Executive Summary:

      The case study is designed to increase public awareness about Boeing’s international issues with Airbus and address the strategies Boeing must employ to accelerate business growth. The first section summarizes the difficulties Boeing faced after the acquisition of McDonnell Douglas and Rockwell International Corporation. The following major difficulties will be addressed, US and Europe relations, the Asian crisis, Boeing’s production line inefficiency, and cultural change. Included in the first section will be information on how Boeing can or already have taken steps to limit the impacts of each difficulty. The second section will address the options Boeing should take to meet with increased competition from arch – rival Airbus. The major two options emphasized in the second section are the change in Boeing’s business model and investments concerning innovation. The last section will discuss some steps Boeing has taken to cut costs and increase profitability. The case study will also announce how molecular manufacturing (a field of nanotechnology) could cut operating costs substantially for Boeing, increasing their global position and presence. Through out the case study there will be additional examples of cost cutting strategies Boeing has or should incorporate into their business model. Thus, before examining the issues surrounding Boeing, a brief historical outline of the Boeing Company will be addressed first.

Brief History:

      In 1903, two events launched the history of modern aviation, which were the Wright brothers first flight at Kitty Hawk, North Carolina and William Boeing leaving Yale to travel to the west coast. After the depression in the 1930’s, the Boeing Company had evolved into a giant aerospace manufacturer by 1957, when Boeing revolutionized the long – range jumbo jet the 747. Later in the 1960’s, Boeing made new ventures into space exploration with their new production of satellites and spaceship engines (e.g. S-1C). In the mid 1990’s, after the merger with McDonnell Douglas and Rockwell International, Boeing became and still is the largest, aerospace, missile defense, battlespace management and space-based communications manufacturer in the world. In conclusion, to the information presented above, about Boeing history, the case study will now examine more closely the difficulties that plagued the world’s largest aerospace manufacturer, Boeing.

US – Europe Relations:

      The merger of McDonnell Douglas and Boeing in July 1, 1997, had sparked international conflicts because the European Community (EC) claimed the merger had broken Antitrust Laws and created an unfair market. The EC viewed the merger as it claimed jurisdiction from the outset based upon the substantial level of sales – particularly of commercial jet planes to European customers. The EC was afraid that Boeing would control a larger market share and may employ negative management practices like price gouging. The EC grew more concerned about the increased competition between Boeing and Airbus. As tension mounted on the McDonnell Douglas and Boeing merger the Federal Trade Commission (FTC) stepped in to investigate whether or not the merger impacted Airbus. After the FTC finished their investigation they concluded that McDonnell Douglas no longer constitutes a meaningful competitive force in the commercial airplane market. Thus, after the FTC announcement Boeing later found themselves in a financial crisis caused by the economic recession in Asia.

Asian Market:

      The underestimation of the Asian crisis damaged Boeing’s business because the demand for Boeing’s airplanes decreased, which caused substantial financial losses for Boeing. The chart below depicts the situation Boeing faced with decreased demand, which lead to financial losses and fifty thousand layoffs. Boeing lost 17% of their market share because the economic recession in Asia cut sharply into Asian airline profits, which halted new orders for long – range airplanes. [1] The Asian recession impacted Boeing’s profit earnings because 70% of Boeing’s sales are international. In addition to poor sales, Boeing faced huge penalties and contract concessions due to late deliveries. Two solutions were implemented by Boeing in the attempt to cut costs. The solutions were to start laying off employees (presented by the purple line) and scaling back their production of some of their best –selling airplanes in order to coup with demand (presented by the red line). In conclusion, Boeing’s underestimation of the Asian crisis almost drove the company under, however the bigger problem to overcome is their aging production line.


Boeing Production Difficulty:

      The biggest shock to the world’s largest aerospace manufacturer happened in 1997 when Ron Woodward (vice president of Boeing) shut down the production line for their best – selling airplane models, the 747 and 737, for a period of one month. The reason for the one month shutdown of Boeing’s best – selling airplanes is attributed to the failure in managing production. In Seattle, Washington, Boeing found another challenging task when expanding their production facility base in order to increase productivity and capacity. Another difficulty was integrating the newly acquired McDonnell Douglas plants in California to handle Boeing’s production line. The Class Plaintiffs alleged that Boeing knew that; it was plagued with persistent production flaws, parts shortages, and a variety of labor problems, which would materially impair Boeing’s production schedule and create a high probability of large losses to the company. [2] There are two operational plans Boeing could have employed to prevent production limitations and part shortages.

