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)............................................................................................... 26

Industry Growth: .......................................................................................................................... 26
Industry Profits: ........................................................................................................................... 27
Industry Segments:..................................................................................................................... 27

Industry Analysis/Porter’s Five Forces (GM) ........................................................................ 29

Risk of Entry by Potential Competitors.................................................................................... 29
Entry Barriers:...................................................................................................................... 29
Economies of scale: ....................................................................................................... 30
Product Differentiation: .................................................................................................. 30
Capital Requirements:.................................................................................................... 30

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 Switching Costs:.............................................................................................................. 31
Access to distribution Channels: .................................................................................. 31
Cost Disadvantages Independent of Scale: ............................................................... 32
Government Policy: ........................................................................................................ 32
Expected Retaliation: ......................................................................................................... 32
Power of Buyers:......................................................................................................................... 33
Power of Suppliers: .................................................................................................................... 33
Threat of Substitutes: ................................................................................................................. 34
Intensity of Rivalry among Established Firms: ....................................................................... 34
Industry Attractiveness/Profitability: ......................................................................................... 34
Summary (Results) of Five Forces: ......................................................................................... 36

External/Macro Environment (HP)............................................................................................ 37

Demographics: ............................................................................................................................ 37
Economic: .................................................................................................................................... 37
Technological: ............................................................................................................................. 38
Political/Legal: ............................................................................................................................. 39
Sociocultural: ............................................................................................................................... 40
Global: .......................................................................................................................................... 40
Summary of Analyses and Impact: .......................................................................................... 41

Strategic Group (PH).................................................................................................................... 42

Competitor’s Objectives: ............................................................................................................ 44
Assumptions: ............................................................................................................................... 44
Capabilities: ................................................................................................................................. 44
Market Share: .............................................................................................................................. 45
Competitive Advantages:........................................................................................................... 45
Current Strategies:...................................................................................................................... 46

Opportunities and Threats (MV) ............................................................................................... 46

INTERNAL ANALYSIS.................................................................................................................. 49

Value Chain Analysis (HP) ......................................................................................................... 50

Primary Activities ....................................................................................................................... 50
Research and Development (GM): ............................................................................... 50
Strengths: ......................................................................................................................... 56
Weaknesses: ................................................................................................................... 56
Production (HP): ............................................................................................................... 57
Strengths: ......................................................................................................................... 59
Weaknesses: ................................................................................................................... 59
Marketing and Sales (PH): .............................................................................................. 59
Strengths: ......................................................................................................................... 59
Weaknesses: ................................................................................................................... 61
Customer Service (MP): .................................................................................................. 61
Strengths: ......................................................................................................................... 61
Weaknesses: ................................................................................................................... 62

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 Support Activities ........................................................................................................................ 62
Materials Management (HP):.......................................................................................... 62
Strengths: ......................................................................................................................... 64
Weaknesses: ................................................................................................................... 64
Human Resource Management (PH): .......................................................................... 65
Strengths: ......................................................................................................................... 66
Weaknesses: ................................................................................................................... 66
Information Systems (MP): ............................................................................................ 67
Strengths: ......................................................................................................................... 67
Weaknesses: ................................................................................................................... 67
Firm Infrastructure (PH):................................................................................................. 67
Strengths: ......................................................................................................................... 70
Weaknesses: ................................................................................................................... 70

Results of Value Chain Analysis (HP) ..................................................................................... 70

Summary 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) ................................................................................................... 74

Liquidity Ratio: ............................................................................................................................. 75
Current Ratio: ...................................................................................................................... 75
Quick Ratio: ......................................................................................................................... 76
Leverage Ratios: ......................................................................................................................... 78
Debt to Asset Ratio:............................................................................................................ 78
Debt to Equity Ratio: .......................................................................................................... 80
Activity Ratios: ............................................................................................................................. 81
Inventory Turnover Ratio: .................................................................................................. 81
Days Sales Outstanding Ratio:......................................................................................... 82
Profitability Ratios: ...................................................................................................................... 84
Return on Assets Ratio: ..................................................................................................... 84
Return on Equity Ratio:...................................................................................................... 85
Results of Financial Analysis: ................................................................................................... 87

