Blue Ocean Strategy:

The Boeing 787

INDE 599
November 1st, 2009
Situation Pre 787 Launch
● Duopoly with Boeing and Airbus commanding 100% market share in large commercial
aircraft.

● Boeing had just recently lost its title at “the world’s largest supplier of commercial
aircraft” to Airbus and needed a game changer to gain back control.

● Aircraft in pre 787 times were comprised of over 50% aluminum material and only 12%
composite material.

● Operators were plagued by costly eddy-current inspections of rivets and structural

joints.

● The 767 airplane program is reaching the end of its 20 year design life cycle and slow
sales may indeed doom that production line as the airframe and technology has
become obsolete. Boeing has no other offering in the medium capacity jet market.

● Perception of Boeing by its customers was down as Boeing displayed an arrogance

towards revolutionary changes in their product line and structure. It was currently more
important to increase share holder value instead of forming long term strategic plans to
combat the rise of Airbus.

● Aircraft were not designed with the passenger in mind. Reducing Noise levels and
vibration standards, along with addition of in-flight entertainment systems and
passenger comfort accessories were an after though as focus was on functionality for
the operator.
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SWOT Scorecard
Strengths:
●Cash
●Global Supply Chain
●Research and Technology
development capabilities
●Freighter Offerings
●Partnership with GE Aircraft Engines
●Brand Name
Weaknesses:
●Composites technology knowledge
●Regional Jet Offerings
●Electronics
●Outdated Medium Sized Jet
Offerings
Threats:
●Global Aviation Downturn due to
9/11 Attacks
●Airbus
●Increased government regulations
for noise and exhaust pollutants
●Aviation Fuel Prices
●IAM and SPEEA Labor Unions
Opportunities:
●Point to Point Commercial Travel
●Partnership with GE Aircraft Engines
●Aviation Fuel Prices
●Age of the 767 Program

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Porter’s Five Forces Model:
Threat of New Entrants
● Low

• Threat of new entrants in the aerospace industry is small as new startups

in commercial aviation require billions of dollars to design, build, and
certify products for commercial use.

• New companies would need to create revenues on the order of $50+

billion dollars annually to compete with either Boeing or Airbus across
their multiple platform aircraft offerings. Boeings total revenues in 2002
and 2003 were $54 and $50 billion dollars repectively.

• Another major roadblock to entry are government regulations which

control every facet of every part of the business. New entrants would not
be given FAA/EASA delegation for aircraft certification as Boeing and
Airbus have. Boeing and Airbus have both established a long history in
regulatory agency certification of products.

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Porter’s Five Forces Model:
Power of Suppliers
● Low

• Supplier power at the time of the 787 program launch was low as it was perceived
that multiple suppliers across the world had capability and capacity to supply
system parts for the aircraft.

• Boeing employs a massive supplier management organization and suppliers are

forced to meet a vast quantity of requirements before they are even considered for
a contract.

• Boeing also forces suppliers to share in any cost savings that are derived from a
supplier’s wish to reduce their delivered produce cost by redesign or lean
manufacturing techniques.

• However it should be noted that once a supplier is chosen for a contract the
switching costs are extremely high for Boeing to seek out a second source for
product due to the massive qualification effort that must take place to certify a
product for commercial aerospace use. So in this instance the supplier have
tremendous power, but again is it offset by the cost savings sharing requirements
that I described above.

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Porter’s Five Forces Model:
Power of Buyers
● Extremely High

● Simply put the customers in the aerospace industry are securing multi billion dollar
contracts with Boeing and Airbus and have unbelievable negotiating power because of
such.

● This instance is further exacerbated for so called “launch” customers who are the initial
customers placing the first orders for a new airplane product. Often these launch
customers demand specific functionality and emotion with their wanted product and
usually have quite a bit of control during the aircraft configuration phase of a program.

● Buyers also weld extreme power over Boeing and Airbus as they are purchasing
products with 20 year design life cycles. This means that buyer can demand a bargain
price also on ground service equipment, spare parts, and support for these products.

