPads and tablets. This allows outstanding
savings of time and money (Ferreri 57).
Intensity of Rivalry among Established Firms (GM):
Intense rivalry is common among numerous or equally balanced competitors.
Industries with only a few firms or equivalent size and power tend to have strong
rivalry. The rivalry among established firms in the commercial airplane manufacturing
industry is intense; especially with the two top rivals: Boeing and Airbus. These
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competitors try to stay ahead of each other with new and more efficient aircraft in order
to gain an edge in the market. When the market is in a growth spurt, the pressure to
take customers isn’t as intense. On the other hand, when growth is slow or is stunted;
rivalry becomes more intense and firms began to battle to attract their competitors’
customers.
Fixed costs and high storage costs can intensify rivalry among firms. Industries with
many companies offering different products have less rivalry. The airplane
manufacturing industry has both high fixed costs and storage costs accounting for a
large part of the total cost to build an airplane. “The pattern of excess capacity at the
industry level followed by intense rivalry at the firm level is observed frequently in
industries with high storage costs” (Hoskisson 84).
In the aircraft manufacturing industry, rivalry is intense because both Boeing and
Airbus have few differentiated features and capabilities. Aircraft buyers view the
product as a commodity which intensifies rivalry. The competitors entering the aircraft
manufacturing business include China, Japan’s Mitsubishi and Russia who is
developing the MC-21 to compete with 150-210 passenger carrier.
Lastly, exit barriers contribute to intense rivalry. Some companies continue to
compete in an industry even though the return on investment is low or even negative.
These firms face high exit barriers which include: investment in assets, high fixed
costs of exit (ie., health benefits, severance pay, worker pension plans), emotional
attachment, economic dependence, need for specialized assets and government
regulations (Hill 57).
35
Industry Attractiveness/Profitability (GM):
The aircraft manufacturing industry is mature and is relatively attractive to new
entrants. As outlined through Porter’s Five Forces, major findings indicate that
government support and the general need for air travel illustrate that there is still a
need for airplanes of different sizes. While the market is relatively attractive, new
entrants need to understand that there is a high risk of capital investment. Even
though major airlines are struggling and air travel has slowed down, ageing fleets need
to be replaced. There are substitutes for air travel; however, airplanes are the easiest
and quickest form of transportation. Current aircraft manufacturers and their potential
competitors offer similar products in size and speed so few substitutes exist. The top
two aircraft manufacturers are Boeing and Airbus whom continue to battle to be the
market leader in the industry. Both continue to look for innovative ways to meet the
demands for fuel efficiency and low cost solutions so those cost advantages can be
passed on to their customers.
Summary (Results) of Five Forces (GM):
PORTER’S FIVE FORCES ASSESSMENT FOR THE INDUSTRY
Risk of Entry by Potential Competitors Low to High
Bargaining Power of Buyers Low to High
Bargaining Power of Suppliers Low
Threat of Substitutes Low
Intensity of Rivalry established firms High
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External/Macro Environment (HP)
When taking a look at the macro environment it is important to understand what it is
and how it impacts the industry. The macro environment consists of the demographic,
economic, technological, political/legal, social, and global forces that have the ability to
shift an industry in a positive or negative direction. The strength and attractiveness of the
industry can also hinge on changes within the macro environment that can happen to
forces independently or as a group.
Demographics (HP):
The demographic force covers changes in population and segmented by age,
gender, race, ethnicity, social class, and sexual orientation. The aircraft manufacturing
industry is impacted by some of these segmentations more than others. The age
segmentation is one that impacts them on a rather large scale. With the average age
of an aircraft maintenance engineer in the United States being 53 and Europe 40, the
industry could soon be facing a crisis. Without properly trained technicians to
troubleshoot and maintain air planes, a major threat to the industry is forthcoming. In
2010 the United States the Department of Labor reported 142,300 aircraft technician
positions were being filled. They also only expect a 6 % growth over the next ten
years adding 9,100 more jobs (“Aircraft and Avionics Equipment…”). The industry also
depends heavily on union workers who are known to strike only increasing the threat
the industry faces.
Economic (HP):
The economic force covers changes to the nation or region as a whole and affect
an industry's’ ability to receive a positive return on investment. When the economy is
37
going well companies/individuals have the ability to place orders for planes and borrow
money with somewhat of low interest rates available. At present time interest rates for
aircrafts are low in the US (2.88%-4%) and Europe (3%-4.88%) where both major
competitors are headquartered. This is good news considering the economic recession
the US is coming out of where they saw unemployment as high as 10% in 2009. The
UK found itself in a similar situation during its own economic downturn where
unemployment reached as high as 8.3% in 2011. As the economy grows and becomes
more stable it will be possible to utilize funds and profits to help boost the industry.
With emerging markets in Asia, the Middle East, Eastern Europe and Latin America
more funds will be available as spending and travel increases around the world. The
low rates will allow for orders to be placed and more flights to be utilized providing
opportunity for the industry. With the rising prices of raw materials and export
restrictions countries are losing out on revenue given their inability to ship materials.
The receivers of these materials are finding it harder to maintain operation and
households are seeing less money coming in with the diminishment of resources. This
is all coming at a time where energy prices are increasing worldwide only adding to the
bills families have to endure.
Technological (HP):
The technological force covers changes to products in the market. Within the
aircraft manufacturing industry technological change has become a small threat. With
every passing day a new innovation is being thought of and a way to implement into
the industry is being tested. With so much money tied up in producing a plane and the
lead time required to make changes the industry is slowly working on catching up to
38
demands for innovation. With so many planes currently in use, it would be impossible
to change out the entire fleet. What aircraft manufacturing companies have begun to
do is make small changes to older model planes and push new versions even in
smaller models to provide customers better planes they can fly aboard. Some
innovations being offered are seats that turn into beds, personal work stations, Wi-Fi
calling, Wi-Fi internet, wider planes, low fuel economy, and satellite television to name
a few. The industry understands the needs and with two major suppliers they are
working to better each other so they also see and opportunity for profits when it is all
said and done.
Political/Legal (HP):
The political/legal force covers changes in laws and regulations. “Congress has
been discussing broad issues affecting the competitiveness of the nation’s aerospace
manufacturing industry for most of this decade. In the early 2000s, the Presidential
Commission on the Future of the U.S. Aerospace Industry released its
recommendations on how to maintain the competitiveness of the aerospace sector.
The Aerospace Commission called for a national aerospace policy along with a
government-wide framework to implement this policy, as well as the removal of
prohibitive legal and regulatory barriers that impede the ability of the industry to
grow. The Commission also advanced policies to maintain U.S. global aerospace
leadership by proposing investments in America’s industrial base, workforce, and
research and development infrastructure (Platzer, pg. 8, para. 3).” These changes
would potentially allow the industry to grow globally and have the funding available to
strengthen the entire industry through development and training.
39
Sociocultural (HP):
The sociocultural force covers changes in values and social mores. With the world
wanting to become more eco-friendly the industry is working to find ways to make
more fuel efficient airliners that burn less emissions. “How to limit the environmental
impact of aviation is a hotly debated topic in the United States and many foreign
countries. Concerns include the possibility that some countries could establish
unilateral measures to limit greenhouse gas emissions (GHG) for aviation. For
instance, the EU’s Emissions Trading Scheme (ETS)—a cap-and-trade system—
wants the aviation industry to take responsibility for the emissions it contributes to the
atmosphere, and all intra-EU and international flights are set to be included under the
ETS beginning on January 1, 2012 (Platzer, pg 9. para. 3).” This change has given the
industry an opportunity to promote more efficient planes and sell them to companies
seeking to meet standards.
Global (HP):
The global force covers changes to the world focusing on barriers to international
trade and sustained economic growth worldwide. “Many industry analysts argue that
globalization helps the United States achieve its business objectives and enhances the
competitiveness and vitality of aerospace exporters. But U.S. export licensing laws can
negatively impact a customer’s ability to acquire aerospace products and parts from
the United States. While larger firms have learned to manage export control
requirements, they remain a heavy burden for smaller companies, which in some
cases inhibit the ability of second- and third-tier suppliers to compete in the
international marketplace. The response by some overseas competitors to U.S. export
40
control policies has been to develop products that do not contain any U.S. components
(Platzer, pg. 9, para 2).” Since the U.S. is not willing to change its laws they are putting
suppliers in a bind and aircraft parts and services are being sourced elsewhere. This is
coming at a time where emerging markets such as Asia, the Middle East, and Latin
America are seeing an increase in demand for business and personal travel which
could allow for more global spending. If these laws change it will allow for more money
to be made in the industry even amongst smaller companies.
Summary of Analyses and Impact (HP):
Overall the macro environment is having a large impact on the aircraft
manufacturing industry. There are some threats being present in the demographic
force with age, economic with energy prices, unemployment rates, sluggish
economies, and raw material prices, political/legal force with policies, and global force
with barriers to trade. While opportunities are evident in the economic force with
funding and upturn, technological and social forces with innovation and product
refinement, and global force with increased global spending, increased travel,
emerging foreign market in Asia, the Middle East, Eastern Europe and Latin America.
The macro environment is very telling of the state of the industry. While it is attractive
personnel, laws, and policies can restrict smaller companies from competing in the
industry. For those on top the industry opportunity exist with continued development
and refinement of products to meet consumer demand, and allow for profits in the
future.
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Strategic Group (PH)
The top competitors for Boeing are Airbus, Bombardier, and Embraer; however
Boeing and Airbus are in intense competition. Airbus has been known to surpass Boeing
in order production and delivery in recently. (Hoovers, a D&B Company)
Airbus S.A.S. located in France, is a subsidiary of Netherlands-based EADS. Airbus
contends with Boeing to be the world's #1 commercial jet maker. Airbus' commercial
division manufactures more than a dozen aircraft models that seat 100 to 525 passengers.
(Hoovers.com)
Bombardier is located Montreal, Canada. Bombardier is the world's only
manufacturer of both planes and trains. The company's Aerospace division manufactures
business Learjet, commercial CSeries, and amphibious military Bombardier 415 aircraft.
(Hoovers.com)
Embraer S.A., is located in Brazil. The company makes smaller commercial jets
that seat between 30-120 passengers and seven models of executive jets, it’s executive
jet production rivals that of Bombardier. Half of the company’s revenues come from
commercial jet sales. Executive jets account for 20% of its revenue. The company's
defense and security division generates 12% of sales. Embraer manufactures light attack,
trainer, and surveillance aircraft for military markets, and is developing a jet-powered
military tactical transport for the Brazilian Air Force. The company generates about 40% of
its sales in North and South America and is rapidly increasing its customer base
worldwide. (Hoovers.com)
Boeing is trailing Airbus in new commercial airplane orders. Last year Boeing was
leading Airbus with 1203 compared to 833 orders for Airbus. Last year, Boeing's
42
commercial airplane order book was driven by strong order volumes for its newly launched
single-aisle Boeing 737MAX. Due to the absence of any major launches in the single-aisle
airplane category, which constitutes the largest portion of orders from airlines Airbus has
gained the lead. Airbus has held a lead over Boeing in new commercial airplane orders for
much of the last decade. However, the gap in these orders for Boeing and Airbus has
been very narrow, which is shows the intense competition that exists between the two
players. (NASDAQ, Boeing Trails Airbus in the Race for New Commercial Airplane Orders,
By Trefis, September 12, 2013)
Single-aisle airplanes, which generally seat between 90 and 230 passengers and
fly on short to medium range domestic routes, form the bulk of airplane orders from
airlines. Of the 786 commercial airplane orders received through August by Boeing, 662
were for single-aisles. In the case of Airbus as well, single-aisle airplanes constituted
nearly 88% of all orders in the year-to-date period. The single-aisle airplane segment plays
the most important role in determining who between Boeing and Airbus leads in the race
for commercial airplane orders. Boeing's 737 series competes with Airbus' A320 family of
airplanes. There is intense competition between the current generations of these
airplanes. Airbus has a lead over Boeing in the next-generation of these airplanes. Airbus
launched the next-generation of A320 family, A320neo in 2010, while Boeing launched the
next-generation of its 737 series the 737MAX in late 2011. The A320neo is expected to
enter service with airlines in 2015, two years before the 737MAX is expected to make its
first delivery. Airbus' capacity to make deliveries of the A320neo a couple of years prior to
the 737MAX is weighing in its favor as airlines are eager to induct more fuel-efficient
airplanes. Airlines are looking to expand their margins and also reduce the proportion of
43
fuel costs in their total costs. Both A320neo and 737MAX are 10%-15% more fuel-efficient
than their previous generations and also produce much less noise and emissions.
