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Boeing Case Study

November 15, 2011

Abstract
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Boeing is one of the world’s largest aerospace firms. It manufactures airliners for

commercial and military segments. The company is based in Washington State. It

just opened a new manufacturing facility in South Carolina. Boeing is best known

for the 747 jetliner. They have large contracts with different airlines as well as the

U.S. government. Over the years, Boeing has been plagued with many labor,

manufacturing, and supply problems. Their latest problems are with the 787

Dreamliner. Boeing is outsourcing a lot more its processes. It has worked with

Japanese automakers to improve its production process. Airbus is Boeing’s main

competition. Both compete in the same market segments. The SWOT analysis

looks at Boeing’s processes and strategies.

Boeing
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The Boeing Company, together with its subsidiaries is one of the world’s major

aerospace firms. The company is organized based on the products and services it

offers. Boeing has five principle segments:

• Commercial Airplanes,

• Boeing Defense, Space, & Security (BDS) consists of three segments:

 Boeing Military Aircraft (BMA)
 Network & Space Systems (N&SS)
 Global Services & Support (GS&S)

• Boeing Capital Corporation

• Engineering, Operations & Technology (EO&T): provides Boeing with technical

and functional capabilities, including information technology, research and
development, test and evaluation, technology strategy development,
environmental remediation management and intellectual property
management

• Shared Services Group (SSG)

The Boeing Company was established in 1916 by William Boeing. It is the

largest manufacturer of commercial jetliners and military aircraft combined. It

designs, develops, manufacturers, sales and supports commercial jetliners, military

aircraft, satellites, missile defense, space flight, and launch systems and services. It

is a major service provider to NASA and operates the Space Shuttle and

International Space Station. Boeing provides products and support services to

customers in 150 countries. It is one of the largest US exporters in terms of sales.

Boeing’s large scale of operation and market penetration gives it substantial

bargaining power. Boeing is headquartered in Chicago and employs more than

165,000 people worldwide. Boeing’s vision is: “People working together as a global

enterprise for aerospace leadership.” Boeing plans to achieve their vision by

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running “healthy core businesses,” leveraging their “strengths into new products

and services,” and opening “new frontiers” (“About us,” 2011).

To realize their vision, Boeing considers “where they are today and where they

would like to be tomorrow.” They emphasize “detailed customer knowledge and

focus that understands, anticipates and responds to customer needs, large-scale

systems integration that continually develops and advances technical excellence,

[and] a lean enterprise characterized by efficiency, supplier management, short

cycle times, high quality, and low transaction costs” (“About us,” 2011).

Boeing is organized into two business units: Boeing Commercial Airplanes and

Boeing Defense, Space & Security. Supporting these units are Boeing Capital

Corporation, a global provider of financing solutions; the Shared Services Group,

which provides a broad range of services to Boeing worldwide; and Boeing

Engineering, Operations & Technology, which helps develop, acquire, apply and

protect innovative technologies and processes (“About us,” 2011).

The company merged with McDonnell Douglas (competitor) in 1997. Today, the

main commercial products are the 737, 747, 767, 777, and the Boeing Business Jet.

Boeing‘s new product development efforts are focused on the Boeing 787

Dreamliner, and the 747-8. Boeing has nearly 12,000 commercial jetliners in

service worldwide, which is about 75 percent of the world fleet. Boeing’s

Commercial Aviation Services provides 24/7 technical support and a full range of

engineering, modification, logistics and information services to its global customer

base, which includes passenger and cargo airlines, as well as maintenance, repair

and overhaul facilities. Boeing also trains maintenance and flight crews in the 100-

seat-and-above airliner market through Boeing Training & Flight Services, the
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world's largest and most comprehensive provider of airline training (“About us,”

2011).

2010 Financial Results

Boeing recorded revenues of $64.3 billion during the financial year ended

December 2010 (FY 2010). Revenues for the year were down 6 percent from 2009

due to anticipated lower airplane deliveries and reduced defense volumes. Net

income (earnings) increased to $3.3 billion or $4.46 earnings per share (EPS)

compared with $1.3 billion or $1.87 EPS in 2009 reflecting solid performance across

core production and services programs. Boeing captured $69 billion of new orders

during the year and grew its backlog to $321 billion—five times current annual

revenues. It continued to provide strong liquidity with operating cash flow of $3.0

billion, and cash and marketable securities of $10.5 billion (The Boeing Company,”

2011).

Boeing delivered 462 commercial airplanes, including record 737 deliveries for

the second year in a row, and won 530 net orders, increasing its backlog to 3,443

airplanes valued at $256 billion. It delivered 115 production military aircraft, two

launch vehicles and four satellites, and increased backlog at Defense, Space &

Security to $65 billion, and more than twice the business unit’s 2010 revenue. The

company delivered the 900th 777 and started assembly of the 1,000th 767. In

addition, it extended core Defense, Space & Security programs, including contract

awards for 124 F/A-18E/F Super Hornet and EA-18G Growler aircraft for the U.S.

Navy; low-rate initial production of up to 51 AH-64D Apache Block III helicopters for

the U.S. Army; and six new commercial satellite orders. It Achieved key Defense,

Space & Security milestones, including delivery of the first P-8A Poseidon for flight

testing; unveiling of two unmanned aircraft—the fighter-sized Phantom Ray and the
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hydrogen-powered Phantom Eye—in preparation for flight testing in 2011; first flight

of the UK Mk4 Chinook rotorcraft; and winning the coveted Collier Award for the

International Space Station. The company advanced their environmental leadership

by testing biofuels on commercial and military aircraft; creating sustainable aviation

biofuels research projects around the globe; demonstrating next-generation energy

smart grid technologies; improving the global air traffic control system; and

continuing to reduce the environmental footprint of Boeing operations (The Boeing

company,” 2011).

SWOT

Favorable Unfavorable

Internal Strengths: Weaknesses:

• Large scale operation and • Production/supply problems

strong global network • Labor/legal proceedings

• Strong association with • Dependence on US

Federal Government government

• Robust inorganic growth

• Focus on R&D

• Strong order backlog

• Strong financial performance

• Realignment for growth and

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expansion to new markets

• Diversified business offerings

External Opportunities: Threats:

• Increased aircraft demand • Intense competition and

• Rising global defense pricing pressure

spending • Risks concerning labor issues

• 787 Dreamliner to gain • Uncertain airline industry

market share • Rising fuel costs

• Change in US budgetary

priorities and contracts

Strengths

Large scale operation and strong global network

Boeing is one of two major manufacturers, equipped to produce aircraft capable

of carrying more than 100 passengers for the worldwide commercial airline

industry, and the second-largest defense contractor in the US. Boeing is one of the

leading producers of commercial aircraft and offers a broad spectrum of commercial

jetliners designed to meet passenger and cargo requirements of both the US and
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non-US airlines. The company has customers in more than 150 countries around the

world and is one of the largest US exporters in terms of sales. It is the global

market leader in design, development, manufacture, sale and support of

commercial jetliners, military aircraft, satellites, missile defense, human space flight

and launch systems and services. Boeing’s large scale of operation and market

penetration gives it substantial bargaining power (“About us,” 2011; “Boeing

SWOT,” 2009).

