Case: Boeing
Section 6 (3 pm), Group
MI021 Computers in Management, Fall 2011
Group Members:
Rheza Adhihusada
Daniel Arnold
Drew Beckman
Minji Kang
Miguel Olguin
Bill Boeing began his career as a successful Washington real estate agent. In 1916, along with a naval officer, he built his first airplane thus initiating his business, Pacific Aero Products, which he renamed Boeing Airplane Company the following year. As World War I progressed, Boeing began to build training planes for the U.S. Navy and established the first international airmail service with a route between Seattle and British Columbia. In 1927, he established another route between Chicago and San Francisco, which created a new part to his business, Boeing Air Transport, which deals with commercial flights. Boeing has since then become the world’s largest aerospace company. Ranking second in production of commercial aircraft, Boeing also excels in defense contracting, currently in second. Boeing’s business units include Commercial Airplanes and Boeing Defense, Space & Security. Boeing also provides leasing and financing services to commercial, military, and aerospace customers through its Boeing Capital Corporation. U.S. firms make up an estimated 60% of Boeing’s sales and the U.S. Department of Defense makes up an estimated 80% of Boeing’s Defense, Space & Security revenues[i].
Boeing Commercial Airplanes is committed to being the leader in commercial aviation industry by offering goods, airplanes and services that deliver superior design, efficiency and value to customers around the world. There are more than 12,100[ii] Boeing commercial jetliners in service, flying passengers and freight more efficiently than competing models in the market. Its unique technology, such as fuel efficiency, low-cost manufacturing, reliability and maintainability with global suppliers plays a significant role in its strategy. Based out of Renton, WA, Boeing Commercial Airplanes has operations in more than a dozen cities and countries[iii]. The business unit composes five airplane programs, VIP-derivative airplanes, extensive fabrication and assembly facilities and a global customer support organization.
The competitive environment for large commercial jets is an intense duopoly, dominated by Boeing and Airbus. Boeing had been a market leader with Airbus close behind until recently, when Airbus overtook its rival in sales in 2001 and in delivery in 2003[iv]. To an extent, investor confidence in Airbus’ market leadership can be derived through its high P/E ratio of 38.43, relative to Boeing’s at 13.45. Boeing and Airbus remain in intense rivalry as they have jetliners that compete in almost every size-relative market. For instance, to match Boeing’s release of its new 787 Dreamliner, Airbus is on schedule to release its competing A350-XWB. Boeing has sold 835 units of the Dreamliner, each of which sells for $120 million[v]. Though Boeing has a large backlog caused by the three-year delay of the Dreamliner’s first delivery, it is scheduled to ramp up production to 10 per month by the end of 2013[vi]. Nevertheless, despite the impressive features of jumbo jet planes such as Airbus’ A380, the majority of the profits earned by the commercial airline producers come from production of the smaller jets that fly shorter distances. This is exemplified in the fact that Boeing’s 737 jetliner makes up around 40% of the firm’s commercial aviation revenue, and more than half of the company’s profits[vii]. To this end, Boeing may see an increase in profits in the next decade as Boeing seeks to release a new 737 MAX in 2017, to compete with Airbus’ A320neo[viii].
According to Standard and Poor’s industry analysis, the market outlook is good for large commercial aviation industry because despite threats of economic recession in Europe, there is strong growth China, India, the Middle East, Asia Pacific, Latin America and Eastern Europe. For instance, Boeing’s Current Market Outlook 2011-2030 reveals that the firm projects a 6.7% increase in the next 20 years in Latin American and Asia Pacific air traffic growth[ix]. Also, 3rd quarter sales reports by U.S. commercial aviation companies such as Continental and US Airways suggest no signs of recession in U.S. air travel[x], signifying good growth prospects for an aircraft manufacturer such as Boeing. Coupled with the successful, though delayed, delivery of the innovative 787, Boeing is strategically set to experience high sales growth over the coming years.
Boeing patents its wealth of technological innovations to create a sustainable competitive advantage. The Intellectual Property Management organization allows various arms of Boeing to leverage best practices within the firm as well as protect key technologies that will yield Boeing the greatest competitive advantage. For instance, Required Navigation Performance (RNP), an innovation that saves time and reduces carbon dioxide (CO2) emissions, is a GPS technology that allows a pilot to fly with more precision and accuracy to the designated airport without the reliance on ground based navigational systems[xi]. Another key technology that provides distinct safety advantages is the Vertical Situation Display. It creates an innovative warning system that presents a clear picture of an airplane's vertical position relative to the predicted flight path and terrain[xii], thus notifying a pilot of potential terrain conflicts and runway overshoots at a much earlier point in time than traditional warning systems. An example of a valuable best practice within the firm is the lean production systems that ensure a punctual delivery and production of the highest quality jets. Furthermore, lean practice has resulted in a 37% reduction in energy use and a 27% reduction in water use, resulting in significant cost savings[xiii]. These advancements tally a 70% reduction in fuel consumption and CO2 emissions[xiv]. Patents allow Boeing to protect its innovations and create a sustainable competitive advantage over competitors.