Thus, the loss in sales could have been avoided if information systems and investments in R&D were in place but the strike of the Society of Professional Engineering Employees in Aerospace (SPEEA) signaled a huge cultural shift.

Boeing Culture:

      The strike titled SPEEA presented another difficulty for Boeing because the strike almost destroyed Boeing’s reputation, namely their dedication to people and quality. One of several major issues leading to the strike was a new contract which required each employee to pay a portion of their medical premiums. The second action Boeing took was slashing life insurance benefits, which SPEEA executive director Charles Bofferding called, “mean – spirited.” [4] Externally Boeing had started to focus more on shareholders than on the cultural issues forming inside the organization, as one striker mentioned. Another issue focused on the new president McDonnell Douglas gave to Boeing who mostly focused on cost cutting and cultural change. The other reason is the integration of the former Rockwell International Corp. and McDonnell Douglas employees who would need new pension plans and training because the management practices Boeing followed were different. In conclusion, the cultural risks almost destroyed Boeing’s life long reputation however, after the financial losses in 1997, Boeing adopted new options in order to compete with arch – rival Airbus.

Options for Increased Competition:

      In order for Boeing to coupe with increased competition they must allocate more financially resources into technology in order to extract potential areas of expansion. As Phil Condit (CEO of Boeing) said, we must “dramatically reshape the way we do business.” Boeing should recognize new and emerging technology trends in order to start marketing new services and products. In an article published under looksmart, Boeing has announced under their “New Flight Plan” new projects based on both information and communication technologies. [5] One project is titled, “Connexion,” which will offer broad band internet service on commercial airplanes by incorporating an antenna previously used for military applications. The other project is the development of a “network centric” warfare infrastructure for battle management. In addition, both projects are new ventures for Boeing but Boeing must reacquire the market shares they lost in order to compete internationally with Airbus.

International Competition:

      After the economic recession in Asia, which contributed to the 17% decrease of Boeing’s market shares, Boeing can still increase their competitive advantage with Airbus by applying on of two options. The first option is reacquiring the business deals and contracts with international airlines (e.g. British Airways) that have cut their business relationships with Boeing after realizing Boeing’s inefficiency to deliver products on demand. The second option is investing more financial resources toward their R&D program in order to extract new innovations. One new innovation was the “straight line configuration,” which is a manufacturing process designed to increase production efficiency and lower the marketing time of manufactured airplanes. John Quinlivan (Boeing 767 vice president and general manager) said, “Transitioning 767 final assembly to a straight line will help us find and eliminate the waste in our production system.” [6] The quote above highlights the importance of innovation because the continued strategic growth and competitive advantage of Boeing is accomplished through new and improved manufacturing.

Research and Development (R&D):

      Boeing has invested major funds into one new and emerging field of nanotechnology called molecular manufacturing. Molecular manufacturing is the creation of consumer products (an atom at a time) from the nanoscale. Self assembly is the creation of machines and devices from the nanoscale, which are then used to grow consumer products from the nanoscale all the way up to the macro world (pictured to the left). [7] Point to emphasize; self assembly is the “process” that underlies molecular manufacturing. The impact of molecular manufacturing will be seen through lower operating costs and the increase of Boeing’s competitive advantage with Airbus. To understand the impact of molecular manufacturing, the following paragraph will summarize how molecular manufacturing could have prevented the difficulties Boeing faced in the late 1990’s.
     During 1997, Boeing had problems meeting with demand because their production line was inefficient. If molecular manufacturing were in place the production line would have been very efficient even with the increase in demand because the new production process would automatically adjust to compensate for increased demand. Molecular manufacturing would have eliminated the financial losses in 1997 and retained the 17% market shares that were lost. The economic recession in Asia would have no impact on Boeing’s profitability because molecular manufacturing gives Boeing increased control over market prices. The reason here lies in the need for no human labor, decrease in time-to-market and raw materials, and the decrease in the product development process, which are attributed to the advantages of molecular manufacturing. By controlling the prices in the European market Boeing could adjust their prices as low as they want in order to entice airlines to buy their products. Not taking into account that Airbus has integrated molecular manufacturing into their company.