Overall, we figure that due in part to its prior launch, the A320neo family received
more orders to drive growth in Airbus' total commercial airplane orders. As of August 2013,
the Airbus A320neo family received 2,179 orders, compared to 1,498 orders for Boeing
737MAX series. However, in the long term, when both next-generation airplanes enter
service, orders growth will depend on the operational performance and production rates.
The latter determines the waiting period for airlines between placing an order and getting
the delivery. (NASDAQ.com)
Competitor’s Objectives (PH):
Airbus is committed to build aircrafts that are part of the solution to the
environmental challenges.
Assumptions (PH):
Airbus believes there is a need for some 29,000 passenger and freighter aircraft,
reconfirming an upward trend in the pace of new aircraft deliveries for the 2013-2032
timeframe. This outlook, which is titled "Future Journeys," also outlines how emerging
economic regions will further increase their importance in overall traffic growth. Airbus
is also commitment to constructive ways towards greener skies. (airbus.com)
Capabilities (PH):
The Airbus A380 which will be entering into service this year will be the most
efficient aircraft in its category. Airbus has successfully set up an innovative
environment management system. Airbus is aimed at continuously improving the
environmental performance of the company, at every stage of the lifetime of an aircraft.
44
Airbus uses this integrated lifecycle approach to map, better understand, monitor and
minimize the environmental impact an aircraft and its production process may have
over its lifecycle, from design to dismantling. (enviro.aero, A380 case study)
Market Share (PH):
The Airbus 2012 figures were closely in line with estimates of more than 900 orders
and a market share of 41 percent reported by Reuters after a late surge allowed Airbus
to narrow the gap with Boeing. Airbus also confirmed it had delivered 588 aircraft in
2012, up 10 percent from the previous year and above target. But it was outpaced by
Boeing's total of 601 planes delivered. Airbus set a target of more than 600 deliveries
and 700 gross orders for 2013. (reuters.com)
Competitive Advantages (PH):
Airbus designed the A380 with a view of appealing to customers wishing to
purchase a product that was currently unavailable in the market place. It would deliver
benefits not available in existing aircraft an aircraft with features that Boeing were not
providing and did not have ideas of designing at that time. The A380 would be the
biggest aircraft in the sky capable of transporting more than 500 passengers in luxury.
By providing luxury travel, it would include bigger cinemas, restaurants and bars on
board. The idea driving the design was to appear to the commercial jetliners to reduce
cost with less aircraft and increase profit margin through increasing the volumes in
heavy traffic passages, and also to appeal to the customers. Airbus is focus on low fuel
consumption and less noise with the A380. Airbus is concentrating on its increase in
new aircraft orders and delivering on the orders. (globaltradeandlogistics.com)
45
Current Strategies (PH):
An aircraft with unprecedented levels of efficiency and environmental
performance and which is a real-world solution for a cleaner, quieter and smarter
way to fly. The Airbus A380 is one of the quietest long-range aircraft in the world,
despite its size. With twice as many passengers, it even creates lower noise than
the A340 - one of the quietest aircraft in its category. The Airbus A380 has a very
low fuel consumption of less than 3 liters per passenger per 100 kilometers. The
Airbus A380 provides a new way to cope with air traffic growth in major markets
worldwide, thanks to its unique capacity. Greater numbers of people can be moved
in and out of airports with each take-off and landing. (enviro.aero, A380 case
study)
Opportunities and Threats (MV)
Opportunities Threats
Economic
● Airline profitability is a major
demand driver for commercial
aircraft
● Increase in U.S. consumer
spending
● Continued low interest rates
Demographics
● Not replacing retiring engineers with
properly trained technicians to
troubleshoot and maintain air
planes can be a major threat to the
industry
Technological
Adopting new technologies to
Economic
● Increase in raw materials
46
innovate bigger and better
aircrafts
Using carbon fiber reinforced
plastic for fuselage and wing
structures
New designed aerodynamic body
and wide use of composites
The need to replace aging and
less fuel-efficient planes to
address rising fuel prices
Increase in air traffic
● Use of electronics onboard the
aircraft (WiFi)
● Weakness in job markets
● High unemployment
● Sluggish U.S. economy
● Energy prices
● Weak household income levels
Socio-cultural
● Going Green/Eco Friendly;
composite use
● Fuel efficiency
● Environmental emissions
● Noise reduction
Political/Legal
● Federal Aviation rules and
regulations
● State laws and state regulatory
agencies
● Foreign Jurisdictions
Global Global
47
Emerging markets in Asia, the
Middle East, Eastern Europe, and
Latin America are seeing an
increase in demand for business
and personal travel.
Emerging markets such as Asia,
the Middle East, Eastern Europe,
and Latin America.
Increase in global spending.
● Sluggish European economy
High Entry Barriers
Potential and existing competitors
can influence the industry
profitability
Oligopolistic competition
High start-up costs (large capital
needed)
Sizable facilities needed
High Intense Internal Rivalry
● Chinese entering the aircraft
manufacturing business
● Japan’s Mitsubishi now entering the
aircraft manufacturing business
● Russia develops the MC-21 to
compete with 150-210 passenger
carrier
● Airbus ability to deliver aircrafts at a
higher rate
Low Bargaining Power of Suppliers
Buying power of industry leaders
Low to High Bargaining Power of
Buyers
48
allows for their ability to raise
input prices
● Long term contracts benefit buyer
which shifts the financial risk to the
aircraft manufacturer.
● Switching costs due to training
Low Threat of Substitutes
Alternative means of travel are
constrained to distance and time
INTERNAL ANALYSIS (HP)
The internal analysis is a focus on the internal workings of a company. It is used to
help identify what a company can do. While evaluating Boeing Commercial, the utilization
of Value Chain Analysis and Financial Ratio Analysis will aid in determining the strengths
and weaknesses that exist within the company. The Value Chain Analysis will include the
strengths and weaknesses of Primary Activities to include: Research and Development
(R&D), Production, Marketing and Sales, and Customer Service. As well as the Support
Activities to include: Material Management, Human Resource Management, Information
Systems, Firm Infrastructure and results thereof. The Financial Ratio Analysis will include:
Liquidity Ratios, Leverage Ratios, Activity Ratios, Profitability Ratios and results thereof.
Value Chain Analysis (HP)
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The Value Chain Analysis allows the company to understand how its business can
maximize its operations and sustain/elevate its value over time. There are four primary
activities: research and development (R&D), production, marketing and sale, and
customer service. There are also four support activities: materials management (logistics),
human resources, information systems, and company infrastructure. These functions
together help the company realize which areas need improvement and are prospering.
Primary Activities (GM)
Many organizations are concerned with the conversion of inputs and outputs and
map functional activities using the value chain model. By mapping the activities of a unit,
“managers are able to determine how the continuing usefulness of an output can provide
the best possible utility” (Williamson 104) making them more attractive to customers. The
primary activities associated with the value chain model include: design, creation, product
delivery, product marketing and its after-sale service support. These activities fall into four
functions: Research and Development, Production, Marketing and Sales, and Customer
Service.
Research and Development (GM):
Research and Development (R&D) is related to the design and production
process of a product and/or service,. It is a valuable tool to help grow and improve a
business and give an image of superior value. R&D involves extensive research of the
market coupled with customer needs to assist in developing new and innovative
products and services to meet and fit those needs. A successful R&D strategy is
essential in elevating a business’ competitive advantage.
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“Boeing Commercial Airplanes, a business unit of The Boeing Company, is
committed to being the leader in commercial aviation by offering airplanes and
services that deliver superior design, efficiency and value to customers around the
world. There are more than 12,000 Boeing commercial jetliners in service, which fly
passengers and freight more efficiently than competing models in the market”
(Boeing.com)
As times change, Boeing remains steadfast in its “commitment to responsible
environmental leadership and sustainable growth -- building a better Boeing and
helping build a better planet” (Boeing.com). Through R&D, Boeing finds a way to
operate more efficiently and effectively. Therefore, “more than 75 percent of Boeing
Commercial Airplanes’ R&D efforts contribute to advancing environmentally
progressive innovations” (Boeing.com). Boeing engineers have faced a need to
“design in” with products that are environmentally friendly. “Designs out” have
included an efficient use of energy and water and the use of sustainable materials for
an environmentally friendly carbon footprint. The design and manufacture also
includes an “in-service” and “end-of-service” recycling and disposal program.
For over 40 years, Boeing has been recognized as the premier manufacturer of
commercial aircraft. Its merger with McDonnell Douglas in 1997 gives the company a
combined 70-year legacy in the commercial aircraft industry. Today, Boeing
Commercial Airplane models include the 737, 747, 767 and 777 and the Boeing
Business Jet, a jet designed for the private, business and governmental sector.
Boeing prides itself on new product development and its current focus is on the newest
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addition to the jetliner family: the 787 Dreamliner, a super-efficient passenger airplane,
and the 747-8 Freighter, the latest version its cargo fleet.
The design of the 787 Dreamliner and the 747-8 Freighter aircraft have reduced
the carbon footprint in double digits compared to the airplanes they replace. The 787-9
Dreamliner has an extended fuselage and will carry 40 more passengers an additional
300 nautical miles; it will use 20 percent less fuel and 20 percent fewer emissions than
similarly sized airplanes. Some of the features include large dimmable windows, larger
luggage bins, modern LED lighting, higher humidity, a lower cabin altitude, an air
filtration system, and a smoother ride (Boeing mediaroom).
However, a serious design flaw in the 787 lithium-ion battery and wiring system
caused the battery to overheat and start fires on board the aircraft. This created a
major setback in the 787 delivery and put the entire Boeing enterprise in jeopardy. In
a cost cutting initiative Boeing subcontracted the 787s power conversion system to a
French company, Thales. “Thales, in turn, used GS Yuasa to build the lithium-ion
batteries for the planes. But a GS Yuasa executive made clear during a safety board
hearing that both Boeing and Thales were involved in all of its testing and design
phases” (New York Times.com). This setback could have damaged Boeing’s
reputation for creating and designing dependable airplanes. Boeing trust has not been
hampered. “It is altering the overall design of the battery by adding insulation, a
spacer and heat resistant housing for wires to improve thermal and electrical isolation.
The overall goal is to prevent overcharging of the batteries. Boeing is correcting the
problem by designing and creating an enclosure to eliminate the potential for fire from
bursting batteries” (Gizmodo.com).
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Currently, Boeing is in discussions with customers on the 777X, an aircraft which
is expected to provide the lowest fuel consumption per seat of any other airplane in
commercial service. A product that is currently in the development stage is the 737
MAX. This model features a 13 percent smaller carbon footprint than today’s 737 Next
Generation (a modified version of the original 737 model). The 737 MAX is currently
considered the most fuel-efficient airplane in its class.
Along with Boeing’s aircraft, it has unrivaled 24/7 technical support to assist
operators with maintenance of its product. The commercial aviation department offers
top-notch services in engineering, modification, logistics, information systems and flight
crew training. This service is provided to passenger and cargo airlines as well as
maintenance, repair and overhaul facilities around the globe, adding additional value to
the product offering.
Boeing maintains its role as the leader in the global effort to achieve carbon-
neutral growth within the commercial aviation industry. Together with its international
partners, R&D continues to be an important part of moving sustainable biofuels from
the testing process to everyday use. Boeing invests in innovative technologies to meet
customers’ demands for precision performance and game-changing environmental
improvements.
Boeing's total R&D expenses amounted to $3.3 billion, $3.9 billion, $4.1 billion
and $6.5 billion in 2012, 2011, 2010 and 2009, respectively. R&D expenses in 2009
included $2.7 billion of production costs related to the first three flight test of the 787
aircraft that cannot be sold due to the inordinate amount of rework and unique and
extensive modifications that would be made to the aircraft.
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Boeing's R&D Expenses by Business Segment (million U.S. Dollars):
Research and Development 2012 2011 2010 2009
Commercial Airplanes 2,049 2,715 2,975 5,383
Boeing Defense, Space & Security 1,189 1,138 1,136 1,101
Other Segments 60 65 10 22
Total R&D Spending 3,298 3,918 4,121 6,506
(www.bga-aeroweb.com)
In 2012, Boeing met key milestones in R&D programs which help the company
stay innovative and provide the edge it needs to stay ahead of the competition. The
company rolled out an “EcoDemonstrator” program. The results had a positive effect
towards designing environmentally friendly products. “The program applies new
technologies and materials that make Boeing’s aircraft cleaner, quieter and more fuel
efficient. According to the October 2013 edition of Boeing Frontiers magazine, Boeing
is leading through research and technology with its new engine exhaust nozzle made
of ceramic matrix composite which is designed to make engines quieter, lighter and
more fuel efficient.