Interpretation/Evaluation (MV) .................................................................................................. 88

Summary 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) ...................... 97

Advantages (HP):........................................................................................................................ 97

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 Disadvantages (MV): .................................................................................................................. 97

CONCLUSION ................................................................................................................................ 98

Strategic Issues ............................................................................................................................ 99

Strategic Issue (HP) ................................................................................................................... 99
Alternatives: ......................................................................................................................... 99
Alternative # 1 (PH) ........................................................................................................ 99
Alternative # 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, extensive

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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 commercial jet transports

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(‘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.

 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.

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  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.

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

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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)

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

13
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 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.

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 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)

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.

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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

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

16
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.

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

17
 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 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)

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 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.

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.

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 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

Technology, Phantom Works, Intellectual Property Management, and Environment, Health

and Safety.

Finance

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 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.

23
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.

24
Chart for Team Activities (MV)

25
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 2373647 1.50% 494903 2.10% -721083 -2.20%

Tax

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.

Economies of scale:

29
 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 substantially

large amount of capital is needed, many new firms don’t enter the aircraft market

30
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.

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

31
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)

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

32
 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

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

33
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 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.

34
 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).

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

35
 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

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 abili ty to shift

an industry in a positive or negative direction. The strength and attractiveness of the industry

36
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 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

37
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 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

38
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.

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

39
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 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):

40
 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.

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)

41
 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 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)

42
 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 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 B oeing

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.

43
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. 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

44
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)

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

45
 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 Demographics

● Airline profitability is a major ● Not replacing retiring engineers with

demand driver for commercial properly trained technicians to

aircraft troubleshoot and maintain air

● Increase in U.S. consumer planes can be a major threat to the

spending industry

● Continued low interest rates

Technological Economic

 Adopting new technologies to ● Increase in raw materials

innovate bigger and better ● Weakness in job markets

aircrafts ● High unemployment

● Sluggish U.S. economy

 Using carbon fiber reinforced
plastic for fuselage and wing ● Energy prices

structures ● Weak household income levels

 New designed aerodynamic body

and wide use of composites

46
  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)

Socio-cultural Political/Legal

● Going Green/Eco Friendly; ● Federal Aviation rules and

composite use regulations

● Fuel efficiency ● State laws and state regulatory

● Environmental emissions agencies

● Noise reduction ● Foreign Jurisdictions

Global Global

 Emerging markets in Asia, the ● Sluggish European economy

Middle East, Eastern Europe, and

Latin America are seeing an

increase in demand for business

and personal travel.

47
  Emerging markets such as Asia,
the Middle East, Eastern Europe,

and Latin America.

 Increase in global spending.

High Entry Barriers High Intense Internal Rivalry

 Potential and existing competitors ● Chinese entering the aircraft

can influence the industry manufacturing business

profitability ● Japan’s Mitsubishi now entering the

 Oligopolistic competition aircraft manufacturing business

● Russia develops the MC-21 to

 High start-up costs (large capital
compete with 150-210 passenger
needed)
carrier
 Sizable facilities needed
● Airbus ability to deliver aircrafts at a

higher rate

Low Bargaining Power of Suppliers Low to High Bargaining Power of

 Buying power of industry leaders Buyers

allows for their ability to raise ● Long term contracts benefit buyer

input prices which shifts the financial risk to the

aircraft manufacturer.

● Switching costs due to training

48
 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)

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.

49
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 provi de

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.

“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

50
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 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).

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 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).

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

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 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.

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)

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 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

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

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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.

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

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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.

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

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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

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

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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 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

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 ● 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 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)

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 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 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.

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 ● 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

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)

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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 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

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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 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.

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 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.

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.

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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

$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.

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 ● 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.

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)

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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

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

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 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.

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)

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 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)

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 Value Adding: continue to seek out new ways to entice

Development demand and fulfill customer needs in designing

products that meet and exceed expectation.

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 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

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)

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 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

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)

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 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 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

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distributions that are located in North America, Europe, Asia, and the Middle East.