● The switching cost for a buyer to go from an Airbus product line to a Boeing product
line is also low forcing these companies to cut prices for large orders to get buyers to
change over to their product. Many of the product offerings from Boeing and Airbus
use common ground service equipment and airport gate equipment.

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Porter’s Five Forces Model:
Threat of Substitute Products
● High

● Because are truly only two aerospace giants and

the cost of development to create a competing
product is massive the threat of substitutes
products is high.

● Simply put Airbus (outside of the freighter market)

has an offering that comes close to, matches or
even exceeds the performance characteristics of
any Boeing offering.

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Porter’s Five Forces Model:
Rivalry Among Existing Competitors

● Extremely High

● Boeing and Airbus have competed as the only

two makers of large commercial aircraft since the
1997 Boeing/McDonald Douglas merger.

● As recently as the year 2003 Airbus took the lead

as the largest producer of commercial aircraft
after deliveries of there products exceeded
Boeing’s for the first time ever. That tread has
continued throughout this decade.

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Strategy Canvas Pre Launch
Strategy Canvas: Meduim Sized Jet Offerings

Boeing 767 Airbus A330/A300 Airbus A340

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New Strategy Canvas
New Strategy Canvas: Meduim Sized Jet Offerings

Boeing 767 Airbus A330/A300 Airbus A340 Boeing 787

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Four Actions Framework
Reduce:
●Passenger Fatigue
●Operator Maintenance Costs
●Emissions
Eliminate:
●Costly Riveted Aircraft Joints
●Detailed Design Work within
Engineering
●Manufacturing time by using a
modular build design
●Obsolete Airframe Sturcture
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Create:
●Environment that pleases the
passenger
●New Aircraft Family
Raise:
●Fuel Burn Efficiency
●Aircraft Range
●Use of Composite materials for
structural elements
“6 Paths” Framework
● One basic strategic idea within the aerospace industry is the idea of an
aircraft ‘family’ line of offerings. Aircraft families are basically the same
offering of the aircraft, just in different stretch sizes. Most often the wings and
body design are identical, just extra body stations are added to increase
capacity of a certain model. This allows aerospace companies to achieve
cost savings through parts commonality and allows potential buyers to save
on spare parts, ground service equipment, and employee training thus
creating value for potential buyers.

● Also by looking at the chain of buyers, Boeing realized that the end user isn’t
the operator, it’s the passenger. The 787 design was conceptualized to
reduce passenger fatigue and overhaul the stereotypes of airline travel. This
allows one to look into all forms of improvement for the passenger such as
larger windows, increased cabin humidity, mood lightning, and inflight
entertainment. This creates emotional value to the passenger and thus value
to the operator.

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“6 Paths” Framework Cont.
● When looking at complementary offerings one thing
stands out. All of the offerings at the time were comprised
of more than 50% aircraft aluminum and were assembled
in smaller sections using rivets that had to be inspected
over the life of the aircraft. Value can be created by
building an aircraft from composites with larger major join
sections therefore reducing inspection and maintenance
costs.

● Increased trends in in-flight entertainment options and

ergonomics allow for a better passenger experience
which in turn creates perceived value to the operator.

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Risk Analysis
● Creating an aircraft from start to finish is a huge
risk mostly due to the simple fact that capital cost
is massive and the support costs for a airplane
program are even higher.

• The total Boeing 777 Program Non-recurring Cost to

date is over $120 Billion.

● One could expect much the same or even more

to an entirely new aircraft designed with new
composite materials and a host of other new
technologies.

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After Launch…
● It can be clearly shown that Boeing has failed in its attempt to
streamline operations through the use of its supplier network. Simply
put, suppliers did not have the capability or the capacity to undertake
such a challenge. Given this fact Boeing is now over two years
behind on the 787 program.

● On a positive note, even given the two year delay, the launch of the
787 has been the most successful in commercial aviation history.

• Currently orders stand at ~850 aircraft from over 57 different operators

across the globe.

● What remains to be seen is whether Boeing can deliver on their lofty

performance promises for this new aircraft. Only Flight Testing can
prove this.

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