Strong association with Federal Government

Boeing has worked with the Federal Government for over 30 years. It’s Defense,

Space & Security is a $32 billion business with 64,000 employees worldwide that

combines manned and unmanned airborne capabilities, intelligence and security

systems, communications architectures and extensive large-scale integration

expertise across several diverse business areas. Boeing’s Defense, Space &

Security strategy is to understand the enduring needs of customers and provide

capability-based solutions to meet their rapidly evolving requirements. The strategy

includes understanding the art of using current and emerging technologies to

improve the capabilities of existing products and deliver new solutions (“About us,”

2011; “Boeing SWOT,” 2009; Hill & Jones, 2009, C1-C15).

Boeing’s military aircraft business includes tactical and airlift aircraft, missiles,

unmanned airborne systems, and surveillance and engagement programs. FY2008,

Boeing’s contracts with the US government accounted for 46% of its total revenues.

The company deals with numerous US government agencies and entities, NASA,

and the Department of Homeland Security. Boeing’s IDS (integrated defense

systems) segment provides various research, development, production,

modification and support services to the US Department of Defense (80% of IDS

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2008 revenues), NASA and other defense customers. Boeing also engineered and

deployed various products for the Army, Navy and Air Force and tests complex and

mission critical hardware and software systems used by these agencies. The

company played key roles in improving the performance, reliability, maintainability,

supportability, and weapons effectiveness. The company has received significant

contracts from these customers. Most recently, Boeing received a $48.9 million

contract from the US Navy in May 2009, for development and testing of a

Distributed Targeting system for the F/A-18E/F Super Hornet strike fighter. In June

2009, Boeing received A-10 sustainment and integration contract from the US Air

Force. In the same month, the company also received a $5.2 million US Marine

Corps contract to provide a solution for recovering disabled Mine Resistant Ambush

Protected vehicles. In June 2009, Boeing received a contract from the US Army for

future combat systems. Strong relationships with major customers enable the

company to receive many new contracts and hence serve as a competitive

advantage (“About us,” 2011; “Boeing SWOT 2009; Hill & Jones, 2009, C1-C15).

Robust inorganic growth

Boeing focuses on acquisitions as a business-level strategy to expand its

business and to earn more revenues. In FY 2009, the company acquired Vought

Aircraft Industries 787 business conducted at North Charleston, South Carolina.

Vought’s 787 business produces fuselage sections, including the fabrication,

assembly and systems installation, for the 787 program. The acquisition

strengthens Boeing’s 787 program and bolsters its capability to develop and

produce large composite structures (“Boeing SWOT,” 2010).

In FY 2009, Boeing also acquired eXMeritus, a Fairfax Virginia based company

that provides hardware and software to the federal government and law
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enforcement organizations, for sharing information securely, across classified and

unclassified networks and systems. The acquisition of eXMeritus complements FY

2008 acquisitions of Digital Receiver Technology Ravenwing and Kestrel

Enterprises. These acquisitions are part of Boeing’s global-level strategy to expand

its presence in the cyber and intelligence markets. The addition of exMeritus

enhances Boeing capabilities developed through years of experience on secure

networks for some of the most complex systems in national security (“Boeing

SWOT,” 2010).

In addition, during FY 2009 Boeing acquired Alenia North America’s half of Global

Aeronautica, a South Caroling fuselage subassembly facility for Boeing’s 787

Dreamliner. Alenia North America is a subsidiary of Italy’s Alenia Aeronautica, a

Finmeccanica company. This acquisition increases productivity for the 787 program

and allows Boeing to maintain its long-term competitiveness. Therefore,

acquisitions bring complementary technologies, support geographic expansion, and

leverage existing infrastructure for Boeing (“Boeing SWOT,” 2010).

Strong focus on research and development

Boeing’s strategy also has a strong focus on R&D activities. Its 'other' business

segment principally includes the engineering, operations and technology (EO&T)

activities. EO&T is an advanced research and development organization focused on

innovative technologies, improved processes and the creation of new products.

R&D expenditures involve experimentation, design, development and related test

activities for defense systems, new and derivative jet aircrafts, including both

commercial and military, advanced space and other company-sponsored product

developments. The company’s R&D investment amounted to $6,506 million,

$3,768 million and $3,850 million in FY 2009, FY 2008, and FY 2007 respectively.
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The Boeing military aircraft division continues to focus on R&D resources to

leverage customer knowledge, technical expertise and system integration of

manned and unmanned systems that provide innovative solutions to meet the

warfighter’s enduring needs. The network and space systems division of Boeing is

investing in capabilities to enhance connectivity between existing and new

air/ground and maritime platforms; to increase communications availability, utility

and bandwidth through more robust space systems; and to leverage innovative

networking and ISR (intelligence, surveillance, and reconnaissance) concepts.

Investments were also made to develop concepts and capabilities related to cyber

and security products, as well as the development of next-generation space and

intelligence systems. Boeing’s global services and support (GS&S) continues to

focus investment strategies on its core businesses. Successful development of

adaptable systems has allowed GS&S to transition from Boeing platforms into the

broader aviation market. Strong focus on R&D allows Boeing to develop proprietary

products, strengthen its product portfolio, and have an advantage over its

competitors (“Boeing SWOT,” 2010).