(Boeing.com)

Financial Ratio Analysis (MV)

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 0.86 0.82 0.78 0.64 0.34 0.31 0.32 0.35
Ratio
Debt to Equity 6.07 4.49 3.52 1.77 0.51 0.46 0.47 0.55
Ratio
Activity Ratios

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Inventory 4.03 2.64 2.13 2.16 7.32 6.46 5.84 5.61
Turnover
Days Sales 31 31 31 25 53 56 56 54
Outstanding
Profitability
Ratios
Return on Total 2.11% 4.82% 5.02% 4.39% 4.93% 6.06% 7.06% 6.01%
Assets
Return on Equity 58.97% 115.55% 111.36% 65.36% 13.77% 16.81% 20.24% 17.58%

Liquidity Ratios (MV):

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

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 Current Ratio
1.4
1.2
1
Ratio Value

0.8
0.6
0.4
0.2
0
2009 2010 2011 2012
Boeing 1.07 1.15 1.21 1.27
Industry 1.23 1.31 1.24 1.28

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

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

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production of the 737s, 777s, and 787s which has their revenue and cash flow surging

(Bloomberg.com).

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.

Quick Ratio
0.9
0.8
0.7
0.6
Ratio Value

0.5
0.4
0.3
0.2
0.1
0
2009 2010 2011 2012
Boeing 0.56 0.46 0.43 0.43
Industry 0.77 0.82 0.71 0.74

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

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 converting assets in cash. A low and decreasing quick ratio suggest that Boeing 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).

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The higher the ratio, the greater the risk the company may not be able to fulfill i ts

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.

Debt to Asset Ratio

1
0.9
0.8
0.7
Ratio Value

0.6
0.5
0.4
0.3
0.2
0.1
0
2009 2010 2011 2012
Boeing 0.86 0.82 0.78 0.64
Industry 0.34 0.31 0.32 0.35

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.

Debt to Equity Ratio

7
6
5
Ratio Value

4
3
2
1
0
2009 2010 2011 2012
Boeing 6.07 4.49 3.52 1.77
Industry 0.51 0.46 0.47 0.55

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 continues

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 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:

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

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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.

Inventory Turnover
8
7
6
Ratio Value

5
4
3
2
1
0
2009 2010 2011 2012
Boeing 4.03 2.64 2.13 2.16
Industry 7.32 6.46 5.84 5.61

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 be able to streamline

its production process in order to compete with other manufactures.

Days Sales Outstanding Ratio:

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 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.

Days Sales Outstanding

60

50

40
Ratio Value

30

20

10

0
2009 2010 2011 2012
Boeing 31 31 31 25
Industry 53 56 56 54

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 year goes

by, Boeing has managed to decrease their ratio which shows they are efficiently

running their receivables.

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 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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 Return on Total Assets
8.00%
7.00%
6.00%
Ratio Value

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2009 2010 2011 2012
Boeing 2.11% 4.82% 5.02% 4.39%
Industry 4.93% 6.06% 7.06% 6.01%

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 investments

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 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)

Return on Equity
140.00%
120.00%
100.00%
Ratio Value

80.00%
60.00%
40.00%
20.00%
0.00%
2009 2010 2011 2012
Boeing 58.97% 115.55% 111.36% 65.36%
Industry 13.77% 16.81% 20.24% 17.58%

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.

Results of Financial Analysis (MV):

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 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.

Interpretation/Evaluation (MV)

