Boeing Case Analysis
On December 1996, the Boeing Company purchased McDonnell Douglas for a premium of 21% over the price of its stock. This move gave Boeing the opportunity to increase its value by transferring its knowledge across business units, both commercial and defense aircraft. But in the two years after the merger, Boeing’s stock lost one third of its value due to increased inefficiencies and costs associated with the merger. Would this merger really add value to Boeing or would the costs outweigh the benefits gained.
The Aerospace Industry
Commercial Aircraft
The commercial aircraft industry had experienced a significant change during the deregulation of domestic airlines in 1978. The deregulation resulted in an increase in air travel, intense airfare competition among carriers, the entry of low-cost and low-capacity airlines. This increased competition shifted the focus of aircraft manufacturing from performance to low cost and from service to price.
Other significant characteristics of the commercial aircraft industry are:
· High barriers to entry: These were due to the very high and increasing costs of
product development, the need to establish long learning curves and achieve
economies of scale, no guarantee that the company would ever break even. This
meant that a company had to wait for at least a decade to reach break-even
point, and hope that the technology would not be obsolete by that time.
Economic failure was the norm instead of the exception in the aircraft industry.
· Deep cyclical movements between booms and busts
· Subcontracting: Grown in importance as aircraft components became more and more
complex. This was seen as way of sharing the risk associated with a project,
where the most efficient subcontractors would win bids to provide part of the
assembly to a larger contractor.
· Risk taking is rewarded: Although very large investments had to be made to
develop unproven technologies, these were rewarded by capturing market share
quickly and becoming the most profitable aircraft models.
· Production around families of planes: To reduce manufacturing costs and increase
an aircraft’s future lifespan with affordable fuselage changes.
· Product Development: Had been the preferred growt...
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...nsiderable investments by the subcontractor into specialized assets.
2) Increase R&D spending to regain technological leadership. Although Boeing commercial aircraft group will benefit from R&D spent in the defense group, it should at least match its pre-merger commitments to R&D because regaining technological leadership is more expensive than maintaining it.
3) Embark on new, riskier projects that will revolutionize the commercial aircraft industry, such as its aborted supersonic commercial jet. Besides sparking new demand and creating a new market, this project would also be a competitive weapon against Airbus’s entry into the jumbo jet market.
4) Although Boeing’s next CEO should be someone who has been created within the organization, the company should still strive to have more directors from the outside. The CEO should be and engineer who has grown to best understand the industry. Directors brought in from other companies and industries will give Boeing the proper business discipline by bringing in new ideas and break groupthink.
Bibliography:
from Textbook "strategic management an integrated approach" Charles W. Hill, Garreth R. Jones. fifth edition
The Airline Industry is a fascinating market. It has been one of the few industries to reach astounding milestones. For example, over 200 airlines have gone out of business since deregulation occurred in 1978. Currently, more than 50% of the airlines in the industry are operating under Chapter 11 regulations. Since 9/11, four of the six large carriers have filed for and are currently under bankruptcy court protection. Since 9/11 the industry has lost over $30 billion dollars, and this loss continues to increase. Despite the fact that the airline industry is in a state of despair, JetBlue has become the golden example, a glimpse of what the industry could be.
Despite the uncertainty and inherent risks, however, even if WACC exceeds IRR, the board may be well advised to accept the project. It's expected that in the first few years, Boeing will incur more expenses that income. The revenues will come at a later date when the 7E7 planes are delivered. The project will have to be evaluated periodically and management will have to make changes to ensure that the company is profitable based on current and future conditions. The board's prerogative is not to give Airbus a profit sanctuary' by not accepting the project but rather to maintain or increase its market in the industry even if it's not profitable in the shot-run. Boeing has deep pockets' and should be willing to challenge its competitors.