Boeing’s R&D efforts have formed partnership with major airlines, the aviation
industry and Federal Aviation Administration’s Continuous Lower Energy Emissions
and Noise (CLEEN) program, a program created to accelerate the development of new
technology leading to cleaner and quieter aircraft (Boeing Frontiers). These efforts add
customer value by offering lower operating costs and providing the best economics of
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any large passenger or freighter airplane while at the same time providing enhanced
environmental performance (Boeing.com).
Boeing’s strength in R&D begins with its “one company, one technology”
philosophy called “One Boeing”. This strategy gives the company a competitive
advantage because teams across the Boeing enterprise work together to understand
how new technology can add value for customers. Boeing research begins and ends
with customer needs. With intense competition in the marketplace, innovation through
technology is the key to the future success of Boeing Commercial Airplane (BCA) and
the company as a whole. Boeing strives to meet the challenge of a changing
environment, executes its commitment to the customer and the planet by delivering
eco-friendly products at affordable prices while maintaining a safe and quality product.
The main focus of Boeing’s R&D investments is on market-driven products and
services. Boeing leaders rely on new technologies to maximize potential returns to
stimulate growth today and in the future. In May 2013, Boeing opened its largest R&D
laboratory in Port Melbourne, Australia. This new technology lab will further enhance
Boeing's R&D capabilities because the composite materials, structures and robotic
technologies used for Boeing’s new 787 Dreamliner are developed in Australia.
"Boosting innovation through R&D is the best way to keep Australian industry
internationally competitive, with Boeing Australia having been a significant contributor
to, and a beneficiary of, Australian R&D" (Investor Updates). Competition is a driving
force to strengthen Boeing’s R&D.
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Strengths:
● Innovative
● Environmentally Conscious
● Flexible and customer-focused
● Committed to delivering quality and safe products
● Economically competitive
● Provide training and top-notch after sales maintenance and technical support
● Collaborate with domestic and international forces for mutual technological
benefits
Weaknesses:
● Serious design flaw in the 787 lithium-ion battery and wiring system
grounded and delayed new orders of aircraft
● Cost-cutting initiative to outsource / subcontract the design of 787 power
conversion system
The “One Boeing” philosophy illustrates an unwavering commitment for
Boeing to be the best in designing and creating new and efficient products. The
company is very committed to leading the way and it works extremely hard to
overcome obstacles and weaknesses in the aircraft manufacturing industry. The
company is aware of its competition, and is constantly making decisions to remain
competitive today, tomorrow and in the future. This is what makes Boeing the
leading commercial aircraft manufacturer.
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Production (HP):
The Boeing Company utilizes three major production facilities (Everett,
Washington, Renton, Washington, and South Carolina) to deliver commercial
airliners to customers. Each facility is operating under the Boeing Production
System (BPS) and its principles which include: Lean manufacturing, Six Sigma,
value streams, global manufacturing and supplier relationships. “By breaking down
all aspects of producing an airplane into manageable chunks—or streams—of
activity, it becomes easier to identify areas for improvement. This in turn helps
increase the focus on what's value-added and what isn't, fundamentally reducing
costs and improving quality. In Commercial Airplanes, part of the value-stream
process has resulted in the implementation of many successful practices like those
Japanese manufacturers use in environments such as Toyota and Fujisawa. In-
house design and right-sized equipment and machines are considered a
competitive advantage. Activities are time-based, paced to the production line,
which is in turn paced to customer demand. Inventory is replenished based on
kanban "pull." Mistake-proofing and built-in quality are throughout the entire factory
and part of every process (Arkell).”
The Everett, Washington facility is used to produce 747s, 767s, 777s and the
new 787 Dreamliner’s. It is by volume the largest building ever constructed covering
almost one hundred acres. The Everett location focuses on assembling aircrafts
with the help of pre-assembled parts shipped via truck, train, or Dreamlifter. The
Dreamlifter is a modified 747-400 with a 65, 000 cubic feet internal cargo capacity.
The use of pre-assembled parts for example allows the facility to assemble a 787 in
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as little as three days. The massive facility allows for each plane to be constructed
in its area. Tours of the facility are offered daily giving patrons the opportunity to
view the future of flight.
The Renton, Washington facility produces Next-Generation 737 airplanes.
This location serves as a final assembly site for the plane and has the distinction
of also producing the P-8A Poseidon. The production of the P-8A a military
derivative aircraft is a first for the moving assembly line of Renton. The
collaboration of commercial activities in a military market provides Boeing a
competitive advantage and new business model. As of 2008, 42 percent of
jetliners in use in the world have come from the Renton facility.
The Boeing South Carolina facility is responsible for assembling and
installing systems for the rear fuselage sections of the 787 Dreamliner while also
joining and integrating midbody fuselage sections. The site is also location to the
final assembly and delivery of the 787 Dreamliner. Once complete aft and
midbody sections are either shipped to Everett facility in Washington or
transported across campus to final assembly in North Charleston, South Carolina.
In December 2011, Boeing’s Interiors Responsibility Center opened just 10 miles
from there other South Carolina plants. The facility is responsible for 787 interior
parts to include: closets, stow bins, class dividers, partitions, floor stow bins for
flight attendants, overhead flight-crew rests, overhead flight attendant crew rests,
video-control stations and attendant modules. In mid-2015 Boeing plans to begin
assembly of 737 MAX engine inlets as part of a new engineering strategy that
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includes an IT Center of Excellence and an Engineering Design Center to be
located in a new facility in South Carolina.
Strengths:
● Large facilities allow for multiple aircrafts to be assembled at once
● Production and Delivery are not outsourced allowing for cost saving
● Dreamlifters shorten wait times on delivery of products from weeks to hours
● Continuous moving assembly line allows for progress tracking
● Ability to produce multiple types of aircrafts at once
● Over 13,000 jetliners in operation
● Parts arrive prefabricated to help shorten assembly times
● In-house design and right-sized equipment
● Mistake-proofing and built-in quality are throughout the entire factory and
part of every process
Weaknesses:
● With some parts coming from suppliers overseas in Italy and Japan backlog
is possible
● Not all plants in the United States deliver the same finished planes so if
delays happen orders may not be met
● If customer demand is low production will slow and could shut down
● Constant need to pay to operate Dreamlifter’s to transport parts
Marketing and Sales (PH):
The Boeing Company is known around the world as a leading manufacturer of
commercial airplanes. Boeing is also a leader in space technology, defense aircraft
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and systems, and communication systems. Boeing advertising campaigns close the
gap between current perceptions of Boeing and their true scope as a global aerospace
company. Boeing run Commercial Airplanes' advertising runs worldwide in many major
financial and aviation trade publications. (boeing.com)
Boeing has the Current Market Outlook their long-term forecast of air traffic volumes
and airplane demand. It helps to shape product strategy and provides guidance for
long-term business planning. Boeing has shared the forecast with the public since
1964 to help airlines, suppliers, and the financial communities make informed
decisions. (boeing.com)
Boeing is restructuring its commercial airplane strategy and marketing functions.
Marketing functions will be shifted to the sales group and led by marketing vice
president Randy Tinseth, who'll report to global sales chief John Wojick. This decision
was made days after hearing that one of their biggest customer Japan Airlines, entered
into a deal with Airbus to buy 9.5 billion worth of jetliners.(finance.yahoo.com, Reuters
–Thurs October 10, 2013)
The IATA estimates that global airlines earned a collective $8.8 billion net profit in
2011 and $6.7 billion in 2012. The order books at Boeing and Airbus contain six to
seven years of production at current levels. Both companies have announced
significant production rate increases that stretch through mid-2014, with both expecting
deliveries to increase by about 40% from 2011 to 2014.The business jet market, which
has been battered by both falling corporate profits and political headwinds, has begun
to improve. We also see the aftermarket parts and service business, for business jets
and large commercial airplanes, continuing to stage a recovery into 2013, on increased
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flight hours for both categories. (Standard & Poor’s, Aerospace & Defense/February
14, 2013)
Strengths:
● Known globally as the number one manufacturer of commercial airplanes.
● Commercial Airplanes' advertising runs worldwide in many major financial
and aviation trade publications.
● Continues to beat the competition with total annual sales.
Weaknesses:
● JAL entered a deal with Boeing’s top competitor.
● Not able to get orders completed and ship to customers sooner than
competitors.
Customer Service (MP):
Strengths:
● Boeing is committed to round the clock service. To be precise, “Boeing is
committed to assist with any problems such as; technical, engineering, and
maintenance problems” (Boeing.com).
● “Their customer service management process is 24 hours a day, 7 days a
week, and 365 days a year” (Boeing.com). With Boeing management style
and expectations, their customers build a stronger brand loyalty to the
company, this is one strength Boeing has.
● Boeing China customer service center works closely with Boeing's
engineering in Seattle, Washington, and Long Beach California. This is a
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strength because Boeing is able to communicate within their company to
become more efficient.
Weaknesses:
● Delivering their 787 Dreamliner. “Boeing outsourced on their wings and fuselage.
Boeing had 50 partners in 103 locations” (Boeing.com). Boeing delayed their
Dreamliner plane to China for 3 years.
● Boeing did not communicate well which led to un professional customer service.
● Boeing delayed their Dreamliner plane to China because they didn't collaborate on
how much supplies they needed which made their customer service look bad on
their to in China's eyes. (Boeing.com)
Support Activities (HP)
The support activities of the value chain provide inputs that allow the primary
activities to take place. These activities are broken down into four functions; material
management (or logistics) includes controls the transmission of physical materials through
the value chain , human resources ensures that the company has the right skilled people
to perform operations, information systems are electronic systems put in place to
effectively increase the company’s ability to do business and connect with customers, and
company infrastructure is the companywide context within which all other value creation
activities take place: the organizational structure, control systems, and company structure
(Hill, Jones).
Materials Management (HP):
Materials Management encompasses the process of organizing, planning,
and tracking the flow of materials for an organization. Taking things a step further
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Boeing uses its Material Services department which joins Materials Management
and Boeing subsidiary Aviall. While both services handle customer’s parts and
service needs, Material Services provides assembly and delivery of materials
ranging from a few pieces to a full load to aid in overhaul and/or incident repair.
Materials Management utilize six distribution centers in the U.S., Europe,
Middle East and Asia maintaining 500, 000 different parts with staff available
24/7/365. This allows customers to get their equipment back in operation
generating money. “Customers include airlines, government organizations, private
aircraft operators and owners, aircraft parts distributors, MRO providers and other
parties that engage in the business of aircraft operations and maintenance. Boeing
provides a number of contract services, including managing inventory that is
forward-deployed to customer locations around the world and providing repair,
lease, exchange and overhaul of component parts and assemblies (Boeing
Company).”
Boeing subsidiary Aviall Services, Inc. is one of the world's largest providers
of new aviation parts and related aftermarket operations. They distribute for over
235 manufactures offering 2 million catalog items utilizing 40 customer service
centers in North America, Europe, and Asia-Pacific. Aviall ships 3,500 orders per
day with 99 percent error efficiency to over 25,000 global customers. Customers
also enjoy the same error free service on same-day shipments. “Aviall’s Inventory
Locator Service (ILS) provides information and facilitates global e-commerce via its
electronic marketplace that enables subscribers to buy and sell commercial parts
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equipment and services. ILS provides e-business services to the aviation, marine
and defense industries (Boeing Company).”
The Emergent Build Center is designed to help supply customers with parts
that have been discontinued or non-stocked while also providing fabricated parts for
Boeing airplanes. Boeing also utilizes an Integrated Materials Management (IMM)
process that directly links a customer’s systems to that of Boeing and its suppliers.
As a result customers receive unparalleled parts service, reliability, improved
performance for network suppliers, reduced parts cost, inventory holding, and
logistics. Boeing also guarantees service and even stocks additional parts at no
cost to the customer until the parts are used reducing buffer stock. IMM is also
compatible with Airplane On Ground (AOG) and expedited service is available at no
additional cost working in conjunction with Boeing’s top priority of supporting the
customer’s business.
Strengths:
The Material Management systems at Boeing are state of the art. Their
systems allow for full integration and real time accountability of parts on hand.
Through these systems (IMM, ILS, AOG) Boeing and its subsidiary Aviall provide its
customers with 24/7/365 support in all functions of logistics to ensure they have the
proper equipment they need with 99 percent error free service. Boeing has the
added strength of being able to air transport parts immediately while also keeping
suppliers with enough parts on hand at all times.
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Weaknesses:
The weakness within the Material Management system is that they do not
charge customers for having excess parts on-hand until they are used. Having parts
on shelves waiting for use increases inventory turnover and accounts receivable
times. The company is essentially providing parts free of charge.
