Boeing Commercial Aircraft : Comeback ?

Presented by- Amit BarmanDebasish PatraDevkumar MukherjeeKaushik SamantaSougata Mitra

ORDER PLACED BY BOIENG VS AIRBUS

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BOEING AIRBUS

ORDER PLACEDBY BOEING & AIRBUS

• Found in the year 1916 in the Puget Sound region of Washington state.

• Market leader in the industry of military and commercial aircraft manufacturing.

• Customer base and support in 150 countries.

• Employee strength of 165000 around the globe

• More than 12000 commercial jetliner engaged in aviations services.

• The commercial jetliner (SBU) total revenue earned during the period in 2011 stands at 36.5 bn USD.

COMPANY PROFILE

TIMELINE

1916 •William Boeing establish Boeing Company.

1950 •1950- Strategic move to enter commercial airlines as passenger plane – known as the Dash 80•Boeing decided to spend $16 million's to develop Dash 80 which accounted for 2/3 of the Company entire profit.

1954 •Model 367-80 introduce

YEAR EVENTS

1957 Boeing 707 was the worlds first commercially successful passenger Jet aircraft.

1959 model 720 successfully introduce.

1963 Model 727 introduce.

1967 Model 737 introduce.

1969 Model 747 introduce.

1970 Boeing Computer Service is formed.

1971 Boeing SUPERSONIC project is scrapped.

1972 Boeing become involved in Space Shuttle program & puts its mark on satellites.

1983 Airbus starts giving competition to Boeing.

1994 Boeing 777, largest twinjet, takes off.

1995 Boeing gets involved in space station project.

TIMELINE

year EVENTS

1996 Boeing merges with Rockwell Aerospace and Defense unit, Renamed as Boeing North American.

1997 McDonnell Corp & Boeing merge.Boeing 777 sets a record for flying around the world in 41 hrs and 59 Min.

Rocket Dyne division of Boeing North American wins the first NASA award for excellence

2000 -Boeing announced acquisition of Jeppesen Sanderson Inc. the world leading provider of Flight Information Services for $1.5 bn cash.

-Receive and order of $ 10.4 Million contract to begin low rate initial production for the US Navy.

2001 Headquarters is moved to Chicago.

TIMELINE

Contd….year EVENTS

2002 Boeing deliver 1000th 757China airlines orders 10 Boeing 747

2002 Boeing named 13th largest corporate air polluter.

2003 Airbus bites more market share.

Commercial aircraft product lineBoeing 737Produced1968–presentNumber built7,251 as of July 2012Unit cost737-100: US$-32 million

Boeing 747Produced1968–present Number built1,435 as of April 2012Unit cost747-100: US$24 million (1967)

Boeing 767Produced1981–present Number built1,030 as of July 2012Unit cost767-200ER: US$160.2 million

Boeing 777Produced1993–present Number built1,030 as of July 2012Unit cost777-200ER: US$258.8 million

Boeing 787 Number built31Program cost US$32 billion (Boeing's expenditure)Unit cost787: US$206.8 million (2012

BBJProduced1998–present Number built159 - As of July 28, 2010 (Including Unit cost US$ -47–310 million as of 2009

Boeing and Airbus compete in a near-duopoly in the global market for large commercial jets comprising narrow-body aircrafts, wide-body aircrafts and jumbo jets.

• Began as a consortium of aerospace manufacturers.

• Subsidiary of European Aeronautic Defense and Space Company (EADS)

• Acquired former arch-rival, Mcdonnell Douglas, in 1997

• The largest global aircraft manufacturer by revenue, orders and deliveries.

Duopoly

• Both companies compete against each other at every product level

Airbus A320 Airbus A330Airbus A350

Airbus A380

Boeing 737Boeing 767 & 777

Boeing 787 Dreamliner & 777Boeing 747

Products Outline

Product Development Cost of Airbus & Boeing.

Category Airbus Development Cost

Boeing Development cost

Single Aisle Family Model

A-319 757

A-320 $2.5 bn 737- 200

A-321 767 $1.5 bn.

A-318 757-300

Wide Bodied Aircraft Model

A-350 767,747

A-330 $3.5 bn 777

A-340 $ 3.5 bn

Super Jet A-380 $15 Bn 787 $ 8 Bn

PORTER’S FIVE FORCES FOR AIRLINE INDUSTRY

Threat of New Entrants- Low

Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs)

High fixed costs in R & D

Scarcity of resources (technical )

High costs of switching companies (maintenance cost)

Government restrictions or legislation

Power of Suppliers- High

The airline supply business is mainly dominated by Boeing and Airbus. For this reason, there isn't a lot of cutthroat competition among suppliers.

Also, the likelihood of a supplier integrating vertically isn't very likely.

Power of Buyers- Low There are high costs involved with switching airplanes, but also take a

look at the ability to compete on service.

Availability of Substitutes-Low

For regional airlines, the threat might be a little higher than

international carriers. When determining this you should consider time, money, personal preference and convenience in the air travel industry.

Competitive Rivalry. – High

Highly competitive industries generally earn low returns because the

cost of competition is high. This can spell disaster when times get tough in the economy.