Strong order backlog

As of June 30, 2011, the order backlog for Boeing Commercial Airplanes totaled

3,392. Unfilled orders broken down by aircraft type were as follows: 2,109 for the

737, 111 for the 747, 54 for the 767, 291 for the 777, and 827 for the 787. The

backlog at the end of June 2011 represents a decrease from the backlog at the end

of the previous month (May), which totaled 3,396. Both figures are decreases

compared to the company's year-end-2010 order backlog of 3,443 ("Boeing reports

second-quarter," 2011).
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Strong financial performance

The Boeing Company (NYSE: BA) reported second-quarter net income of $0.9

billion, or $1.25 per share, on revenue of $16.5 billion. Operating margin of 9.3

percent reflects higher Commercial Airplanes volume and strong core performance

across the company's businesses, partially offset by higher pension expense. The

company increased its 2011 earnings per share guidance to between $3.90 and

$4.10 per share reflecting the strong core performance. Total company 2011

revenue and cash flow guidance is unchanged. Boeing's quarterly operating cash

flow was $1.6 billion, reflecting strong operating performance and continued

investment in development programs. Cash and investments in marketable

securities totaled $8.8 billion at quarter-end, up from $7.8 billion at the beginning of

the quarter. Debt was essentially unchanged in the quarter. Capital expenditures

for 2011 have been reduced to approximately $2.0 billion, down from approximately

$2.3 billion ("Boeing reports second-quarter," 2011).

Boeing Commercial Airplanes second-quarter revenue increased by 19 percent

to $8.8 billion on higher deliveries, improved model mix and higher services

volume. Operating margin was 10.4 percent, reflecting the higher revenue and

strong operating performance, partially offset by higher R&D ("Boeing reports

second-quarter," 2011).

Boeing Defense, Space & Security's second-quarter revenue was $7.7 billion,

while operating margin was 10.4 percent. Boeing Military Aircraft (BMA) second-

quarter revenue was $3.6 billion. Operating margin was 10.6 percent, reflecting

strong operating performance. Last year's results were impacted by a charge on

the Airborne Early Warning & Control program. During the quarter, India signed an

agreement for ten C-17s, which are expected to be on contract later this year, and
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BMA was awarded the U.S. Navy's study contract for the Unmanned Carrier-

Launched Airborne Surveillance and Strike Program ("Boeing reports second-

quarter," 2011).

Network & Space Systems (N&SS) second-quarter revenue decreased to $2.1

billion, due to funding reductions in Brigade Combat Team Modernization and lower

SBInet volume. Operating margin was 9.5 percent, reflecting United Launch

Alliance performance and a gain on the sale of property. Global Services & Support

(GS&S) second-quarter revenue was $2.0 billion. Operating margin was 10.9

percent, reflecting strong performance in integrated logistics. During the quarter,

GS&S was awarded modernization and upgrade contracts from the U.S. Air Force

("Boeing reports second-quarter," 2011).

Realignment for growth and expansion to new markets

The company focuses on realignment, which is part of a continuing effort to

successfully compete in a rapidly evolving global defense and security marketplace.

From January 2010, Boeing’s integrated defense systems business unit began

operating under the name Boeing defense, space and security (BDS). While BDS

will retain its current operating divisions (Boeing military aircraft, network and

space systems, and global services and support), the realignment consolidates

some businesses. Boeing consolidated two businesses in network and space

systems division, the combat systems business and the command, control and

communications networks business. These businesses will be unified as the new

network and tactical systems business (“Boeing SWOT,” 2010).

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BDS operations principally involve research, development, production,

modification and support of global strike systems, global mobility systems,

rotorcraft systems, airborne surveillance and reconnaissance aircraft, network and

tactical systems intelligence and security systems, missile defense systems, and

space and intelligence systems. Boeing anticipated flattening defense budgets and

shifting customer priorities for the past few years and has been taking aggressive

steps to position the company for profitable growth in a challenging economy. With

the latest strategic move, the company extends its core programs even as it

enhances its capabilities designed to capture business in promising markets in the

US and around the world (“Boeing SWOT,” 2010).

BDS provides affordable solutions and brings value to customers through its

ability to solve complex problems utilizing expertise in large-scale systems

integration, knowledge of legacy platforms, and development of common network-

enabled solutions across all customers’ domains. Therefore, realignment positions

Boeing for further growth in new and adjacent markets while continuing to serve

existing defense and space customers (“Boeing SWOT,” 2010).

Diversified business offerings

Boeing is the largest aircraft manufacturer globally and delivers aircraft to a

large number of developed and developing countries. Its rank as defense

contractor with different countries is second. The designs of Boeing’s aircrafts are

efficient. There is no fault in its designs. Its production system is also very

efficient. It also has the strength of product diversification. It not only

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manufactures commercial aircraft but also manufacture aerospace and defense

aircrafts (“About us,” 2011; “Boeing SWOT,” 2009; Hill & Jones, 2009, C1-C15).

Boeing has been a manufacturer of commercial jetliners for more than 40 years.

Boeing merged with McDonnell Douglas in 1997 adding to its existing commercial

aviation product line. Today, the main commercial products are the 737, 747, 767

and 777 families of airplanes and the Boeing Business Jet. New product

development efforts are focused on the Boeing 787 Dreamliner, and the 747-8. The

company has nearly 12,000 commercial jetliners in service worldwide, which is

roughly 75 percent of the world fleet. Through Boeing Commercial Aviation

Services, the company provides around-the-clock technical support to help

operators maintain their airplanes in peak operating condition. Commercial Aviation

Services offers a full range of world-class engineering, modification, logistics and

information services to its global customer base, which includes the world's

passenger and cargo airlines, as well as maintenance, repair and overhaul facilities.

Boeing also trains maintenance and flight crews in the 100-seat-and-above airliner

market through Boeing Training & Flight Services, the world's largest and most

comprehensive provider of airline training ("Boeing: Boeing in," 2011).

Boeing Defense, Space & Security (BDS) provides end-to-end services for large-

scale systems that enhance air-, land-, sea- and space-based platforms for global

military, government and commercial customers. BDS designs, produces, modifies,

and supports fighters, bombers, transports, rotorcraft, aerial refuelers, missiles,

munitions and spacecraft for military, civil and commercial use. Boeing Capital

Corporation is a global provider of financing solutions. Working closely with

Commercial Airplanes and Defense, Space & Security, Boeing Capital Corporation
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arranges, structures and provides financing to facilitate the sale and delivery of

Boeing commercial and military products ("Boeing: Boeing in," 2011).

Realignment for growth and expansion to new markets

The company focuses on realignment, which is part of a continuing to

successfully compete in a rapidly evolving global defense and security marketplace.

From January 2010, Boeing’s integrated defense systems business unit began

operating under the name Boeing defense, space and security (BDS). While BDS

will retain its current operating divisions (Boeing military aircraft, network and

space systems, and global services and support), the realignment consolidates

some businesses. Boeing consolidated two businesses in network and space

systems division, the combat systems business and the command, control and

communications networks business. These businesses will be unified as the new

network and tactical systems business. Boeing anticipated flattening defense

budgets and shifting customer priorities for the past few years and has been taking

aggressive steps to position the company for profitable growth in a challenging

economy. With the latest strategic move, the company extends its core programs

and enhances its capabilities designed to capture business in promising markets in

the US and around the world. BDS provides affordable solutions and brings value to

customers through its ability to solve complex problems utilizing expertise in large-

scale systems integration, knowledge of legacy platforms, and development of

common network-enabled solutions across all customers’ domains. Therefore,

realignment positions Boeing for further growth in new and adjacent markets while

continuing to serve existing defense and space customers (“Boeing SWOT,” 2010).