Human Resource Management (PH):
Boeing employees have been the source of our innovation and success for
nearly 100 years. They are true leaders. Many of the people who work for Boeing
have the creativity, passion, and desire to develop the next great innovation. This
drive has made Boeing the world's aerospace leader. Boeing believes that
everyone is a leader, and as the people grow as leaders the company will grow.
(boeing.com)
Developing a leadership pipeline is of the utmost important to Boeing’s
senior leadership team. It will result in delivering quality products and services to
customers. Boeing believes in promoting from within. 95 percent of their senior
leaders were promoted from within the workforce (Boeing.com).
Boeing has invested $150 million in internal learning programs and also $82
million in tuition reimbursement at preferred schools and in areas of study strategic
to our business (Boeing.com).
When researching for reviews from Boeing employees, the reviews were
very positive. The company received 3.5 stars out of 4.0 stars rating systems on
glassdoor.com. Employees are compensated well. The pay ranges from $45k-over
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$100k. Interns are also compensated for their work ranging from $19.43/hr -
$32/hr.
Some reviews from present and previous employees found on
glassdoor.com were: “I worked in corporate finance under a program manager. My
manager was great. He was really concerned with making sure I developed real
world business skills, specifically program management. Pay and benefits were
really good for an internship I think, at least compared to other internships I've
done.” (glassdoor.com/reviews/Boeing)
“Coworkers can be very smart and helpful, the work is challenging but very
interesting and impactful, and the atmosphere is very collaborative, which makes
growing and accomplishing easier early in your
career.”(glassdoor.com/reviews/Boeing)
Strengths:
● Boeing believes in promoting from within.
● 95% of senior leaders were promoted from within.
● Employees are honored and happy to work for the company.
● Boeing has invested millions in internal training and tuition reimbursement for
its employees.
Weaknesses:
● The average employee is 49 and up.
● There is a need for younger, educated engineer which there is a lack of
qualified individuals.
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Information Systems (MP):
Strengths:
● In order for Boeing to be able to communicate well Internal they invented a
system called Airplane Health Management (AHM).This informational system
provides real time feedback on airplane data, which delivers valuable
information efficiently.
● Another informational system strength that Boeing uses is their Electronic
Software and Data Distribution (ESDD). This system provided Boeing secure
processing and configuration management of a customer LSAP’s by using
this system.
Weakness:
● Boeing is outsourcing most of their software programming work to India and
other countries. This is bad for employees because Boeing has outsourced
their work outside of America, because it’s more cost efficient and saves
Boeing money, but employees in America are losing their jobs because of
this. (Boeing.com)
Firm Infrastructure (PH):
“Company infrastructure is the company wide context within which all the other
value creation activities take place; the organizational structure, control systems, and
company culture.” (Strategic Management, Chapter 3, support activities, company
infrastructure)
Boeing believes that sustained investment in aviation infrastructure is crucial to the
continuing growth of commercial aviation. Boeing analysis indicates that congestion at
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certain airports around the world will increase over the next 20 years as projected
commercial air traffic growth drives demand for takeoffs and landings to reach or surpass
airport capacity. Boeing's Current Market Outlook guides product strategy and provides
the basis for business plan development. The forecast is developed by constructing and
matching top-down and bottom-up analyses. Bottom-up analysis involves forecasts of
traffic between and within individual countries, based on economic predictions, growth
momentum, historical trends, travel attractiveness, and projections of the relative
openness of air services and domestic airline regulation. Government statistics on
inbound and outbound visitors and tourism receipts are included to identify and cross-
check trends.
Boeing has business imperatives that they place a strong emphasis on, such as:
detail customer knowledge that anticipates, understand, and respond to the customer’s
needs, systems integration that continually develops and advances technical excellence,
and An enterprise characterized by efficiency, supplier management, short cycle times,
high quality and low transaction costs.
Leadership
Boeing is committed to a set of core values that not only define who they are, but
also serve to help them to become the company they would like to be. They aspire to live
these values every day.
● Leadership- Boeing thrives to be a world-class leader in every aspect of business.
Developing team leadership skills at every level; management performance, in
design, build and support their products, and in financial results.
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● Integrity- by practicing the highest ethical standards, and by honoring commitments,
taking personal responsibility for our actions, and treat everyone fairly and with trust
and respect.
● Quality- Striving for continuous quality improvement so they will rank among the
world's premier industrial firms in customer employee and community satisfaction.
● Customer Satisfaction- Satisfied customers are essential to success. To achieve
total customer satisfaction, it’s imperative to understand what the customer wants
and delivering it flawlessly.
Boeing has an executive council that consists of the CEO, presidents, senior vice
presidents, executive presidents, and chief technology officer. W. James (Jim) McNerney,
Jr., is chairman of the board, president and chief executive officer of The Boeing
Company. “Before taking the helm at Boeing on July 1, 2005, McNerney held the position
as chairman of the board and CEO of 3M, then a $20 billion global technology company
with leading positions in electronics, telecommunications, industrial, consumer and office
products, health care, safety and other businesses. He joined 3M in 2000 after 19 years at
the Electric Company.” (boeing.com/companyoffices/aboutus/execprofiles)
Since becoming chief in 2005, McNerney has made ethics and integrity a top
priority. Two previous chief executives resigned amid ethics scandals. Boeing has been
involved in a lawsuit in the past over its calculation of pension benefits. “Boeing rejected
the basis of the lawsuit, saying, "We believe the allegations claimed by plaintiffs lack merit
and intend to contest the matter vigorously." (nytimes.com, Ethics stance leads to a
Boeing loss - Business - International Herald Tribune, by Leslie Wayne)
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Strengths:
● Boeing continues to invest in the aviation infrastructure for continue growth
● Boeing is committed to a set of core values
● Boeing thrives to be a world-class leader in every aspect of business
Weaknesses:
● ethical scandals in the past, class action lawsuits filed
● Two previous chief executives resigned
● competitors completing fuel efficient aircrafts before Boeing
Results of Value Chain Analysis (HP)
Summary of Value Adding Activities (HP):
Value Chain Analysis Findings
Value Chain Activity Value Adding, Neutral or Negative Impact on Value
Research and
Development
Value Adding: continue to seek out new ways to entice
demand and fulfill customer needs in designing
products that meet and exceed expectation.
Production Negative Impact: slow production times and errors
have resulted in the loss of customer orders.
Marketing and Sales Value Adding: established global brand that continues
to reach markets and understand projections within the
industry to sustain customers.
Customer Service Value Adding: available 24/7/365 establishes that
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customer needs will be met and locations globally
ensure competence of customer issues.
Materials Management Negative value: parts have been delayed and have
resulted in backlog.
Human Resources Value Neutral: known for having a good culture is not
aided with recent ethical issues.
Information Systems Value Adding: ability to track and improve efficiency of
planes and also customers to operate on secure
networks
Company Infrastructure Value Neutral: established brand name but legal issues
are not beneficial to the company.
Competitive Advantage Indicators (GM & MP)
(1) Efficiency (GM)
Boeing’s efficiency rests heavily on the transformation of its inputs into outputs.
“The more efficient a company is, the fewer inputs required to produce a particular
output” (Hill 94). The efficiency of a company is generally measured by employee
productivity which refers to the output of each employee. At Boeing Commercial
Airplanes, employees have been applying lean such as Six Sigma to its global
manufacturing and supplier relationships to maximize efficiency, improve quality and
safety, and to get rid of needless inventory. The lean principles help add value and
strengthen cost competitiveness, and reduce cycle times. "Lean provides a more
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rewarding workplace because employee involvement and responsibility is such a key
part of boosting morale and increasing employee productivity” (Boeing Frontiers).
(2) Quality (GM)
“Quality is the heart of Boeing manufacturing and its ability to determine the normal
from the abnormal plays a key role in the implementation of Lean and the effort to
build quality” products (Boeing Frontiers). Boeing’s production system is directly
linked to its quality management system so teams can work together across the
enterprise to manage the quality of outputs. This process ensures that "Boeing builds
the best products in the world, and its standards are second to none. You can't build
without quality and you can't ensure quality without Lean initiatives. They're
interdependent" (Arkell). A disciplined quality management program leads to the
reliability of a company’s outputs, and in turn, gives the company the ability to charge
higher prices for its products. BCA has a reputation for building high quality aircraft
and providing excellent after-sale service that customers and suppliers can rely on
(Sullivan 13).
(3) Innovation (MP)
Boeing main recent innovation was the building of the Boeing 787. This plane was
built for passenger comfort and the most important one which was fuel efficiency. This is
because Boeing is a leader of purchasing and using lots of fuel to keep their aircrafts in
the air, and Boeing customers do the same. "Boeing innovated a stainless steel enclosure
on the battery that runs the plane". This support for this battery will keep the battery from
going on fire. This innovation of the battery itself was made to weigh less, which will
increase plan fuel and increase distance between destinations. "Boeing states that the
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Dreamliner 787 is 20 percent more efficient than the smaller aircrafts they make".
(Benjamin Meigs) (popularmechanics.com)
(4) Customer Responsiveness (MP)
For Boeing to enhance Customer Responsiveness they used a process called
Integrated Material & Information Management System. This system focuses directly with
Customer Responsiveness. Boeing hosts meeting with their Customers and Suppliers to
address service ready and sustaining support issues. They came up with another system
called Boeing Part Analysis and Requirement Tracking, (PART), which gave Boeing and
the customer research to get quotes, orders, and track parts online. This would give the
loyal customers of Boeing a bit more comfort to be able to fulfill their expectations as
needed. Boeing is on the go and is constantly innovating new ideas that would make their
customer responsiveness more cost effective faster and easier to navigate and
communicate. To make it easier for customers to get the parts and wants for their aircraft,
they buy from Boeing the flexible logistics planning provided by Boeing is put into action so
that gives customers a huge view on parts, or anything they need through a massive
disbursement of distributions that are located in North America, Europe, Asia, and the
Middle East. (Boeing.com)
Financial Ratio Analysis (MV)
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The financial analysis of Boeing will help to determine whether the company is
stable, solvent, liquid, or profitable for possible investors. A total of eight financial ratios
will be produced from information on the company’s income statement, balance sheet, and
cash flow statements. The ratios will then be evaluated, compared, and analyzed against
the aerospace and defense industry averages.
Ratios Boeing Industry
2009 2010 2011 2012 2009 2010 2011 2012
Liquidity Ratios Current Ratio 1.07 1.15 1.21 1.27 1.23 1.31 1.24 1.28
Quick Ratio 0.56 0.46 0.43 0.43 0.77 0.82 0.71 0.74
Leverage Ratios Debt to Asset Ratio
0.86 0.82 0.78 0.64 0.34 0.31 0.32 0.35
Debt to Equity Ratio
6.07 4.49 3.52 1.77 0.51 0.46 0.47 0.55
Activity Ratios
Inventory Turnover
4.03 2.64 2.13 2.16 7.32 6.46 5.84 5.61
Days Sales Outstanding
31 31 31 25 53 56 56 54
Profitability Ratios Return on Total Assets
2.11% 4.82% 5.02% 4.39% 4.93% 6.06% 7.06% 6.01%
Return on Equity
58.97% 115.55% 111.36% 65.36% 13.77% 16.81% 20.24% 17.58%
Liquidity Ratios (MV):
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A liquidity ratio measures the short-term ability of the company to pay its maturing
obligations and to meet unexpected needs for cash (Financial Accounting, p709). The
two ratios used in measuring this ability are current ratio and quick ratio. Both ratios
will be used to evaluate and analyze Boeing.
Current Ratio:
The current ratio is used by executives and investors in order to evaluate
how quickly the company can convert assets into cash and their ability to pay short-
term debt. A current ratio of one means that book value of current assets is exactly
the same as book value of current liabilities. A current ratio less than one indicates
the company might have problems meeting short-term financial obligations. If the
ratio is too high, the company may not be efficiently using its current assets or short
term financing facilities.
http://ycharts.com/companies/BA/current_ratio
2009 2010 2011 20120
0.2
0.4
0.6
0.8
1
1.2
1.4
Current Ratio
Ratio
Val
ue
Based on the data collected, over the past four years, the current ratio for
Boeing has been increasing. However, the Boeing ratio continues to be below the
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industry average each year. This means that in order to pay off the creditors
Boeing would have to liquidate its current assets. Among Boeing’s closets
competitors are, Boeing’s current ratio is considered below average. Boeing is
steadily increasing its assets but in order for them to reach an acceptable
benchmark Boeing needs to have current assets at least as twice as current
liabilities. While Boeing’s current ratio is fairly healthy, it means that they can only
cover their short-term liabilities once. Which is why a 2:1 ratio is preferred in the
industry.