Boeing’s newly released 787 Dreamliner epitomizes the company’s consistent efforts to innovate and create while utilizing technology. The 787 Dreamliner program started in 2004 and the project’s elongated efforts have finally paid off with its first delivery on September 26, 2011. Boeing chairman, president and CEO Jim McNerney highlighted the importance of the plane’s release by calling it "the biggest innovation in commercial aviation since the Boeing 707 introduced the world to passenger jet travel more than 50 years ago[xv].” Boeing’s latest innovations in design and construction allot for an unparalleled fuel-efficiency, causing outstanding eco-friendly performance. Before even beginning the prototype models, Boeing utilized the feedback of customers, pilots, and crew to design a better airplane[xvi]. This effective employment of crowdsourcing allowed Boeing to improve customer experience – which will ultimately contribute to building a stronger brand. Boeing pioneered a technological front with the implementation of a system that allows the company to digitally design the aircraft as opposed to physically making a model and consequently wasting time and valuable resources. Another consequence of this virtual system is Boeing can now store all this new data and save it for a later project, enhancing efficiency and creating further opportunities[xvii]. As for the technology of the plane itself, Boeing’s innovative efforts accumulated into a common goal: customer satisfaction. The 787 Dreamliner features several components, which go unmatched in the industry. A composite material made of carbon-fiber-reinforced plastic allows for a significantly lighter plane; consequently, the amount spent on gas declines, resulting in cheaper flights (the Dreamliner uses 20 percent less fuel than current airplanes of comparable size)[xviii]. New features enhancing the customer experience during flight include: more leg room as a result of a larger volume of overhead space, the ability to control how much light comes in with the touch of a button, less noise coming from new, quieter fuel-efficient engines and an automated technology that reduces the severity of violent motions in the plane called “smoother ride technology[xix].” Each of these innovations gives Boeing a large lead in the industry, as Boeing’s chief rival Airbus has yet to counter to the 787 Dreamliner.
While Boeing enjoys several competitive advantages, multiple issues also pose a threat to the firm. Chief among these issues are labor problems regarding unions, especially within the state of Washington. On October 3, Boeing decided to locate a new non-union manufacturing line in South Carolina, rather than a unionized facility in Washington in order to try to avoid potential labor issues[xx]. In turn, the National Labor Relations Board investigated Boeing, leading to even more disputes over this act being representative of Boeing’s attempt to discourage union activity. Another issue facing Boeing is labor safety. Examples such as the improper manufacturing of a panel of an airplane leading to an emergency landing and near fatal injuries on October 12, 2010 and the fatal death of a Boeing worker in Kent, Washington due to a piece of heavy machinery on November 17, 2009 best demonstrate this complex issue[xxi][xxii]. Boeing also faces multiple issues related to its financial growth. Boeing’s financial woes are highlighted through a significant increase in cutbacks and cancellations of orders due to the economic recession and higher fuel prices. One of Boeing’s main sectors, its production of military aircraft, is faced with shrinking defense budgets under the Defense Department, as economic recovery has become the main priority of the new administration.
The future of Boeing includes several innovative ideas that could change the way we fly forever. One such innovation would be building aircraft that utilizes hydrogen as fuel, through developing unmanned planes that could utilize liquid hydrogen to reach heights of over 60,000 feet[xxiii]. Another innovation Boeing is pursuing, further reducing its economic footprint, is the usage of biofuel in airplanes. Already, on August 2, 2011, a Boeing aircraft (owned by Aeromexico) conducted the first transcontinental flight powered by biofuel[xxiv]. Moreover, on July 13, 2010, Boeing unveiled a hydrogen-powered spy plane that can fly for four days at altitudes over 65,000 feet[xxv]. Boeing continues to pursue technological advancements in categories such as methods that improve the affordability and flexibility of spaceflight through the Space Launch System[xxvi].
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[ii] 2011, Boeing Co. “Commercial Airplanes”
[iii] 2011, Boeing Co. “Boeing in Brief”
[iv] 2011, Chicago Tribune.
[v] 2006, Rogers. “The American Boeing and the European Airbus”
[vi] 2011, Sanati
[vii] 2011, Ray
[viii] 2011, Sanati
[ix] 2011, Ray
[x] 2011, Peterson
[xi] 2011, Boeing Co. “RNP Approach”
[xii] 2011, Boeing Co. “Leveraging New Technology to Enhance Safety”
[xiii] 2010, Boeing Co. “Lean production pays off”
[xiv] 2011, Marketwire
[xv] 2011, Boeing Co. “Boeing, ANA Celebrate First Dreamliner Delivery”
[xvi] 2006, Cone
[xvii] 2006, Cone
[xviii] 2011, The Nikkei Weekly
[xix] 2011, Boeing Co.
[xx] 2011, Hananel. “Documents Show Boeing Opened South Carolina Plant to Rein in Employee’s Union Power”
[xxi] 2010, RobertReevesLaw Blog
[xxii] 2009, Justice News Flash
[xxiii] 2008, Wired.com
[xxiv] 2011, Bloomberg News
[xxv] 2010, Fox News
[xxvi] 2011, “Aerospace and Defense”