Weaknesses
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Production and supply problems

Boeing delivered its first 787 Dreamliner airplane to All Nippon Airways (ANA) in

September 2011, three years later than expected. The 787 is seen as the future of

air travel as well as the future of Boeing. It is a sophisticated carbon-composite

aircraft. However, the 787 has been plagued by problems of delay and quality

control in the company’s complex global supply chain and costs more than $32

billion, over double the usual development of a new airliner. Boeing experienced

problems with the availability of the new Rolls Royce Trent 100 engine. In August

2011, during a test near the Boeing facility in Seattle, a Rolls Royce engine blew

apart and caused severe damage to the testing facility. Consequently, the facility

had to be shut down for repairs. Officials at Boeing and Rolls Royce deny that the

delays with the Rolls Royce engine are due to the explosion (Logan, 2011; Reed,

2010).

Engineers have also had difficulties trying to remedy issues with a horizontal

stabilizer on the airplane's tail made by a subcontractor in Italy. In addition, there

were problems with the GEnx engine powering some of the 787s. There were other

problems with the design, supply chain and manufacturing such as a shortage of

fasteners. Boeing controls production of composites through a closely monitored

supply chain. Carbon fiber composites come from Toray Industries, which has been

rapidly ramping up capacity. Assembly of the composite components requires a

large number of high-quality, lightweight fasteners from suppliers such as Carpenter

Technology, Alcoa Fastening Systems and Allegheny Technologies (ATI). The 787

uses eight times more titanium fasteners by weight than the 737. Demand is

stronger right now for the premium fasteners used to build aircraft engines.

Aircraft fastener supplies have been negatively affected in the last three years by
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speculation in the supply chain. Some distributors bet on strong demand for the

Dreamliner in 2008 through 2010 and were burned when production was postponed

multiple times. As a result there was a supply overhang that made it difficult for

OEM suppliers to operate consistently. Instead of drawing primarily from its

traditional pool of aircraft engineers, mechanics and laborers in the Seattle area,

Boeing uses an international team of suppliers and engineers from the United

States, Japan, Italy, Australia, France and elsewhere that manufacturer Boeing

components. The repeated Dreamliner delays result from a splintered engineering

strategy and a complex supply chain of about 50 partners (Smock, 2011).

According to Bernstein Research, Boeing will not reach target goals for its 787

production of 10 planes per year until 2015. Boeing lowered its outlook due to

concerns over additional delays from eight 787s down to six this year and 51 (from

61) for 2012. Boeing had planned to reach 10 planes per month by the end of 2013

(Thomas, 2011).

Labor/legal problems

Boeing has been plagued with legal problems in the past. Its recent problems

involve a new Boeing plant in South Carolina. Boeing opened a new $750 million

assembly plant in South Carolina. The National Labor Relations Board (NLRB) is

accusing Boeing of breaking the law when it violated workers’ rights. The

controversy is over Boeing's decision to assemble its fuel-efficient 787 Dreamliner.

The NLRB is charging Boeing with retaliating against workers in Washington State to

punish them for past strikes by building the plant in a right-to-work state where

unions are not as prominent. They filed a complaint against Boeing in April 2011.

Boeing plans on keeping the original Washington state plant open and continue to

send the majority of its 787 Dreamliner business there. Boeing has added more
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than 2,000 jobs there since the 2009 decision to open a second production plant.

Regardless, Boeing remains in the news about government attempts to force

Boeing to place the second final assembly line in Puget Sound, Washington and

close the South Carolina final assembly and delivery facility (Devaney, 2011;

Kesmodel & Trottman, 2011).

In September 2011, the NLRB stated that they obtained documents under

subpoena that demonstrates that Boeing opened its second assembly line in South

Carolina to avoid labor problems, even though Boeing officials considered the

location its highest-risk option. The South Carolina plan is known as “Project

Gemini.” According to the NLRB, documents from 2009 reveal that Boeing

knowingly located the plant in South Carolina to help rebalance an unbalanced and

uncompetitive labor relationship. However, leaders at Boeing made a decision to

place the plant there based on numerous factors including the firm’s need to ensure

a competitive future and insist that the decision is consistent with the law. Boeing’s

objectives in the move were to improve its cost-competitiveness and regain a

reputation among customers for reliable products, deliveries, and support. Boeing

plans to assemble three of the wide-body Dreamliners a month at the South

Carolina plant and seven per month in the Washington plant by 2013 (Devaney,

2011; Kesmodel & Trottman, 2011).

Dependence on US government

According to Boeing’s 2010 Annual Report, the United States Department of

Defense (DoD) is BDS’s primary customer, accounting for 82% of its revenues.

Other significant revenues were derived from the National Aeronautics and Space

Administration (NASA) and international defense markets, civil markets and

commercial satellite markets. BDS consists of three capabilities-driven businesses:

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BMA (Boeing Military Aircraft), N&SS (Network & Space Systems) and GS&S (Global

Services & Support). Reliance on these governmental poses a threat to Boeing

(“The Boeing Company,” 2011).

Any budgetary and spending cuts affect future revenues. While Boeing is

concerned about future cuts, current defense budgets exceed $700 billion for 2010.

Budgets are expected to increase in 2011. After 2011, fiscal policy changes could

drastically alter future earnings in the defense industry. To reduce its dependence

on the U.S. government, BDS has developed several diversification strategies.

Expanding its business overseas is one such strategy. Recently, the Obama

administration has sought Congressional approval for Boeing to sell $60 billion

worth of F-15 jets to Saudi Arabia. Additionally, the company recently delivered

three F-15s to the Republic of Korea. (“Boeing: Boeing delivers,” 2010).

Boeing depends heavily on U.S. government contracts that are subject to unique

risks. In 2010, 43% of its revenues were derived from U.S. government contracts.

In addition to normal business risks, these contracts are subject to risks beyond the

firm’s control. The funding of U.S. government programs is subject to congressional

appropriations. Many of the government programs may last several years and are

funded annually. Changes in military strategy and priorities can affect future

procurement opportunities and existing programs. Long-term government

contracts and related orders are subject to cancellation, delay, or restructure, if

appropriations for subsequent performance periods are not made. The termination

or reduction of funding can result in an adverse effect on Boeing’s earnings, cash

flow, and financial position. The U.S. government can modify, curtail, or terminate

contracts with Boeing without prior notice and at its convenience upon payment for

work done (“The Boeing Company,” 2011).