Over the same time period, the current ratio for the industry increased from
2009 to 2010 but then had a decline in 2011. In 2012, the industry saw a 0.04
increase. Compared to the industry, Boeing is just slightly below the industry
average. This is due to Boeing’s competitors having less liabilities and larger
assets. Boeing needs to maintain a higher balance in the current assets category
in order to raise its ratio. That goal may be obtainable with Boeing’s recent
increase in production of the 737s, 777s, and 787s which has their revenue and
cash flow surging (Bloomberg.com).
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Quick Ratio:
The quick ratio is a more conservative version of the current ratio on how
well a company can meet its short-term financial obligations. The quick ratio only
uses the most liquid of current assets. Inventory is excluded from the equation
because it cannot be converted into cash as quickly as the other assets
(Investopedia.com). The ratio measures the dollar amount of liquid assets available
for each dollar of current liabilities. Therefore, the industry rule of thumb is a
company with a quick ratio greater than 1.0 will be able to sufficiently meet their
short-term financial obligations.
2009 2010 2011 20120
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Quick Ratio
Ratio
Val
ue
Based on Boeing’s quick ratio, over the past four years, it has shown a slow
decline each year with the exception of 2012 which shows a slight increase from
2011. These results indicate that Boeing is not very liquid and will have problems
converting assets in cash. A low and decreasing quick ratio suggest that Boeing
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may be over-leveraged, relies heavily on its receivables to pay debt, and may be
struggling to maintain or grow sales.
Over the same time period, the quick ratio for the industry fluctuated,
showing an increase from 2009 to 2010 but then decreasing in 2011. In 2012, the
quick ratio increased 0.03. Overall, the industry average is higher than Boeing’s
ratio. This is due to Boeing’s competitors having an increase in sales growth and
their ability to quickly convert receivables into cash which allows them to easily
cover their financial obligations. In addition, Boeing’s top competitor is able to have
faster inventory turnover which gives them a faster cash conversion. In order for
Boeing to increase its quick ratio, they need to grow sales, collect receivables
faster, pay bills slower, and most importantly they need to turnover inventory faster.
Leverage Ratios (MV):
Leverage ratios measure how much debt a company has on its balance sheets. A
company that is highly leveraged means that it has more debt than equity. The greater
the debt, the riskier its stock is, since debt holders have first claim to a company’s
assets that leaves nothing to stockholders (Morningstar.com). The two ratios used in
measuring the amount of debt are debt to asset ratio and debt to equity ratio. Each
ratio will be used to evaluate and analyze Boeing.
Debt to Asset Ratio:
The debt to asset ratio measures the total financing by a company’s
creditors. This ratio will indicate the degree of financial leverage as well as a
company’s ability to withstand losses without it affecting their creditors (Financial
Accounting, p. 713). The higher the ratio, the greater the risk the company may not
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be able to fulfill its financial obligations. A lower ratio number means the company
has more equity and creditors will receive some payment if the company becomes
insolvent. A ratio of 1 would mean a company is 100% financed by debt and a ratio
of 0 would mean the company is not carrying any debt on its books.
2009 2010 2011 20120
0.10.20.30.40.50.60.70.80.91
Debt to Asset Ratio
Ratio
Val
ue
Over the past four years, Boeing’s debt to asset ratio has been steadily
declining. In 2009, 86% of Boeing’s assets were financed and by 2012 only 64% of
assets were financed. Based on these numbers, Boeing would appear as a high
risk to investors. Boeing’s high debt to equity ratio is due to the aggressive
borrowing they did in order to grow and build new airplanes. This push to build a
better or environmentally friendly aircraft should put them ahead. Boeing has
decreased the amount of debt financed by 22%. If they can continue to reduce
their debt, they will be in a much better position to negotiate interest rates and
appear less risky to investors.
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The industry average over the last four years has seen small decreases and
increases in the debt to asset ratio. Generally, the industry average is much lower
than Boeing’s ratio. Due to Boeing’s higher ratio, they may experience additional
interest expense which may reduce earnings as well as possible future growth.
Debt to Equity Ratio:
The debt to equity ratio measures how the company shows relative use of
borrowed funds against the capital invested by the owners (Financial Accounting, p.
713). Debt that exceeds the equity of a company would mean that the creditors
have more stakes in the company than do the stockholders. A high ratio would
mean that the company had been aggressively borrowing funds. A low ratio means
the company is not taking advantage of their leverage.
2009 2010 2011 20120
1
2
3
4
5
6
7
Debt to Equity Ratio
Ratio
Val
ue
Based on the data collected, over the past four years, the debt to equity ratio
for Boeing has greatly decreased from 2009. However, the ratio for Boeing
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continues to be above the industry average each year. This means in 2009 Boeing
was aggressive in financing the company’s growth by borrowing funds which
appears to be the reason for the lower earnings. In 2009, Boeing’s ratio was 6.07
which meant that debt holders had 6 times more claim to the assets then did the
shareholders. Since 2009, it appears Boeing has reduced its borrowing and is now
reaping the rewards of their aggressive investments.
Over the same time period, the debt to equity ratio for the industry saw a
decrease from 2009 to 2010 but since then it has increased slightly each year.
Compared to the industry, Boeing is very much above the industry average. This is
due to their aggressive financing for the production of the 737s, 777s, and 787s
(Bloomberg.com). Overall, it appears that Boeing is headed into the right direction
by lowering liabilities and increasing assets due largely in part to the completion of
aircraft orders.
Activity Ratios (MV):
Activity ratios measure a company’s ability to convert different asset accounts on
the balance sheet into cash or sales. These ratios help indicate how effectively a
company is managing its assets and leverage. They are also helpful in determining
whether management is doing a good job at managing the company’s finances. The
two ratios, inventory turnover ratio and days sales outstanding, will be evaluated and
analyzed.
(Investopedia.com)
Inventory Turnover Ratio:
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The inventory turnover ratio measures the efficiency of a company at managing and
selling its inventory by the number of times inventory is turned over. This ratio can
indicate the liquidity of a company’s inventory (bizfinance.about.com). A higher
number indicates the company is performing better while a lower number may
indicate overstocking.
2009 2010 2011 20120
1
2
3
4
5
6
7
8
Inventory Turnover
Ratio
Val
ue
Over the past four years, the inventory turnover for Boeing has decreased.
Boeing’s ratio continues to be below the industry average. This seems to indicate
that Boeing is sitting on inventory which may become uselessness and difficult to
sell. Boeing runs the risk of eating away at its profit if it can’t move older inventory.
Based on the data researched, the industry average for inventory turnover
has been decreasing each year. Boeing’s ratio in comparison to the industry is
below the average. This means that Boeing’s competitors are turning over
inventory at a faster rate than Boeing. This will allow for the competitors to invest in
new technology and produce aircrafts which are in demand now. Boeing needs to
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be able to streamline its production process in order to compete with other
manufactures.
Days Sales Outstanding Ratio:
The days sales outstanding ratio is used to measure the average number of
days that a company takes to collect its revenue from receivables billed to
customers (Investopedia.com). It is also used to measure how efficient a company
is at collecting its receivables. A low ratio number means that it takes the company
fewer days to collect on its accounts receivable. A high ratio number means that
the company is selling on credit and customers are taking longer to pay their bills.
2009 2010 2011 20120
10
20
30
40
50
60
Days Sales Outstanding
Ratio
Val
ue
Based on Boeing’s days sales outstanding ratios for the last four year, it
shows they are making progress in turning sales into cash at a faster rate than the
industry average. Boeing understands the importance of cash and its ability to
collect it quickly is allowing them to increase asset accounts. This also allows them
to put the cash to use right away by reinvesting it and making more sales. As each
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year goes by, Boeing has managed to decrease their ratio which shows they are
efficiently running their receivables.
The industry average ratios for the past four years show an increase the first
three years and a slight decrease in 2012. Overall, Boeing in comparison to the
industry is doing much better at collecting its receivables. This ratio gives us a
glimpse at how inefficiently Boeing competitors are handling their cash collection
process which would make it difficult for them to reinvest cash into new projects.
Profitability Ratios (MV):
Profitability ratios are considered to the most important because they assess a
company’s ability to generate revenue in comparison to a company’s expenses and
other relevant costs (Investopedia.com). They also show the company’s overall
efficiency and performance. These ratios measure basically measure the company’s
ability to generate returns for its shareholders. A company who has a higher ratio
value would mean the company is doing well. The two ratios which will be evaluated
and analyzed for Boeing are return on assets ratio and return on equity ratio.
Return on Assets Ratio:
The return on assets ratio is considered the most important of the profitability
ratios because it measures how efficiently a company is managing its investment in
assets which are used to generate revenue. The ratio measures “the amount of
profit earned relative to the firm’s level of investment in total assets”
(bizfinance.about.com). A higher percentage means the company is doing a good
job using its assets to generate revenue.
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2009 2010 2011 20120.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Return on Total Assets
Ratio
Val
ue
Based on Boeing’s financial data for the last four years, their ratio increased
for the first three years but saw a decrease in 2012. It would seem that Boeing’s
decrease in ROA is not good. This would mean that management is doing a poor
job at generating income for the company. Boeing’s low ratio number tells investors
that the company is asset-intensive and will need more money in order to continue
to generate revenue in the future.
Over the last four years, the industry average has seen a consistent increase
with the exception of 2012 which saw a decrease. Compared to the industry,
Boeing’s ratio is below the industry average. Currently, Boeing is rated below
average in ROE among its competitors. Boeing needs utilize their assets more
efficiently in order to see a higher return.
Return on Equity Ratio:
The return on equity ratio is considered the most important ratio to investors
because it tells them how efficiently the company is utilizing and reinvesting their
money. The purpose of this ratio is to show how efficiently a company’s
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investments are used to generate revenue. A ratio between 10% and 30% is
considered desirable. A higher ratio can be an indicator that the company is heavily
leveraged.
(macroaxis.com)
2009 2010 2011 20120.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
Return on Equity
Ratio
Val
ue
Over the past four years, the return on equity ratio saw a large increase in
2010 but then was followed by a consistent decrease. Boeing’s large ratio numbers
tells us that they are heavily leveraged. Although, in 2012 they have managed to
reduce their number by almost half of what it was in 2011. For investors, this tells
them that Boeing is not utilizing or reinvesting money efficiently.
Over the same time period, this ratio for the industry saw an increase each
year with the exception of 2012 which saw a decrease. Compared to the industry
Boeing has a much higher ROE. Currently, Boeing is rated second in return on
equity among its competitors. It appears that Boeing’s increase use of debt
financing has increased their ROE and may have made them more sensitive to
down turns.
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Results of Financial Analysis (MV):
In reviewing Boeing’s financial statements for the past four years, it would appear that
Boeing has been working on reducing its debt and increase their assets. I don’t believe
they will have problems trying to finance any new ventures since 2012 has proven to be
profitable and they have managed to decrease their liabilities. Although Boeing’s ratios
don’t appear to be positive in the long term investors can see that the company has many
opportunities to increase production and invest in new technology. With China, Japan,
and Russia entering the industry, Boeing has a major advantage which is longevity and
proven quality craftsmanship. They will need to further reduce their long term liabilities in
order to finance new projects. This shouldn’t be a problem since receivable turnover is
low and deliveries of new aircrafts are increasing. Based on the current ratio, Boeing
needs to increase current assets in order to perform better in other financial areas. It all
stems from current assets and their ability to convert assets into cash. Their quick ratio is
low as is their ROE which confirms that Boeing is over-leveraged and relies heavily on its
receivables. In their type of industry it is difficult to self-finance projects because they are
massive amounts needed however, Boeing needs to increase inventory turnover in order
to get ahead of the competitors.
