Risk & Boeing Commercial Airplanes

In the mid-to-late 2000s, Boeing Commercial Airplanes was in the midst of a new development
project for a mid-size (230350) passenger jet to meet the needs of a variety of city-pair travel
needs, including point-to-point, hub-to-hub, hub-topoint, etc. The airplane, initially called the
7E7 but later named the 787, was promoted as fuel-efficient because it was to be made from
lightweight composites supported by titanium structures. The company had used this approach in
military aircraft but had not tested it to any great extent in the commercial market.

Not wanting to repeat the experience of high development costs associated with the 777 in the
1990s, Boeing transferred large portions of the development expense to subcontractors in
several countries. At the same time, development speed was a major priority.

For example, China represented a big market for the airplane, and Boeing officials promoted it
for transport of spectators and tourists during the 2008 Olympic Games. Potentially big sales to
China depended on Boeings ability to meet the 2008 target. (Unfortunately, Boeing was unable
to reach this goal.) Examples of possible risk sources in each category are highlighted below.

FINANCIAL RISKS

Unfavorable Risk Example

A key supplier developing a critical component could go into financial default and be unable to
deliver designs or build prototypes.

Favorable Risk Example

An airplane leasing company (often major customers for commercial jetliners) could become so
optimistic about the 787 it would offer itself as a financial partner in the development process.

TECHNICAL RISKS

Unfavorable Risk Example

Some informed observers warned that the 787s composite fuselage might not hold up in a crash
because its structural properties made it more brittle than aluminum, the material used
historically for airplane skins.

Favorable Risk Example

Boeing might be able to use technological advances from the 787 program to leverage
developments in its defense and space programs to a greater extent than initially planned.
BUSINESS ENVIRONMENT RISKS

Unfavorable Risk Example

Boeing was betting on the increasing demand for point-to-point and other short-haul air travel in
medium-size airplanes. Had Boeings bet proven to be wrong, the company and its suppliers
would not have been able to recoup their huge investments (leading secondarily to a financial
risk).

Favorable Risk Example

It was possible that increasing fuel costs (certainly a high possibility that did materialize) would
increase demand for fuel-efficient commercial aircraft, raising demand for the 787 beyond that
initially imagined.

SOCIAL RISKS

Unfavorable Risk Example

Airplane components were to be built in large sections, in many cases outside the United States,
and assembled in the companys Everett, Washington, facility. Union organizations objected to
the new strategy because of the job losses it would produce. This could further evolve into bad
public relations for the company.

Favorable Risk Example

It is possible that organized consumer-advocacy groups could become increasingly vocal about
the inconveniences of hub-to-hub travel. If passengers see the 787 as part of a potential remedy
to the problem, they might initiate public campaigns that would positively influence airline
purchase decisions.

RISKS ASSOCIATED WITH EXTERNAL/NATURAL ENVIRONMENT

Unfavorable Uncertainty

The Seattle area, home to the Boeing Commercial Airplanes group and the final assembly site for
the 787, sits near a major geological fault. The fault is considered ripe for a devastating
earthquake that could seriously damage Boeings operations and facilities in the area, making it
difficult or impossible to meet production schedules.

Favorable Uncertainty

In the process of preparing facilities for a big quake, Boeing might discover protective structural
remedies it could patent and sell to other companies. Or, in creating a recovery plan for an
earthquake, Boeing might develop strategies and processes that would be useful for responding
to other types of disasters.