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I pick up the three point five foot lacrosse stick. I held it in my hand for the first time; it felt exceptional in the way it fit. The aluminum shaft was an acceptable, light weighted stick. It was not the most durable , yet it had a cold hard feeling. I went home that day excited about my new stick that I had gotten. Immediately after getting out of the car I ran to the biggest wall I could find and started playing wall ball. I noticed the battered down string tied to the head of the stick. The net was more yellow, brown than anything else. Even though the original color was white. The hard work that previous player of the stick had put into it had faded the string down. The battered down string was a resemblance of the time and effort that
As airline industry is a competitive marketplace, the airline companies use new technologies to improve their efficiency and decrease the overhead costs, including ‘advanced aircraft engine technology, IT solutions, and mobile technology’ (Cederholm 2014). The technology changes including technology improvement, new innovation and disruptive technology. The disruptive technology need to meet the characteristics of ‘simplicity, convenience, accessibility and affordability’ (Christensen 1995). The technology changes would bring both opportunities and threats to airline companies. Since Labour cost and fuel costs occupy 50% of most airlines operating cost (Groot 2014). Therefore, if new technologies could be disruptive in the two aspects, there will be important changes to current airline
The Boeing Corporation is one of the largest manufacturers in the world. Rivaled only by European giant Airbus in the aerospace industry, Boeing is a leader in research, design and manufacture of commercial jet airliners, for commercial, industrial and military customers. Despite enjoying immense success in its market and dominating an industry that solely recognizes engineering excellence, it is crucial for Boeing to ensure continued growth through consistent strategy formulation and execution to avoid falling behind in market share to close and coming rivals.
To achieve the above goals and fulfil Boeing’s mission, the following objectives will guide company:
As aviation matured, airlines, aircraft manufacturers and airport operators merged into giant corporations. When cries of "monopoly" arose, the conglomerates dismantled.
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
The aviation industry is very difficult to enter, and the threat of new entrants is low. The first and major threat to entry is the initial capital requirements. The development period is over 5 years, with very large initial investment costs, parts costs, and wages are necessary even before the company earn revenues and sell aircrafts. The economies of scale, when the airline company has a substantial order, there are reduction in cost because of discounts on large orders. The new entrant suffers a significant cost, which is a disadvantage compared to established companies. Another risk for the new entrant, the extra supply of products for the substantial order, will decrease prices. The result, the new entrant will
Boeing/Airbus Case Analysis Competition in the Commercial Aircraft Business. With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces. Figure 1: Porter’s Five Forces Applied to Aircraft Industry. Barrier to entry: - High barriers to entry, to a certain extent, help understand the risks involved in operating in the aircraft industry.
It has stayed relevant to the market through its propelled philosophy of relationships to generate profits in the business. Since its establishment in Monroe, Louisiana the once tiny airline has stretched to greater heights serving in 6 continents. It has also established a distinguishable name among its competitors with a reputation of leading customer services. However, even as an established venture, the company needs to maximize its profits in order to stay in business and expand in to new territories beyond its conquered boundaries. A strategic analysis was carried out by our team to establish the company’s current situation. A SWOT analysis was performed to come up with three referenced, strategic alternatives. This alternatives are meant to act as a strategic guidance to the company in order to enhance growth. The strategic recommendation provided will improve and enable the business to cope with the competitors while the implementation of the strategy section will outline the way to go about achieving these alternatives in the business setting. Lastly, we put up a discussion on the evaluation procedures and necessary controls for the
The perennial crisis in the airline industry: Deregulation and innovation. Order No. 3351230, Claremont Graduate University). ProQuest Dissertations and Theses,, 662-n/a. Retrieved from http://search.proquest.com/docview/304861508?accountid=8364.
Boeing Commercial Aeroplanes – Why Projects Fail. 2014. Boeing Commercial Aeroplanes – Why Projects Fail. [ONLINE] Available at:http://calleam.com/WTPF/?p=4617. [Accessed 26 March 2014].
In 1990 Boeing was set to introduce the 777, the world’s largest and longest haul twin-bodied jet at the time. The 777 would serve the medium and long haul markets like the expanding Asian market. Boeing’s main competitors, Airbus Industries and McDonnell Douglas, had already announced plans to produce airliners that would compete directly with the 777. Analysts believed that the intense competition between the manufacturers would serve to depress prices for the airliners. Lower prices for aircraft would mean lower earnings.