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Interpretation/Evaluation (MV)
Summary of SWOT Analyses:
Summary of SWOT AnalysisINTERNAL ANALYSIS EXTERNAL ANALYSIS
Strengths:1. Innovative 2. Environmentally Conscious3. Flexible and customer-focused4. Committed to delivering quality and safe
products5. Economically competitive6. Provide training and top-notch after sales
maintenance and technical support7. Collaborate with domestic and
international forces for mutual technological benefits
8. Large facilities allow for multiple aircrafts to be assembled at once
9. Production and Delivery are not outsourced allowing for cost saving
10. Dreamliner’s shorten wait times on delivery of products from weeks to hours
11. Continuous moving assembly line allows for progress tracking
12. Ability to produce multiple types of aircrafts at once
13. Parts arrive prefabricated to help shorten assembly times
14. In-house design and right-sized equipment
15. Known globally as the number one manufacturer of commercial airplanes.
16. Commercial Airplanes' advertising runs worldwide in many major financial and aviation trade publications.
17. Continues to beat the competition with total annual sales.
18. Round the clock customer service19. Loyalty to their customers20. State of the art material management
systems21. Boeing believes in promoting from within. 22. Employees are honored and happy to
work for the company23. Boeing has invested millions in internal
training and tuition reimbursement for its
Opportunities:1. Airline profitability is a major
demand driver for commercial aircraft
2. Increase in U.S. consumer spending3. Continued low interest rates4. Adopting new technologies to
innovate bigger and better aircrafts5. Using carbon fiber reinforced plastic
for fuselage and wing structures6. The need to replace aging and less
fuel-efficient planes to address rising fuel prices
7. Increase in air traffic8. Use of electronics onboard the
aircraft (WiFi)9. Going Green/Eco Friendly;
composite use10. Fuel efficiency11. Environmental emissions12. Noise reduction13. Emerging markets in Asia, the
Middle East, Eastern Europe, and Latin America are seeing an increase in demand for business and personal travel.
14. Emerging markets such as Asia, the Middle East, Eastern Europe, and Latin America.
15. Increase in global spending.
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employees.24. Advanced internal communications
system (AHM).25. Use of electronic software and data
distribution (ESDD) for transmitting data securely and confidentially
26. Boeing continues to invest in the aviation infrastructure for continue growth
27. New designed aerodynamic body and wide use of composites
Weaknesses:1. With some parts coming from suppliers
overseas in Italy and Japan backlog is possible
2. Not all plants in the United States deliver the same finished planes so if delays happen orders may not be met
3. If customer demand is low production will slow and could shut down
4. Constant need to pay to operate Dreamliner’s to transport parts
5. JAL entered a deal with Boeing’s top competitor.
6. Not able to get orders completed and ship to customers sooner than competitors.
7. Outsourcing problems for wings and fuselage (787 Dreamliner)
8. Poor communication with suppliers9. Distance of suppliers10. Do not charge customers for excess parts
on hand11. The average employee is 49 and up.12. There is a need for younger, educated
engineer which there is a lack of qualified individuals.
13. Shifting software programming work overseas to India and other countries
14. ethical scandals in the past, class action lawsuits filed
15. Two previous chief executives resigned16. competitors completing fuel efficient
aircrafts before Boeing
Threats:1. Not replacing retiring engineers with
properly trained technicians to troubleshoot and maintain air planes can be a major threat to the industry
2. Increase in raw materials3. Weakness in job markets4. High unemployment5. Sluggish U.S. economy6. Energy prices7. Weak household income levels8. Federal Aviation rules and
regulations9. State laws and state regulatory
agencies10. Foreign Jurisdictions11. Sluggish European economy12. Chinese entering the aircraft
manufacturing business13. Japan’s Mitsubishi now entering the
aircraft manufacturing business14. Russia develops the MC-21 to
compete with 150-210 passenger carrier
15. Airbus ability to deliver aircrafts at a higher rate
16. Long term contracts benefit buyer which shifts the financial risk to the aircraft manufacturer.
17. Switching costs due to training
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BUSINESS LEVEL STRATEGY (GM)
A business level strategy reveals where and how a firm has competitive advantage
over its rivals in its chosen business segment. An effective business level strategy creates
and distributes a firm’s resources, capabilities and competencies to appropriately align
with the external environment. A firm makes strategic choices that help move it toward
success and reach its long-term goals. Strategic decisions are based on many variables
which include the market, customers, technology, and economic conditions worldwide.
These components must be implemented into a solid strategic plan and be revisited
periodically to analyze if a firm is successfully on target. The key factors a firm must
take into consideration when choosing a business level strategy are which goods or
services it will offer to its customers, how to manufacturer or create the goods or services,
and how to distribute it to the market. The main focus is to stand out from the competition
and choose a value chain model that is unique, and one that will deliver value to the
customer. “Value is delivered to the customers when the firm is able to use competitive
advantages resulting from the integration of primary and support activities” (Hoskisson
129).
Generic Business Level Strategy (HP)
The generic business level strategy that is most appropriate for The Boeing
Company is a focused differentiation strategy. A focused differentiation strategy is, “a
business model based on using differentiation to focus on competing customers by making
unique to customized products for only one, or a few, market segments (Hill, Jones).” As a
leading competitor in the Aircraft Manufacturing Industry, Boeing can attempt to maximize
its profits by focusing its efforts toward the production of Commercial Airplanes. "As
90
aviation becomes increasingly accessible in all parts of the world, future journeys will
increasingly be made by air, particularly to and from emerging markets, according to
Airbus' Global Market Forecast. "In the next 20 years [2013-32], air traffic will grow at 4.7
percent annually, requiring over 29,220 new passenger and freighter aircraft valued at
nearly $4.4 trillion.( “Airbus, Boeing Project..”)." Already having over 13,000 planes in
operation and the demand for more, the focused differentiation strategy will give Boeing
the opportunity to introduce more planes like its 787 Dreamliner and 737 MAX that are
innovative and meet customer needs.
Company’s Distinctive Competencies (PH)
Boeing is very knowledgeable and focused on its customers. Before
designing an airplane, Boeing works closely with their customers making sure it is
configured for that customer airline's or military customer's specific needs. Boeing
continues working with that customer on airplane maintenance and modification.
Teams across the Boeing enterprise work together to understand how new
technology can add value for customers. Boeing research begins and ends with
customer needs.
Innovation through technology is the one of the key success of Boeing
Commercial Airplane (BCA) and the company as a whole. Boeing strives to meet
the challenge of a changing environment, executes its commitment to the customer
and the planet by delivering eco-friendly products at affordable prices while
maintaining a safe and quality product. Boeing makes very complex products. All
the parts and systems in an airplane must work together smoothly. The airplane
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itself must be integrated with systems outside the airplane, such as the Air Traffic
Control system.
Boeing believes in being economically competitive. One of Boeing’s core
competencies is "lean and efficient design and production systems". “Our products
have to be affordable, and we are always working to produce them more efficiently.
This means shortening cycle times, smooth product flow, and maintaining very high
quality.” (boeing.com)
Sustainable Competitive Advantage (GM)
Because economies of scale are important in the aircraft manufacturing
industry, the global market can only support a few producers. Boeing and Airbus
are the two primary producers of aircraft and they have been running a close race
to gain market share. Due to the direct nature of the industry, it is obvious that
technology through research and development is an asset, and efficient production
runs will ultimately determine the attractiveness of the products these companies
have available for sale, as well as the cost in which the products can be delivered.
This will help sustain competitive advantage in the market.
Over the years, Boeing and Airbus have relied on government subsidies and
loans, and currently, both companies rely on a competitive advantage through
design and product life cycle. Airbus developed the A380, the biggest aircraft in the
sky which is capable of transporting 500 passengers. It provides luxury travel,
bigger cinemas, restaurants and bars on board. On the other hand, Boeing
developed the 787 Dreamliner which is not an aircraft of similar scale to the A380,
but is an aircraft that is more lightweight and therefore uses less fuel. The engines
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were designed to be the most economically sustainable for a plane of its size. The
787 was designed to provide comforts that customers were currently not
experiencing; and more importantly, these luxuries were not being delivered by the
A380. Other features included reduced cabin pressure and refrigerated air
conditioning which resulting in less fatigue to the customer.
Boeing delivered its product at a very competitive global price because it was able
to take advantage of production efficiencies of many foreign countries such as
Japan, Australia, Italy and England which has reduced its productions costs by as
much as 20%.
The biggest advantage for Boeing in competing for sales dollars was in the
cost in which the aircraft could be delivered. Approximately 500 purchase orders
were received for the 787 aircraft before the aircraft hit the production line. “Airbus
loss first mover advantage and trust when Airbus missed their delivery deadline due
to engineering problems. The market had strong trust in Boeing as Boeing had
never been late in delivering a promised new aircraft design—and this track record
was interpreted in sales orders” (Global Trade 39).
Boeing believes that sustained investment in aviation infrastructure is crucial
to the continuing growth of commercial aviation. The company will be able to
sustain a competitive advantage in the global market place. This comes at a time
when fast-growing competitors like India, China, Brazil and Russia are investing
largely in the market, and Boeing sets a good example of how this works. “Forty-
two percent of our more than $68 billion in 2009 revenues came from overseas
sales. That percentage will certainly increase over the next six or seven years
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because more than 80 percent of our commercial airplane backlog -- which totals
more than a quarter of a trillion dollars -- is reserved for airlines outside the United
States” (Boeing Media Room). This is a testament to how Boeing will sustain its
competitive advantage.
Strengths (MP)
Boeing's use of Focused Differentiation Strategy as a strength, can be
noticed when Boeing implemented informational systems; such as, Airplane Health
Management. This system was formed to give advice for commercial airplane
towers, airports up to date information systems, and reduce as much schedule
interruptions. Another way Focused Differentiation Strategy is a strength for Boeing
is when they built Boeing 787 which differentiates themselves from their
competitors. This plane focuses on all the guidelines of Focused Differentiation
Safety. Since the product is only set for one group of customers, who have a lot of
equity, to invest into an aircraft. Another reason the innovation of Boeing 787 is why
Boeing is a Focused Differentiation Strategy is because the plane offers unique and
distinctive product to their customers. This plane has all the perks that customers
want that other big competitors can't compete with in Boeing industry. These perks
are Boeing 787, it gave customers more comfortable seats for their passengers, so
they have a more relaxing trip. Another perk this plane has is a “stainless steel
enclosure on the battery that runs the plane”. This stainless steel protection help
the planes fire hazard unlikely to occur in flight. This most important perk, just like a
car, is better fuel efficiency. This gives customers a reason for more brand loyalty,
they will save more money when filling up their planes, since the planes will be in
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flight a lot more and will get more passengers on planes more and more which will
ultimately bring more profitability for the customers’ business especially if it is a
commercial airline company. (Boeing.com), popularmechanics.com
Threats (MP)
Boeing's use of Focused Differentiation Strategy as a threat can be
noticed in a few different factors. One factor is that by looking at a
Demographic Standpoint if Boeing doesn’t replace retiring engineers with
experienced trained technicians to troubleshoot and keep the aircraft
maintained, this is a threat for Boeing. Another factor is that Federal Aviation
Rules and Regulations, State Laws,State Regulatory Agencies, and Foreign
Jurisdiction, can conflict with Boeing strategic management. Boeing use of
Focused Differentiation Safety as a threat is also seen when Airbus
competes with Boeing to deliver the new innovation in planes to try to keep
their competitive advantage over Boeing. This gives customers a broader
look between aircrafts to purchase between suppliers, but lowers Boeing
competitive advantage because of Airbus and the rise of new companies due
to the low barrier to entry. (Module 2 Opportunities and Threats Chart).
Weaknesses (MP)
Boeing's use of Focused Differentiation Strategy as a weakness can
be noticed when Boeing was in the process of producing Dream Lines 787,
and they were going to distribute their first model to China. They had
complications in this process which ultimately delayed their scheduling time
to China by 3 years. This was due to the lack of communication skills, and
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the lack of strategic thinking when it came to outsourcing, since they
outsourced to 60 partners in 103 locations. When they needed the parts,
they had a shortage on for the plane that Boeing didn't know who to turn to
because the communication was terrible and Boeing employees just pointed
fingers. Communication is vital, and because they didn't do that they had to
hold off their Boeing model plan for 3 years then they finally release it to
China, which they weren’t too happy about the wait. (Boeing Case Study by
Keri E. Pearson and Carol S).
Opportunities: (MP)
Boeing use of Focused Differentiation Strategy as an opportunity that
can be understood, after understanding the Demographic aspect of Boeing,
which included the average aircraft maintenance engineers get older, this will
increase new opportunities for younger engineers. Another opportunity is
that from a technological standpoint is that Boeing used Carbon Fiber
reinforced plastic for fuselage and wing structures. This is a Focused
Differentiation Strategy because no other supplier like Boeing is doing
anything like this, which is increase the safety of the aircraft in the air for
customers and passengers. This is definitely an opportunity because Boeing
has a competitive advantage against Boeing’s competitors, and will have
more loyal customers knowing that Boeing is making more aircrafts with
more safety precautions; especially, innovations to prevent fire hazards.
(Module 2 Opportunities and Threats Chart).
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Advantages and Disadvantages of Business-Level Strategy (MV)
Every business strategy has advantages and disadvantages to their use.
Therefore, in order for a company to be successful they must know what they are as well
as how to deal with the possibility of their effects. A focused differentiation strategy
combines the advantages and disadvantages of a focused strategy and a differentiation
strategy.