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In addition, Boeing’s contracts are subject to audits by the U.S. government

agencies for incurred and indirect costs. The company is subject to cost

adjustments if any costs are found to be improperly allocated including refunds.

They are also subject to government inquiries and investigations that could have

adverse effects on their financial condition. Their government business is also

subject to specific procurement regulations and other requirements that increase

Boeing’s performance and compliance costs (“The Boeing Company,” 2011).

Opportunities

Increased demand for aircraft

Air transport throughout the world is constantly changing in response to market

opportunities and challenges. The rise of new airline business models and rapid

growth of air travel in the world’s emerging economies are stabilizing worldwide

demand for airplanes. The emerging markets are driving economic expansion, with

China leading the way at 7.2% GDP growth, followed by Southwest Asia (6.1%),

Africa (4.9%), Southeast Asia (4.6%) and Asia-Pacific (4.4%). The global GDP is at

3.1% and North America is set at 2.1%. This translates into world average air travel

growth of 4.9%, of which Asia-Pacific, including China, will experience growth in air

travel of 6.9%. At a global level, the number of airplanes in the world fleet grows at

an average 3.2% each year. At the same time, passenger traffic, measured in

revenue passenger-kilometer, grows 4.9% per year and cargo traffic, measured in

revenue tonne-kilometers, grows 5.4% a year (“Boeing SWOT,” 2010).

According to Boeings’ Current Market Outlook for the period 2009-2028, the

demand for new airplanes worldwide is expected to be 29,000 over the next two

decades, of which 2,100 will be regional jets (less than 100 seats), 19,460 will be

single-isles, 6,700 will be twin-aisle, and 740 will be large. All this translates into
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revenues of $3.2 trillion over a score of years, for an average of $160 billion/annum.

Boeing is well positioned both geographically and technically to service the huge

aircraft market in the future. The growing demand for aircraft represents an

opportunity for Boeing to capitalize on this market and would be able to expand its

revenues and profits from this market (“Boeing SWOT,” 2010).

The FAA expects U.S. airlines will carry 1 billion passengers a year by 2021, two

years faster than previously forecast. In its annual report published in February

2011, the FAA expects international traffic to grow more rapidly than domestic

travel - with U.S. airlines handling 7.8 percent more international passengers but

only 3 percent more domestic passengers. This trend is expected to continue

through 2031 due to faster economic growth in other parts of the world. The

International Air Transport Association also predicted 3.3 billion air travelers

worldwide by 2014, up by nearly one-third from 2009, with China being the major

driver of growth (“FAA sees 3.5%,” 2011).

In a 2006 report, Boeing believes that the 747 range including the Airbus A380,

will account for some 3% of deliveries and 10% of value between 2006 and 2025.

Airbus believes that the demand for very large aircraft will be robust, amounting to

1,648 large passenger aircraft and freighters in the 747 range and above or 22% of

the total value of aircraft delivered. Airbus believes that hubs will continue to play

an important role in airline travel especially international travel, and that very large

jets will be required to transport people between hubs. However, Boeing believes

that travelers prefer nonstop service between cities and want to avoid congested

hubs. Boeing believes that the flights between city pairs will continue to grow (Hill

& Jones, 2009, pp. C1-C15).

Surge in the US defense spending

23

Defense spending is a long-term recession-proof industry which would not be

affected by cyclical downturns and upturns. The 2011 US budget allocates $708.2

billion to the Department of Defense (DoD). The US Federal Budget for FY 2011 is a

spending request by President Barack Obama, to fund defense operations from

October 2010 to September 2011. The 2011 Budget for DoD provides $548.9 billion

for the DoD base budget in 2011, a 3.4% increase over the 2010 enacted level.

This funding increase allows DoD to address its highest priorities, such as the

President’s commitment to reform defense acquisition, develop a ballistic missile

defense system that addresses modern threats, and continue to provide high

quality health care to wounded service members. In addition, the 2011 Budget

provides $159.3 billion for DoD’s ongoing overseas contingency operations in Iraq,

Afghanistan, and Pakistan. A supplemental funding request of $330.0 billion for

2010 addresses immediate funding requirements for these missions. Boeing’s

primary customer is the US DoD with approximately 80% of Boeing defense, space

and security’s 2009 revenues being derived from this customer. Therefore, a surge

in the US defense spending could provide growth for the company in the short to

medium term (“Boeing SWOT,” 2010).

787 Dreamliner to gain market share

Boeing’s 787 Dreamliner offers more comfort and convenience and is 20 percent

more fuel efficient compared to other airplanes the same size. It also releases 20

percent less carbon dioxide and flies 15 percent faster due to its ultra-light carbon

fiber components. The 787-8 Dreamliner will carry 210 - 250 passengers on routes

of 7,650 to 8,200 nautical miles, while the 787-9 will carry 250 - 290 passengers on

routes of 8,000 to 8,500 nautical miles. In addition to bringing big-jet ranges to

mid-size airplanes, the 787 provides airlines with excellent fuel efficiency, resulting
24

in exceptional environmental performance. It will also travel at a similar speed as

today's fastest wide bodies, Mach 0.85. Airlines also have more cargo revenue

capacity. The modern systems architecture also offers increased functionality and

efficiency. Since being launched in April 2004 with a record order from All Nippon

Airways (ANA), 56 customers from six continents have placed orders for 821

airplanes valued at about $145 billion, making it the most successful twin-aisle

launch of a new commercial airplane in Boeing’s history. The first 787 was just

delivered to ANA in September 2011 as the world watched. As of 2011, Boeing has

426 orders for the Dreamliner. It predicts the market at 3,310 units over 20 years

(2009-2028). Boeing estimates the plane to have a 30 percent maintenance

savings and a 10 percent better cash seat mile cost compared to peer airlines.

Boeing also estimates the 787 will connect 450 new city pairs ("Boeing: commercial

airplanes-787," 2011).

Boeing opportunities consist of a growing demand for small to mid-size airline to

serve the increase in travel through pair cities and nonstop destinations. As cities

become more populated, hub cities become more congested. Many travelers prefer

to avoid hubs and travel through city pairs. Smaller cities that offer nonstop flights

are more convenient and easier to get in and out of especially for business

travelers. In addition, the Dreamliner offers airlines a more cost efficient way to fly.