Forecast for Boeing’s Competitive Position:

     As the airline industry move towards implementing regional jets Boeing must change or accelerate production of their regional jets in order to coupe with the fluctuating market. Boeing has recognized the potential increase of regional jets and will increase production of their regional jets by 17% (4,290 airplanes). [9] The increase comes after Boeing forecasted that operators will invest $2 trillion during the next twenty years for new commercial airplanes. Note: the $2 trillion are allocated into four categories, regional jets, single – aisle airplanes, twin – aisle airplanes, and large commercial jets.

Strategic Growth:

     Strategic growth is very important in the aerospace manufacturer market and Boeing can stay ahead of the competition by reducing expenses and increasing profitability through innovation. An article by the Industrial College of Armed Services (ICAF) describes how, Boeing expects to remain competitive and increase profitability in the years ahead by employing fewer employees and using more efficient equipment and processes. [10] More efficient equipment and processes will evolve through new innovations like (discussed in minor detail earlier) implementation of molecular manufacturing. Boeing will dramatically increase profit margins while decreasing expenses through molecular manufacturing because the process self assembly (embedded in molecular manufacturing) will decrease human labor costs and operations costs. The process (self assembly) will decrease Boeing’s operating costs because the process will produce raw materials at Boeing’s Industry, which decreases Boeing’s dependency on suppliers. Another operating expenditure which will decrease is human labor because self assembly will use nanoassemblers (robotic arms, instead of humans) which will produce products that are defect free. If the assembly line were to be damaged self assembly will be capable of repairing itself, which decreases repair expenses. The cost for equipment will decrease because self assembly will grow the equipment and automatically implement them into the manufacturing process. Another cost reduction is the construction of new plants. For example, today Boeing constructed a new plant which cost about $200 million (for example) and is equivalent to the length and width of five football fields. With molecular manufacturing Boeing could construct a new plant for only $50,000 and the plant’s size would be only the size of an acre. Aside from molecular manufacturing there are other types of methods to increase profitability and decrease expenses.
     Boeing is striving for larger profit margins by increasing productivity (straight line configuration) through reducing square footage, overhead costs, and their supplier base. Diversification has enhanced Boeing profitability because Boeing has integrated into new markets like communications and information technologies which both combined are estimated to be a trillion dollar market. Expenses have been minimized through diversification because Boeing’s management staff can analyze the profitability of each department and eliminate excess facilities and non – core business activates which are unprofitable. Boeing has minimized overhead costs by minimizing inventories through a combination of just-in-time delivery and conservative ordering of parts and supplies. In conclusion, Boeing has and can minimize expenses and increase profits through innovation and better decision making strategies.

Conclusion:

     In order for Boeing to continue dominating the aerospace market Boeing will have to coupe with international relations and the changing economy. From the beginning the case study provided a brief historical view about the Boeing Company. Following the historical view the case study outlined four major difficulties Boeing faced since the 1997 merger. After outlining the difficulties one conclusion can be made. By defining, analyzing, developing plans, and implementing those plans, Boeing could have eliminated each difficulty. Section two addressed two major options Boeing could use in order to increase both their profitability and competitive advantage against Airbus. From the two options, (1) reshaping Boeing’s business model or (2) investing in innovation, either approach would have increased Boeing’s competitiveness and profitability. The third section displayed evidence that Boeing had already recognized the changes about to occur in their market. The final section focused on strategic growth and emphasized on molecular manufacturing as the key to increasing profitability and decreasing expenditures. Other examples for increasing profitability and decreasing expenditures were diversification and minimizing overhead costs. In conclusion, international issues and strategic growth are important because they both affect Boeing’s continued global dominance against Airbus.

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