Advantages (HP):
The advantages of a focused differentiation strategy include: the ability to price your
product higher, the threat of new entrants is limited due to customer loyalty; products are
made with the customer needs in mind, and the ability to develop expertise and refine
products quicker. Some ways the Boeing Company can take advantage of the focused
differentiation strategy is to utilize its defined competitive advantage in Research and
Development to design planes that are in line with customer needs. With a defined market
new innovations such as the 787 Dreamliner and 737 MAX will appeal to an industry in
need of change. Possessing that innovative mindset will serve Boeing well as they
continue to increase customer loyalty as demand for aircrafts increase in the market place.
Boeing will also be able to establish a firm price on its aircrafts due to the long lead time it
would take others to simulate their efforts.
Disadvantages (MV):
The disadvantages of a focused differentiation strategy can include the following:
agile competitors can quickly imitate, patents and first-mover advantage are limited in
duration, difficulty maintaining premium pricing, low volume purchasing can lead to higher
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pricing by powerful suppliers, and the company’s niche may disappear due to
technological changes or customers’ taste preference. (Strategic Management, Hill-Jones)
Boeing could face some of these disadvantages from using a focused differentiation
strategy; however, being prepared is one way for Boeing to avoid some of the effects of
this strategy. Investing further in their research and development department is one way
they can stay ahead of the technological changes and customers’ taste. It is very difficult
to ward off competitors imitating your product but one advantage Boeing has to minimize
the effects is brand loyalty and brand quality. Boeing needs to continue to continue
building a quality product and those competitors will simply be following Boeing not leading
the industry. Finally, maintaining premium pricing goes hand in hand with pricing by
suppliers. Boeing needs to price its product within the reach of its targeted customers and
provide them with not only quality but value as well. In order for Boeing to achieve this,
they will need to have contracts with exclusive suppliers. This will give them the
advantage of pricing their parts at lower costs because they will only use that distributor
and have a guaranteed number of units to order.
CONCLUSION
In the conclusion of our analysis we take a look at the critical strategic issue facing
Boeing. Identifying the strategic issue allows the company to understand which areas of its
business to focus on to meet its goals. Since the issue facing Boeing is the emergence of
foreign competitors they should look to their quality and innovation to continue to stand
apart from competitors and maintain their market share. After providing the advantages
and disadvantages of these alternatives, a recommendation will be made to aid in staying
ahead of the competition amidst an emerging market. With so much change on the
98
horizon the future vision of Boeing and/or the industry will shed light on its state in the next
five years.
Strategic Issues (HP)
While conducting the Porter’s Five Forces research and taking a look at the
intensity of rivalry the emergence of foreign competition is becoming a significant strategic
issue. With the demand for aircrafts increasing around the world in markets like Asia, the
Middle East, Europe, and South America it is no coincidence that the strategic issue
Boeing is facing is the emergence of foreign competitors. With China (spearheaded by the
Chinese government), Japan (Mitsubishi: a current leading parts manufacturer), and
Russia (Introduced the MC-21 aircraft) all getting into the aircraft manufacturing industry
Boeing could see a decrease in its market share. These foreign competitors all have the
advantage of already producing aircraft parts and being located in places where the
demand for aircrafts are on the rise.
Alternatives:
Alternative # 1: Strategic Outsourcing (PH)
An alternative we proposed for Boeing is strategic outsourcing. Strategic
outsourcing is the decision to allow one or more of a company’s value-chain activities to
be performed by specialist companies that focus their skill or knowledge on just one kind
of activity. (Hill & Jones p. 328) By outsourcing, Boeing would be able to focus on fewer
number of value creation activities to strengthen its business model.
By outsourcing, Boeing could lower its cost structure. Specialists are often able to
perform an activity at a lower cost than the company. The specialists are able to realize
scale economies or other efficiencies that may not be available to the company. (Hill &
99
Jones p. 331) Boeing has looked to outsourcing both locally and internationally as a way
of lowering costs and accelerating development of the 787.
Another benefit for Boeing to outsourcing is enhanced differentiation. Boeing can
continue to stand out on its excellence dimension of quality. A specialist will be able to
achieve a lower error rate in performing an activity precisely because it focuses solely on
that activity. Most likely they have developed a strong distinctive competency in this
activity.
Outsourcing will allow Boeing to focus more energy on the core business. Boeing
can focus on the performing those core activities that have the most potential to create
value and competitive advantages.
Boeing is committed to steady long-term improvement in their products and
processes. The cornerstone of their business strategy is maintaining customer satisfaction
and enhancing shareholder value which is a mutual goal of both Boeing and its suppliers.
To achieve this objective, Boeing has the Boeing Quality Management System
Requirements for Suppliers. The quality management system requirements for Boeing
suppliers are in accordance with ISO sanctioned standards that must be met. The
requirements are broken down by appendix covering requirements for Aviation, Space and
Defense Organizations, aviation maintenance, to software maintenance. Boeing also has
a Recognition of Quality Management System which is accredited certification and
registration.
Boeing has also adopted the Supplier Quality Surveillance (SQS) process as a
proactive approach to improve partnership with suppliers, combine Boeing business
surveillance activities and improve reporting of supplier process health. The SQS process
100
consists of three tools; Product Assessment (PA), Quality Process Assessment (QPA) and
Manufacturing Process Assessment (MPA). These surveillance tools will support Boeing in
the monitoring of suppliers in a planned and scheduled manner without impeding product
delivery. Surveillance activity is determined based on supplier performance and risk to
Boeing. The SQS process will provide valuable opportunity for development and
improvement of supplier's manufacturing, Quality systems and support processes. SQS
does not replace Boeing Quality Management System or Special Process activities,
audits, and recognition or source inspection activities. (Boeing.com)
The Boeing Production System is composed of several elements that work to
ensure an output of the highest-quality cost-effective products in the least amount of time.
The Boeing Production System principles are lean manufacturing, Six Sigma, value
streams, global manufacturing and managing supplier relationships. All elements are
critical to the company's competitiveness.
Advantages (PH)
● Boeing cost saving by outsourcing to specialists for certain value-chain
activities.
● Specialized companies are able to perform the tasks cheaper because they
are able to achieve scale of economies.
● Outsourcing not only lower cost but can also accelerate the timing of
manufacturing the airplanes.
● Strategic outsourcing allows Boeing is able to focus on their core business.
● Supplier Quality Surveillance (SQS) process as a proactive approach to
improve partnership with suppliers.
101
● Outsourcing reduces the risk of error in performing an activity precisely
because a specialist focuses solely on that activity.
● Boeing has Quality Management System Requirements for Suppliers.
There are certainly risks to outsourcing. A company can become too dependent
upon the specialist provider of an outsourced activity. The specialist can use these facts
to increase prices beyond previously agreed upon rate. Boeing then becomes open to
matters and problems that are out of their control. (Hill & Jones p. 332)
Supplier’s problems become the company’s problem. Many of Boeing workers
blamed the repeated Dreamliner delays on a splintered engineering strategy and a
complex of supply chain of about 50 partners. Poor quality of material can caused
significant problems with the Dreamliner 787. Because of the problems, the Dreamliner
was delayed for release for years. (huffingtonpost.com/2011/01/20/a-wing-and-a-prayer-
outso_n_811498.html)
Loss of information could be another risk to outsourcing. Boeing takes the risk of
important information being shared with other companies; therefore the date is not
protected and can be leaked to competitors.
Disadvantages (PH)
● Company can become too dependent upon the specialist provider of an
outsourced activity.
● The specialist can use these facts to increase prices beyond previously
agreed upon rate.
● Boeing then becomes open to matters and problems that are out of their
control.
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● Loss of information could be another risk to outsourcing.
● Boeing takes the risk of important information being shared with other
companies; therefore the date is not protected and can be leaked to
competitors.
● Supplier’s problem with poor quality or material becomes Boeing problem.
● The delay of the 787 Dreamliner was due to the materials from the supplier.
Competitors often respond to change from other competitors by retaliating. Rivals
may notice that outsourcing could be a threat to their own business. Competitors could
lower their prices, offer more incentives, or additional services to make their company
more attractive.
Alternative #2: Innovation (GM)
Another alternative for Boeing to resolve the strategic issue described above is
through innovation. Currently, Boeing’s overall design of the 787 Dreamliner is winning
the race against its top competitor Airbus’ A-380 model. The design of the 787 was aimed
to improve the ultimate customers (passengers) travel experience as well as improve
value for its immediate customers (major airlines). The plane is made of composite
material versus the traditional aluminum used in airplane manufacturing. The composites
allowed for increased humidity and pressure in the cabin giving passengers an
unsurpassed flying experience. It also decreased the weight of the aircraft enabling it to
fly non-stop between city pairs using 20% less fuel.
Boeing had a setback in the 787’s delivery due to overheating lithium-ion batteries
which was a serious design flaw that almost put the entire enterprise in jeopardy. Boeing
quickly found out that the cost-cutting way it went about outsourcing both in and outside
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the U.S. did not include steps to mitigate the risk and get to the root cause of the
overheating lithium-ion batteries on board the 787. Perhaps this is a costly lesson that
had to be learned for the aircraft manufacturing giant in making sure it takes all necessary
steps in introducing innovative products. The company is well aware that in order for it to
remain competitive, it must continue to implement innovative ideas in creating and
designing new and improved airplanes.
To keep up with rapidly increasing technology needs, the FAA is currently
discussing the approval of portable electronic device (PED) use throughout the entire
duration of a flight (FAA.gov). With the implementation of this guideline, one way for
Boeing to be innovative is to install WiFi on board all aircraft and add PEDs in seatbacks
for passenger use. This would be similar to the former Airfone which originated in the
1970’s (Aircell.com). The Airfone was located in the seatback of the seat in front of the
passengers allowing passengers to make in-flight calls. One Airfone was located in each
row in coach and behind every seat in first-class. “Airfone service currently operates on
frequencies adjacent to those utilized by Aircell’s Gogo Biz in-flight Internet service in the
business aviation market as well as Gogo in the commercial airline market. Airfone
service will be permanently decommissioned on December 31, 2013 in order to support
capacity-expansion for the Gogo Biz® in-flight Internet service”. Aircell is an AS9100-
certified company which current serves a global customer base with an authorized
dealer/distributor network spanning six continents. It is the only company that offers three
popular networks technologies--Iridium Satellite, Inmarsat Swift Broadband and Gogo Biz.
The company provides advice and solutions addressing customer needs, aircraft type and
104
geography (Airfone Transition). Boeing can partner with Aircell on making this innovative
idea a reality.
Boeing is committed to successfully delivering innovative products and services
efficiently and effectively, and this is an example of an innovative way for Boeing to stay
ahead of its competition and gain market share in countries such as China, Japan, and
Russia. While commercial aviation has incurred some downturns, recovery has returned
to a long-term growth rate of approximately 5 percent per year. In 2012, airline traffic
increased 5.3 percent from 2011. Boeing expects this trend to continue over the next 20
years at a growth of 5.0 percent annually worldwide. An expansion in emerging foreign
markets will create a need for fast and efficient transport of goods estimating an increase
in air cargo of 5.0 percent annually through 2032. Based on these statistics, Boeing
forecasts a long-term demand for 35,280 new airplanes valued at $4.8 trillion, and 14,350
these new airplanes will replace older, less efficient aircraft. Boeing will remain innovative
by continuing to produce efficient aircraft which will reduce the cost of air travel and
decrease carbon emissions. The remaining 20,930 airplanes will assist in stimulating
expansion in emerging markets such as China, and other low-cost carriers worldwide.
105
(http://www.boeing.com/boeing/commercial/cmo/)
Advantages (GM)
● Environmentally and economically conscious
● Committed to delivering quality and safe products
● Provide training and top-notch after sales maintenance and 24/7 technical
support
● Collaborate with domestic and international forces for mutual technological
benefits
● Large facilities allow for multiple aircrafts to be assembled at once
● Production and Delivery are not outsourced allowing for cost saving
● In-house design and right-sized equipment
● Use of state-of-the-art material
● Shifting software programming work overseas to India and other countries
● Adopting new technologies to innovate bigger and better aircrafts
● Using carbon fiber reinforced plastic for fuselage and wing structures
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● New designed aerodynamic body and wide use of composites
● The need to replace aging and less fuel-efficient planes to address rising fuel
prices
● Use of electronics onboard the aircraft (WiFi)
● Going Green/Eco-friendly; composite use
● Fuel efficiency and noise reduction techniques
● Advanced internal communications system (AHM).