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 Summary of SWOT Analyses:
Summary of SWOT Analysis
INTERNAL ANALYSIS
Strengths:
1. Innovative
2. Environmentally Conscious
3. Flexible and customer-focused
4. Committed to delivering quality and safe
products
5. Economically competitive
6. Provide training and top-notch after sales
maintenance and technical support
7. 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 service
19. Loyalty to their customers
20. State of the art material management
systems
21. Boeing believes in promoting from within.
22. Employees are honored and happy to
work for the company
23. Boeing has invested millions in internal
training and tuition reimbursement for its
employees.
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EXTERNAL ANALYSIS
Opportunities:
1. Airline profitability is a major
demand driver for commercial
aircraft
2. Increase in U.S. consumer spending
3. Continued low interest rates
4. Adopting new technologies to
innovate bigger and better aircrafts
5. Using carbon fiber reinforced plastic
for fuselage and wing structures
6. The need to replace aging and less
fuel-efficient planes to address
rising fuel prices
7. Increase in air traffic
8. Use of electronics onboard the
aircraft (WiFi)
9. Going Green/Eco Friendly;
composite use
10. Fuel efficiency
11. Environmental emissions
12. Noise reduction
13. 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.
 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 suppliers
9. Distance of suppliers
10. Do not charge customers for excess parts
on hand
11. 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 resigned
16. 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 materials
3. Weakness in job markets
4. High unemployment
5. Sluggish U.S. economy
6. Energy prices
7. Weak household income levels
8. Federal Aviation rules and
regulations
9. State laws and state regulatory
agencies
10. Foreign Jurisdictions
11. Sluggish European economy
12. Chinese entering the aircraft
manufacturing business
13. Japan’s Mitsubishi now entering the
aircraft manufacturing business
14. 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
88
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 uni que 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 aviation becomes

increasingly accessible in all parts of the world, future journeys will increasingly be made by

89
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 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.

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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 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.

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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 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)

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 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 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)

93
 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 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.

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 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).

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

95
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

pricing by powerful suppliers, and the company’s niche may disappear due to technologi cal

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

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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 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

97
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 & 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.

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 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

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

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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.

● 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

100
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-pra yer-

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.

● 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.

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 ● 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 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

102
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 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

103
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.

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 (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

● New designed aerodynamic body and wide use of composites

105
 ● 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 .

107
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 reasons why

innovation can be harder to implement, but also can work for Boeing's advantage since they

108
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

companies are experimenting with technology that can harvest solar power from space-

109
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,

mainly China. In a recent press release, Boeing projects a demand for 5,580 new airplanes

110
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 $780B

(16% of world (16% of world

total) total)

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

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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

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

112
largest airline, Xiamen, continues to believe in the Boeing product making Brand loyalty a

key factor in Boeing growth. (Air-cosmos.com)

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Appendix

Ratio Calculations:

Boeing Co., Current Ratio

Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Financial Data (in millions)
Current Assets 35,275 40,572 49,810 57,309
Current Liabilities 32,883 35,395 41,274 44,982

Current Ratio, Comparison to Industry

Boeing Co. 1.07 1.15 1.21 1.27
Industry 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, 2012
Financial 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 Industry

Boeing Co. 0.56 0.46 0.43 0.43
Industry 0.77 0.82 0.71 0.74

Calculations: Quick Ratio = Current Assets - Inventory ÷ Current Liabilities

114
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
12,924 12,421 12,371 10,409

Shareholders’ Equity
2,128 2,766 3,515 5,867

Total Capital
15,052 15,187 15,886 16,276

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, 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
12,924 12,421 12,371 10,409

Shareholders’ Equity
2,128 2,766 3,515 5,867

Debt to Equity Ratio, Comparison to Industry

Boeing 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

115
Boeing Co., Inventory Turnover

Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Financial Data (in millions)

Revenues 68,281 64,306 68,735 81,698

Inventory 16,933 24,317 32,240 37,751

Inventory Turnover, Comparison to Industry

Boeing Co. 4.03 2.64 2.13 2.16
Industry 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, 2012
Financial Data (in millions)
Accounts Receivable 5785 5422 5793 5608
Total Sales 68,281 64,306 68,735 81,698

Days Sales Outstanding, Comparison to Industry

Boeing Co. 31 31 31 25
Industry 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, 2012
Financial Data (in millions)
Net Income 1,312 3,307 4,018 3,900
Total Assets 62,053 68,565 79,986 88,896

Return on Total Assets, Comparison to Industry

Boeing 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

116
Boeing Co., Return on Equity

Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Financial Data (in millions)
Net Income 1,312 3,307 4,018 3,900
Total Equity 2,225 2,862 3,608 5,967
Total Debt

Return on Equity, Comparison to Industry

Boeing 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

117
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