Future Trends Of Aviation Industry

Future trends and forces of Aviation industry depends upon 1. Hub and spoke vs. point to point model 2. Fuel cost 3. Strength of euro vs. dollar 4. Eco friendly operation.

Core Competency

• Proactive in meeting customer demand and needs.

• Customizing of aircraft and designing.

• Large-scale implementation system.

• Uniqueness in contract and agreement with both NASA and United States Air Force.

• The power of vertical integration.

Boeing Entering Turbulent Times Uncertainty to words target market.

Concern about Boeing corporate leadership.

Lack of proper and ethical Management during the rein of Philip M Condit.

Labour discord(Frequent in sourcing, Transfer of labour to another company at lower remuneration and benefit)

Boeing sluggish response to competition to airbus

Quality being a concern as most of the manufacturing unit are outsource.

Comeback Strategy of Boeing

• Unique leadership style of Jim McNerney by making innovation as a culture.

• Manufacturing of fuel efficient Airplanes in contrast to the enhancement of fuel prices.

• Competitive advantage gained from the ongoing management strife and other problem in airbus.

Corporate Level StrategyStrategic Decision Value addition and Business outcome

1. Investments in narrow bodied 757 and wide bodied 767.

1. Investments made from the positive cash flows attained through breakeven of their earlier models.

2. Subcontracting in case of Boeing 777( 60% of the work)

2. Resulted in reduction of developmental costs.

3. Merger between Boeing and McDonnell Douglas

3. Resulting in increase of their presence in the defense and space side of aerospace

4. Movement of corporate head quarter from Seattle to Chicago.

4. signal to the investment community that Boeing was farmore than commercial business

Corporate Level StrategyStrategic Decision Value addition and Business outcome

5. Decision to produce new low cost, right sized aircrafts

5. Resulting in increase in profit due to demand for nonstop point to point flight.

6. launch of 787 aircraft 6. stiff competition to Airbus A350 and A380 aircrafts.

Business Level StrategyStrategic Decision Value addition and Business outcome

1.Adoption of Lean Production and Six Sigma quality improvement process.

1. Better Management of warehouses in terms of inventory, space and time as well as capital, ultimately improving the value chain.

2. Introduction of moving assembly lines. 2. Reaching of timeliness concepts by tools being delivered directly on the shop floor instead of fetching it.

3. Government subsidies 3. Boeing got subsidies from NASA to develop technology which had helped them in developing their commercial jet aircraft.

Quality and Productivity Improvement Through lean Progress

737 Lean Progress

50% factory cycle time reduction. 132% inventory turns increase. 55% cost of quality reduction 36% customer introduction hours reduction. 41% covered floor space reduction.

777 Lean Progress

14% Factory flow time reduction 32% Inventory turns increase 27% Engineering quality improvement 7% Cost of quality reduction 43% Factory footprint reduction

SWOT Analysis of Boeing

1.Constrains to reach break even point without reaching the projected demand. 2. Complex assembly of aircraft. 3. Higher R&D cost. 4. High volatility of customer 5. Delay in Commercial aircraft Development

Program.

1. Good financial health of aviation industry

and economy 2.Competative advantage of spoke and hub

model increases demand 3.Growth of transcontinental traffic. 4.Demand for more frequent nonstop flights.

1.Increase of jet fuel prices. 2.Terrorist attack effecting the number of travelers travelling. 3. Suppliers falling behind schedule designing for projects. 4.Changing Govt. politics and business partners based on those countries.

SWOT

PORTER’S FIVE FORCES FOR BOEING

Factor High Moderate Low

New Entrant - Airbus

Threat from Substitute

Bargaining power of Supplier -Vertical Integration

Bargaining power of buyer -Duopoly market

Rivalry -First mover advantage

Boeing Orders vs. Airbus

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ORDER

BOEING AIRBUSSource: www.boeing.com : www.airbus.com

Boeing delivers vs. Airbus

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DELIVERY

BOEING AIRBUS

Source: www.boeing.com www.airbus.com

Boeing Orders and delivers

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ORDER & DELIVERY

ORDER DELIVERS

Market Classification

Commercial Airplanes50%

Boeing Defense, & Security50%

Boeing Capital Corporation1%

US59%Asia

16%

Canada1%

Europe12%

Middle East6%

Oceania3%

Africa2%

Others1%

Ratio Analysis Of Boeing

2006 2005 2004 2003 2002

Current Ratio

0.770000000000001

0.78 0.720000000000001

1.05 0.850000000000001

Quick Ra-tio

0.5 0.5 0.52 0.760000000000001

0.54

ROE 0.1589 0.1152 0.0841 0.0337 0.02475

DE Ratio 0.5853 0.4271 0.489 0.624700000000001

0.631200000000001

Dividend Payout Ra-tio

0.157 0.1447 0.1364 0.1429 0.1531

0.250.751.251.752.252.75

Source: www.boeing.com

Study on the revenue on Boeing

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51.1

5853.8

50.3 52.5 53.6

61.566.4

60.9

68.364.3

68.7

revenue ( $ in billion)

Source: www.boeing.com

After the case Financial Status

Source: Zonebourse.com

After The Case Financial Status

Source: Zonebourse.com

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