Airlines can reduce their operating costs. As older fleets near retirement, demand

for newer, quieter, faster, jets are heating up. Demand has been strong for the 787

(Hill & Jones, 2009, pp. C1-C15).

Threats

Intense competition and pricing pressure

25

The commercial jet aircraft market and the airline industry remain extremely

competitive. Boeing faces aggressive international competitors, including Airbus,

who are intent on increasing their market share. Boeing Defense, Space and

Security (BDS) business also faces strong competition in all market segments,

primarily from Lockheed Martin, Northrop Grumman, Raytheon Company and

General Dynamics. Non-US companies such as BAE Systems and European

Aeronautic Defense and Space Company (EADS), the parent of Airbus, continue to

pursue a strategic presence in the US market by strengthening their North American

operations and partnering with US defense companies (“Boeing SWOT,” 2010; Hill &

Jones, 2009, C1-C15).

International competitors who are intent on increasing their market share, offer

competitive products and have access to most of the same customers and

suppliers. Airbus has historically invested heavily to create a range of products to

compete with Boeing. Regional jet makers Embraer and Bombardier continue to

develop larger and more capable airplanes. Additionally, other competitors from

Russia, China, and Japan are likely to enter the 70 to 190 seat aircraft market over

the next few years. In addition, certain of Boeing’s competitors have occasionally

formed teams with other competitors to address specific customer requirements.

BDS expects the trend of strong competition to continue into 2012 with many

international firms pursuing announced intentions of increasing their US presence.

Furthermore, market liberalization in Europe and Asia has enabled low-cost airlines

to continue gaining market share. These airlines have increased the downturn

pressure on airfares. This results in continued cost pressures for all airlines and

price pressure on Boeing’s products. This market environment has resulted in

intense pressures on pricing and other competitive factors and Boeing expects
26

these pressures to continue or intensify in the coming years. Therefore, intense

competition across all business divisions of Boeing could erode the market share of

the company and could also affect its profit margins (“Boeing SWOT,” 2010; Hill &

Jones, 2009, pp. C1-C15).

Risks concerning labor issues

Boeing faces risk concerning labor issues at its plants. Approximately 57,000

employees, which constitute approximately 36% of the company’s total workforce,

are union represented as of December 31, 2009. Boeing experiences work

stoppages from time to time due to worker strikes. The company experienced a

work stoppage in 2008 when a labor strike delayed commercial aircraft and certain

BMA program production. Also in May 2010, 1,700 Boeing workers who assemble

giant C-17 cargo jets in Long Beach, California were on strike for a month over

pension and medical benefits. As a result, theC-17 production line was shut down

although 3,000 non-union workers were on the job. The work stoppage was tough

at a plant where workers were accustomed to rolling a new C-17 onto the tarmac

every three weeks. The strike was halted in June 2010, as Boeing offered to pay a

$4,000 payout and a 3.4% over the life of the agreement. It also offered an

increase in the basic pension benefit to $79 per month for each for each year of

service, from $70. Boeing may experience additional work stoppages in the future,

which could adversely affect its business. The company cannot predict how stable

its relationships will be with 14 different US labor organizations and 7 different non-

US labor organizations. Union actions at suppliers can also affect the company.

Work stoppages and instability in the company’s union relationships could delay the

production and development of its products, which could strain relationships with

customers and cause a loss of revenues (“Boeing SWOT,” 2010).

27

Uncertain airline industry environment

Boeing’s main competitor is Airbus. The competition between Boeing and Airbus

is fierce. Airbus can offer large discounts because it is subsidized by European

markets. Both have spent millions lobbying politicians for various reasons from

industry regulations and funding to contracts. With time and use, airplanes age and

must be refurbished or replaced. Airlines are focusing on refurbishing old aircraft

rather than new ones which can decrease the demand as well as sales of new

aircraft. Boeing has an opportunity with its Dreamliner to capture the aging

airplane market. It may be more cost effective over the long haul for airlines to

replace planes due to the fuel efficiency and cost savings of the Dreamliner

(“Boeing SWOT,” 2010; Hill & Jones, 2009, pp. C1-C15).

In addition, there has been a decrease in air travel due to the economic state of

the global economy. Travelers do not have the money to travel. Businesses are

spending less on travel. Since business travel is directly related to corporate

profits, airlines are dependent on the overall health of the business environment.

Losing those premium travelers could prove to be a huge hit to carriers’ corporate

profits. Indicators for business travel point to a continued slowdown for the

remaining months in 2012. Stock prices and profits are down for American, Delta,

and United airlines as they struggle to keep up with rising fuel costs and thinning

demand. The airline industry will likely face a decline in profitability heading into

2012, with total industry profits falling to $4.9 billion from $6.9 billion this year. The

decrease in passenger economy travel has been a problem for airlines over the last

decade, but the slowdown in corporate premium travel poses new risks and has the

potential to cause even more damage. Passenger tickets now account for just 71%

of U.S. airlines' total passenger revenue, down about 17 percentage points from
28

1990, according to the Department of Transportation, and profits from business

travelers typically make up a majority of that. Although there was a significant

rebound in travel after the recession officially ended last year, there is also a shift

away from travel on business and first class seats towards economy. Before the

drastic decline in the economy two years ago, premium travel made up 9-10% of

total international air travel. In the latest periods, that has fallen to about 7.5-8%

placing more pressure on airlines to cut costs. Air travel in the European and North

Atlantic markets have dropped significantly which reflects the economic conditions

of this part of the world. These regions used to be one of the strongest for air

travel. On a positive note, travel to Asia continues to be robust as those emerging

markets become more attractive to foreign businesses. With the increased

economic interest in Asian markets, premium travel growth within the Far East was

up for July and August 2011. First-class travel to the Far East from the U.S. also

grew modestly and showed little sign of any slowdown. However, travel on the

spacious leather seats within the U.S. dropped 13.2%, which is on top of a 9.7%

decline in July (Booton, 2012).

Rising fuel costs

Rising fuel costs are threatening airline margins. So far in 2011, the U.S. airlines

have increased airfares six times compared with four times in 2010. A strong

demand could offset some of the price of fuel. Demand began to build in 2010 as

airlines kept the number of seats available for purchase relatively low and the

recession started to ease. Revenue offset the steady climb of jet-fuel prices last

year. In the early months of 2011, however, conflict in the Middle East led to jet-

fuel prices increasing at an accelerated pace compared with 2010. The volatility of

fuel threatens profitability and dampens plans airlines have to increase capacity in
29

the next year. In fact, many airlines have had to cut system wide capacity for 2011

by as much as 2 percent. United, American, and Delta Airlines reduced their

capacity-growth plans due to fuel prices. The industry is predicted to remain flat for

the remainder of this year. Delta expects its fuel bill to be about $3 billion for 2011,

a 35 percent increase over 2010. Besides adjusting capacity, airlines may be forced

to furlough and lay off employees and add ancillary fees to tickets as fuel price

increases and demand decreases. Ancillary fees include charges for checked bags,

blankets, and snacks. To combat rising fuel prices and improve cash flow, some

airlines are deferring delivery of planes and may cancel future orders (Neighbor,

2011).