● Use of electronic software and data distribution (ESDD) for transmitting data
securely and confidentially
Disadvantages (GM)
● Parts come from overseas suppliers overseas in Italy and Japan so backlog
is possible
● Minimal plants in the United States deliver the same finished planes so if
delays happen orders may not be met
● Serious design flaw in 787 lithium-ion battery
● If customer demand is low, production will slow and could shut down
● Constant need to pay to operate Dreamliner’s to transport parts
● JAL entered a deal with Boeing’s top competitor
● Not able to get orders completed and ship to customers sooner than
competitors.
● Outsourcing problems for wings and fuselage (787 Dreamliner)
● Poor communication and distance with suppliers
● Do not charge customers for excess parts on hand
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● Average employee is 49 and up; need to replace retiring engineers with
properly trained technicians to troubleshoot and maintain airplanes
● Increase in raw materials
● Weakness in job markets
● High unemployment
● Sluggish global economy
● Energy prices
Currently, the real competition is between the two main global competitors Boeing
and Airbus, and neither company are likely to walk away from the commercial aircraft
industry because it accounts for almost half of their revenues. Both companies believe
that their ability to compete in the narrow-body segment will be critical to the creation of a
successful domestic aerospace industry which, in turn, will be attractive to the global
market. It is natural to expect retaliation from competitors to try to obtain market share,
and this is likely to happen during times of slow growth. However, the commercial airplane
industry is well-established and any new entrant would have a difficult time penetrating this
industry, along with the capital investment that is involved.
Recommendation and Justification (MP)
The most feasible alternative based upon our objective and subjective analysis of
the pros and cons associated with each alternative for the strategic issue is innovation.
Innovation is the most feasible alternative for many reasons.
First, innovation is ongoing, and companies like Boeing and others need to stay
innovated not only to stay afloat and survive in their industry, but also to beat out their
competitor. Innovation comes with strategic thinking throughout Boeing's management .
108
From the first plane they ever built, to their advancements in planes, from aerodynamics to
fuel efficiency, and safety.
Boeing wants to make sure they build their aircraft right the first time and they also
make sure that quality is the essence to safety. They want to ensure that all passengers
are as safe as possible in case there was an emergency. This is why innovation includes
quality in everything they do from the premium seating, and the premium parts they use to
ensure customer and passenger satisfaction.
Boeing aims to please their customers. Boeing implements better technology and
more reliable safety measures. That is why there is more brand loyalty to Boeing than
Airbus or any other outsource aircraft company trying to steal away Boeing's customers or
any potential new customers. The other alternative is Strategic Outsourcing. Strategic
Outsourcing is beneficial for Boeing but there are more risks for outsourcing than
innovation. This is because of the potential risks of outsourcing which is explain in the next
paragraph.
Strategic Outsourcing isn't the most feasible alternative even though the advantage
of cost savings and the fact that Boeing can focus on more of their internal business rather
than the external. This is because Strategic Outsourcing can give Boeing suppliers more
control over the company as well as delays of planes such as the 787 Dream liner that
was supposed to be ready for China and was delayed because the outsourcers' didn't
communicate with Boeing as much as they should of and they didn't have all the supplies
they needed to build the plane.
Innovation is the most feasible alternative but still faces struggles due to the
sluggish global economy, and the high unemployment rates. These are some of the
109
reasons why innovation can be harder to implement, but also can work for Boeing's
advantage since they can innovate different aircraft that can accommodate different
classes of people. An example would be, Apple’s iPhone C, which attracts customers who
can afford an iPhone for a lower cost versus going with the premium iPhone 5S.
Future Vision (MV)
In the next five years, the aerospace and defense industry will face some
challenges in both sectors. In the defense sector, the challenge will be to deal with the
United States government budget cuts in defense spending. It is expected that over the
next ten years the sequestration will cut around $1 trillion dollars from the defense budget.
However, according to Zacks Investment Research, an increase in foreign market sales
from India, Japan, the United Arab Emirates, Saudi Arabia and Brazil will keep the industry
competitive. These countries are boosting their defense spending and will generate
business for U.S. aerospace and defense companies. The defense segment will introduce
technology that will transform the industry. Science and technology currently being
developed include directed energy and high powered microwave weapons, hyper-sonic
missiles, long-range, and high-altitude unmanned aerial systems, satellite-based high
resolution full motion video cameras, and extraordinary software that can trace financial
transactions of known terrorists. (Deloitte.com)
On the commercial aerospace sector, demand is expected to increase both
domestically and internationally. The increase will be due to technological innovations, big
contracts, and acquisitions. (Zacks.com) As many expect, technological innovations will
be a key competitive advantage in the market. In the 2013 Global Manufacturing Industry
Outlook Report on aerospace and defense, it mentions that aerospace and defense
110
companies are experimenting with technology that can harvest solar power from space-
based solar arrays, converted to microwaves, or high voltage wireless signals, to ground,
air, and sea-based distribution networks. With a greater push for a greener environmental
footprint, companies are looking for new ways to harness natural resources. Big contracts
are also expected due to the U.S. Federal Aviation Administration (FAA) predicting that
demand for travel will double over the next 20 years. The FAA believes air traffic
domestically will increase at an average annual rate of 2.8% while internationally it will
increase at a higher rate of 4% per year. (Zacks.com) The increased demand for travel
will cause an increase in demand for aircraft manufacturing. The industry will see a
greater demand for aircrafts that are lighter, fuel efficient, have increased passenger
seating, and allow for ease in use of technology.
According to Zacks Investment Research, currently the aerospace and defense
industry is ranked 69th out of 260 industries. This puts the industry in a positive zone
which will allow for the industry to continue contributing to the economy and provide vital
national security. However, the industry can expect to be challenged with the threat of
emerging foreign competition, changes in technology, economic conditions, and global
policies affecting defense and commercial aviation. Another factor that can affect the
industry would be a delay in the processing orders. This can hurt profitability, lead to
delays and/or cancellation of orders. The industry can expect to thrive as long as the
aerospace and defense companies continue to be diversified, have solid earnings,
progress with technological innovation, and implement cost-cutting measures.
In the next five years, Boeing will continue to be a dominate force in the aerospace
and defense industry. Significant growth for the company will come from foreign markets,
111
mainly China. In a recent press release, Boeing projects a demand for 5,580 new
airplanes will come from China over the next 20 years. The estimated value would be
$780 billion. With strong economic growth projected for China, air travel is expected to
increase 7% percent annually. This makes China a key market for many in the aerospace
and defense industry. Currently, Boeing aircrafts make up more than 50% of all
commercial aircrafts operating in China. The Chinese market accounts for 16% of the total
demand (new deliveries and market value). Worldwide, Boeing projects 35,000 new
commercial aircrafts will be delivered over the next 20 years with a value of $4.8 trillion.
(Boeing.com)
New Airplane Deliveries to China: 2013-2032
Airplane type Seats Total deliveries Dollar value
Regional jets 90 and below 240 $10B
Single-aisle 90-230 3,900 $370B
Small wide-body 200-300 730 $170B
Medium wide-body 300-400 610 $200B
Large wide-body 400 and above 100 $30B
Total 5,580
(16% of world
total)
$780B
(16% of world
total)
112
Boeing is committed to investing in producing a product that is ahead of the
competition. With the next generation of 737 and new 737MAX which offers significant
improvements in fuel efficiency, maintenance costs, and enhanced environmental
performance are why Boeing aircrafts will continue to sell and why Boeing is a dominate
force in the industry. As long-haul international traffic increases, Boeing’s fuel-efficient
widebodies, the 787 Dreamliner, 777, and 747-8 Intercontinental will be in high demand.
The increasingly aging fleet of many airlines will also require replacements and Boeing
predicts that 14,350 will replace less efficient aircrafts which will reduce the cost of air
travel and decrease carbon emissions. (Boeing.com)
A major challenge for Boeing will be its competitors. Currently, Airbus is neck and
neck with Boeing and is fighting for a larger market share. However, in May of 2013,
Boeing CEO said the lessons they learned from the plastic-composite 787 have helped
them build a five-year advantage over Airbus SAS in twin-aisle jets. Boeing is certain that
Airbus cannot compete with airframe on the 777X. The 777X will have two versions, one
made with wings of lighter-weight composite plastic and a more efficient engine which will
compete with Airbus’ A350-1000. In addition, Boeing is creating a larger version of the
Dreamliner called the -10 and is increasing production to trim backlog. This will create a
boost in cash earnings which will increase stock prices. (Bloomberg.com) In addition to
Airbus, Boeing faces competition from emerging foreign competitors. China, Japan, and
Russia are all entering the aircraft manufacturing industry which will make holding on to its
large market share challenging.
Boeing will stay strong and continue to invest heavily in research and development
in order to stay on top of the latest innovation customers want. They will be to find new
113
ways to be environmentally responsible. Finally, Boeing will dominate the foreign market
because of the quality and innovative aircraft they produce. One major indicator is China’s
largest airline, Xiamen, continues to believe in the Boeing product making Brand loyalty a
key factor in Boeing growth. (Air-cosmos.com)
114
Appendix
Ratio Calculations:
Boeing Co., Current Ratio
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)Current Assets 35,275 40,572 49,810 57,309Current Liabilities 32,883 35,395 41,274 44,982
Current Ratio, Comparison to IndustryBoeing Co. 1.07 1.15 1.21 1.27Industry 1.23 1.31 1.24 1.28
Calculations: Current Ratio = Current Assets ÷ Current Liabilities
Boeing Co., Quick Ratio
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)Current Assets 35,275 40,572 49,810 57,309
Inventory 16,933 24,317 32,240 37,751
Current Liabilities 32,883 35,395 41,274 44,982
Quick Ratio, Comparison to IndustryBoeing Co. 0.56 0.46 0.43 0.43Industry 0.77 0.82 0.71 0.74
Calculations: Quick Ratio = Current Assets - Inventory ÷ Current Liabilities
115
Boeing Co., Debt to Asset Ratio
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Financial Data (in millions)Short-term debt and current portion of long-term debt
707
948
2,353
1,436
Long-term debt, excluding current portion
12,217
11,473
10,018
8,973
Total Debt 12,92
4 12,42
1 12,37
1 10,40
9
Shareholders’ Equity 2,12
8 2,76
6 3,51
5 5,86
7
Total Capital 15,05
2 15,18
7 15,88
6 16,27
6
Debt to Capital, Comparison to Industry
Boeing Co. 0.86 0.82 0.78 0.64
Industry 0.34 0.31 0.32 0.35
Calculations: Debt to Asset (Capital) = Total Debt ÷ Total Capital
Boeing Co., Debt to Equity Ratio
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)
Short-term debt and current portion of long-term debt
707
948
2,353
1,436
Long-term debt, excluding current portion
12,217
11,473
10,018
8,973
Total Debt 12,92
4 12,42
1 12,37
1 10,40
9
Shareholders’ Equity 2,12
8 2,76
6 3,51
5 5,86
7
Debt to Equity Ratio, Comparison to IndustryBoeing Co. 6.07 4.49 3.52 1.77
Industry 0.51 0.46 0.47 0.55
Calculations: Debt to equity = Total debt ÷ Shareholders’ equity
116
Boeing Co., Inventory Turnover
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)
Revenues 68,28
1 64,30
6 68,73
5 81,69
8
Inventory 16,93
3 24,31
7 32,24
0 37,75
1
Inventory Turnover, Comparison to IndustryBoeing Co. 4.03 2.64 2.13 2.16Industry 7.32 6.46 5.84 5.61
Calculations: Inventory Turnover = Revenues ÷ Inventory
Boeing Co., Days Sales Outstanding
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)Accounts Receivable 5785 5422 5793 5608Total Sales 68,281 64,306 68,735 81,698
Days Sales Outstanding, Comparison to IndustryBoeing Co. 31 31 31 25Industry 53 56 56 54
Calculations: Days Sales Outstanding = Accounts Receivable ÷ (Total Sales ÷ 365)
Boeing Co., Return on Total Assets
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)Net Income 1,312 3,307 4,018 3,900Total Assets 62,053 68,565 79,986 88,896
Return on Total Assets, Comparison to IndustryBoeing Co. 2.11% 4.82% 5.02% 4.39%Industry 4.93% 6.06% 7.06% 6.01%
Calculations: Return on Total Assets = Net Income ÷ Total Assets
117
Boeing Co., Return on Equity
Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012Financial Data (in millions)Net Income 1,312 3,307 4,018 3,900Total Equity 2,225 2,862 3,608 5,967Total Debt
Return on Equity, Comparison to IndustryBoeing Co. 58.97% 115.55% 111.36% 65.36%Industry 13.77% 16.81% 20.24% 17.58%
Calculations: Return on Equity = Net Income ÷ Total Equity
118
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