Airlines are threatened by the volatility in jet fuel prices. Today, jet fuel ranges

from 35 to 40 percent of airlines’ operating costs. Jet fuel was at an all time high in

2008 when prices were over $4 per gallon. Airlines are in a better position today

than in 2008, however, there are fewer travelers. After 2008, the airline industry

downsized and removed a lot of capacity. Utilization rates are higher and there are

not many empty seats on planes. Reducing and maintaining capacity has meant

the difference between hardship and survival for many airlines. For Boeing and

Airbus, the reduced capacity affects their bottom line in airplane sales. However,

with the continued threat of rising fuel prices, Boeing has a great opportunity with

its Dreamliner aircraft (Neighbor, 2011).

Change in US budgetary priorities and contracts

One of Boeing’s strength is its contracts with the government. However, heavily

reliance on these contracts also represents a threat. As war conditions change, the

military requirements also change. Boeing was awarded one of the biggest

contracts in military history consisting of $35 billion to build the next generation of
30

air refueling tankers. These new tankers will replace 179 of the Air Force’s aging

tankers which are equivalent to a flying gas station ("Boeing receives $35," 2011).

Boeing provides commercial aircraft to many foreign airlines and is one of the

largest exporters in the U.S. It is also one of the biggest defense contractors or the

military and other government departments. Boeing gets a lot of support from the

U.S. Export-Import Bank due to its overseas sales volume. It is receiving about $15

billion in loan guarantees from the bank which help finance foreign commercial

customer purchases. In 2010, Boeing received about 63% of all guarantees from

the government entity. However, despite this business, Boeing as well as other

defense contractors, is facing the potential for major cuts and reductions in overall

defense spending by the United States. This means that there may be fewer

tankers, transports or other products purchased from them. The contract Boeing

received for the new KC-46A refueling tanker helps offsets the end of the C-17

production for the Air Force and the end to other programs. However, the Air Force

is looking at moving a great deal of their logistic support back to their own depots

and away from commercial providers which affects Boeing’s bottom line (Potter,

2011).

Personal Observations

Boeing has been building commercial airliners since 1927 with the first Boeing

commercial jet airliner, the 707, introduced in 1957. Boeing is best known for its

747 jumbo jet it introduced in 1966. Boeing merged with McDonnell Douglas in 1997

primarily for its strong military business and has been a dominant player in the

commercial aerospace industry. However, the firm has been losing market share to

Airbus since the mid-1990s. Boeing and Airbus directly compete with each other.
31

In 2006, Boeing enjoyed strong sales of its 737, 777, and its newest wide-bodied

super-efficient jet, the 787 Dreamliner. Boeing started taking orders for the 787 in

2006, however, due to production delays the first aircraft was three years late. All

Nippon Airlines did not take delivery of the first plane until September 2011.

Boeing’s competitor, Airbus, had its own production problems with the A380 super

jumbo jet (Hill & Jones, 2009, pp. C1-C16).

Historically, airline manufacturers tried to manage the supply process through

vertical integration making many of the component parts that went into the aircraft.

Their functional level strategy of keeping production in house had many flaws.

Airplanes were housed in garages where they were assembled. When one process

was complete, the plane was moved to another area for the next process. This

process was labor intensive, inefficient, and costly. However, over the past two

decades, there has been a shift to contract out production components and entire

subassemblies to independent suppliers. Contracting out has caused production

problems and delays. It has been difficult to coordinate the manufacturing process

with suppliers. Boeing’s 767, introduced along with the 757 in 1982, was the first

aircraft in which the firm contracted out a significant portion of work to Japanese

manufacturers. Over the years, Boeing had numerous problems with suppliers and

manufacturers causing significant delays with its aircraft. Airbus also had

outsourcing problems. Its largest A350 wide-body aircraft that competes with

Boeing’s 777 has been delayed for 18 months (Rothman, 2011).

By the late 1990’s, Boeing was plagued by a number of production problems. In

an attempt to gain share from Airbus, Boeing cut prices. Delivering aircraft meant

that Boeing had to more than double its production schedule between 1996 and

1997. However, the company ran into some severe production bottlenecks. The
32

company scrambled to hire and train about 41,000 workers, recruiting many from

suppliers, a move it came to regret when many of the suppliers could not meet

Boeing’s demands and shipments of parts were delayed. In 1997, things got so bad

that Boeing shut down its 747 and 737 production lines so that workers could catch

up with out-of-sequence work and wait for back-ordered parts to arrive. Ultimately,

the company had to take a $1.6 billion charge against earnings to account for

higher costs and penalties paid to airlines for the late delivery of jets. As a result,

Boeing made very little money out of its mid-1990s’ order boom. The head of

Boeing’s commercial aerospace business was fired, and the company committed

itself to a major acceleration of its attempt to overhaul its production system,

elements of which dated back half a century (Hill & Jones, 2009, pp. C1-C15).

Boeing changed its business strategy to an outsourcing manufacturing process.

They looked at the Japanese automobile manufacturing processes. Toyota, after

analyzing their production and manufacturing process and discovering numerous

flaws, switched to a process known as lean production. In contrast to conventional

or mass production, lean production shortened production runs by using a system of

levers and pulleys which reduced setup times for production equipment which is a

major source of fixed costs. In addition to shorter runs and quicker turnover times,

the change to lean production enabled Toyota to provide better customer

responsiveness and operate more efficiently. In the 1990s, Boeing looked at what

Toyota had done. Until then, Boeing’s production was about producing parts in high

volumes and storing them in warehouses until they were needed. Boeing was

drowning in inventory and had the huge financial expense of housing the inventory.

In addition, expensive equipment took up a lot of space and remained idle for long

periods of time. Boeing created cross-functional teams to develop lean production

33

processes. These “moonshine” teams started developing their own equipment and

machines that were essentially like moving garages and assembly lines. Instead of

moving the aircraft, they wheeled machines around the plant to work on the planes.

This cut down assembly time and manpower. This small scale and quick turnaround

made it possible to produce these parts just in time, eliminating the need to

produce and store inventory. Portable machines such as routers were built for a

fraction of the cost of large fixed machines. Set-up times were minutes instead of

hours. Boeing reduced labor hours by 74% and reduced manufacturing space by 50

percent. Boeing was now able to produce smaller lots of parts economically and

switch to just-in-time inventory systems reducing waste. The moonshine teams also

adopted other process improvement methodologies including Six Sigma quality

improvement processes and total quality management systems (TQM). Boeing also

moved from a static assembly line to a moving line in which the aircraft is moved at

a rate of 2 inches per minute moving past a series of stations where tools and parts

arrive the moment needed. This reduces time and work and eliminates workers

from wandering around for parts and tools. These arrive on workstations delivered

to the assembly area. In addition, the moving line is stopped when a problem

occurs. These changes have had a significant effect. By 2005, assembly of the 737

went from 22 days to 11 days. Work-in-progress inventory was reduced by 55%

and stored inventory was reduced by 59 percent. By 2006, all Boeing’s production

lines except the 747 had shifted from static bays to moving lines. It shifted the 747

to a moving line with the production of the new 747-8 jet. Changing its functional-

level and business-level strategies from large inefficient production processes to

lean production processes has enabled Boeing to reduce cost, manufacture and

produce more efficiently, and improve customer responsiveness. Although Boeing

34

had made great improvements in their production and manufacturing processes,

they were mired with supplier problems. Boeing outsourced more work for the 787

than any other aircraft to date. In addition, Boeing asked it major suppliers to bear

some of the development costs. Supplier problems caused major delays.

Coordinating suppliers proved to be complex, costly due to delay penalties, and

time consuming. Boeing lost orders for the 787 due to the delays and potential

customers switched to Airbus (Hill & Jones, 2009, C1-C15).

Both Boeing and Airbus have had similar problems with production and suppliers.

However, they had have had very different views for demand projections. Annual

projections of future demand is based on assumptions about future global economic

growth, the resulting growth in demand for air travel, and the financial health of the

world’s airlines. In 2006, Boeing’s report showed that passenger traffic would grow

at 4.8% per annum over the next twenty years versus Airbus’s forecast of 5.3

percent. Boeing forecast demand for 27,210 aircraft valued at $2.6 trillion over the

next twenty years. Boeing believes that the majority of aircraft will be for regional

jets (which have fewer than 100 seats) and the large 747 aircraft. According to

Boeing, aircraft in the 747 and the Airbus A380 range will account for about 3% of

deliveries and 10% of the value. On the other hand, Airbus believes that demand

for very large aircraft will be robust, amounting to 22% of the total value of aircraft

delivered. These differences reflect different views of future demand. Boeing

believes that airline travelers will demand more frequent nonstop flights between

city pairs, not larger aircraft. After Boeing introduced the 767, airlines introduced

more flights between city pairs in North America and Europe and more frequent

departures. In 1984, 63% of all flights across the North Atlantic were in the 747. By
35

2004, this declined to 13% with smaller wide-bodied aircraft such as the 767 and

777 (Hill & Jones, 2009, pp. C1-C15).

Boeing developed the wide-bodied 777 in response to Airbus’s A330 and A340.

The 777 was the first jet to be designed entirely on a computer. In addition, for the

first time Boeing used cross-functional teams composed of engineering and

production employees. It also brought major suppliers and customers into the

development process. As with the 767, a significant amount of work was

outsourced to foreign manufacturers, including the Japanese companies Mitsubishi,

Kawasaki, and Fuji, which supplied 20% of the 777 airframe. In total, some 60% of

parts of the 777 were outsourced. Boeing’s break-even point with the 777 is 200

planes. By mid-2006, they had 850 orders (Hill & Jones, 2009, pp. C1-C15).

Although Boeing encountered a lot of problems, there is a lot that they are doing

right in the area of their lean efforts. They have continued these efforts for over a

decade now and seemed to have learned a few things along the way. Some of the

problems were due to poor planning, poor execution of their plans, and in some

cases a combination of both. Good plans should consider risks and allow for

contingencies. Questions that arise are “Why did things go so wrong for Boeing; did

they have a good plan or just good intentions?” In addition, what was Boeing’s

philosophy behind their approach? Exactly what was Boeing’s mission? According

to Miller (2008), “The mission statement of the purchasing group of any company

aiming to become a world class lean manufacturer should be a variation on the

theme of: “Buy the best products at the lowest price, on-time in a way that ensures

long-term stability by building strong supply base.” The work of sourcing or

purchasing within an organization should create value. This means not running out

of parts, being on-time with good quality, and purchasing at a low price. In addition,
36

purchasing activities should create profit in a real and concrete way by streamlining

the entire process and building a strong supply base. Boeing should learn from its

supply chain mishaps with the 787. Firms can take actions toward a better lean

supply chain strategy. Firms should develop a mindset of mutual trust and

responsibility by building good and strong cooperative relationships as equal

partners with suppliers. Fair and reasonable commitments that both sides can live

up to and fulfill are simply good business. Cut-throat supply chains that erode trust

or relationships based on one-way responsibility work for a short while, and then

can fail. A firm should organize its SPTT (Supplier Parts Tracking Team) to make

sure there is a smooth start up of production and delivery from suppliers. For

example, Boeing was not paying attention to the detail and intensity when it

managed to run out of fasteners. Boeing should spend less time putting out fires

and more time on a SPTT to prevent these fires (Miller, 2008).

The next ten years will be interesting for Boeing and Airbus. The economic

environment that the world faces today is much different than in the past. War,

economy, and terrorism all affect the future of these airlines. They have some of

the same problems but deal with them differently. Both companies see growth in

the industry but differ in the amounts of growth and the market segments that will

experience growth. Personally, I see airline travel growing more in the city pairs

segment with smaller aircraft and more frequent nonstop flights going from city to

city. The major hubs will grow but at a lower rate. The industry will always require

bigger aircraft like the 747 and A380 for international flights. People that travel on

longer transcontinental flights prefer larger, more comfortable aircraft.

Boeing has made a lot of changes to its manufacturing strategy and supply chain

strategy. The company needs to be careful not to make the same mistakes. It
37

needs to work on strategies that will ensure better predictions on delivery dates. All

projects have delays. However, a 3 year delay with the 787 seems unreasonable

and unacceptable. In all research for this paper, I did not find information on the

project management team responsible for developing the project time schedule.

Managing projects as big as the 787, should be monitored with precision. The level

to which Boeing managed the project management team is unclear. It would be

interesting to see a copy of the project management plan.

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