Analyze the economics of the market for large commercial jet aircraft. What are the implications of these economics for the strategy of Boeing?

 Boeing case analysis

Mini-case response – mini-case #

Introduction

The case is about Boeing, a market leader famous around the world for researching, designing, and developing jet aircraft for commercial and military buyers (Levine, 2015). The analysis of this case will focus on the innovative strategies Boeing uses to conquer the market (like the innovation of Dash 80, Jumbo jet 747, commercial jet 787, A300, and many others), together with the challenges faced especially during difficult economic times. The analysis will end with recommendations for improving the reputation and financial position in the future.

What is Boeing and what are the company's mission and goals

According to Dutt (2021), Boeing is a famous aircraft manufacturing company with the following mission statement:

“To connect, protect, explore, and inspire the world through aerospace innovation.”

Therefore, according to the case, Boeing is an innovative company that has inspired millions by creating first -in -the market production methods and systems for large jet aircraft like the Boeing 747.

Critical incidents in a company’s growth and determining why they are important

• Boeing is usually the first in the market to produce large jet aircraft such as the Dash 80 and 747. These innovative strategy has inspired many and led to the generation of revenues.

• Have a full range of aircraft from small to large. Making the company a market leader in the industry.

• Forefront in areas like operation efficiency that lead to growth in traffic volumes by reducing operation costs like labor. This is important when competing with others in the industry.

• The industry faces challenges such as complex production processes. Therefore, delays are common due to slow production and difficulties in managing outsourcing from different countries.

• Safety and security issues have brought concerns and slowed down sales for large aircrafts

Its internal strengths and weaknesses

Boeing’s strengths lie in its innovation, partnerships, supply chain, variety of products, and market share (Christopher, 2016). The company is regarded as innovative because it was the first to come up with lightweight carbon composites and fuel-efficient innovations in the industry. It acquires and partners with other manufacturers all over the world and is a strong competitor in all markets. Boeing’s weaknesses can be identified with its issues with designs, poor quality of airplanes, and supply issues. The company has encountered numerous production issues and delays. Even after launches, there have been defects and requirements for redesigns (especially with the 737) The suppliers have bargaining power over Boeing because the company relies on them to produce quality supplies and to finish its productions. Boeing’s value has depended on quality supplies and since it has no control over the suppliers the value chain has been poor over the years.

Opportunities and threats

Boeing has lots of opportunities in the industry like to produce environmental-friendly planes (lower noise, harmful emissions, and carbon emissions). It has the experience and capabilities to innovate groundbreaking aircraft and generate more revenue. Another opportunity is the airline industry is growing very fast due to growing technologies that can be used to innovate. Threats being faced by Boeing include trade wars, bans, security issues in terms of the terrorist, pandemic, and hackers. which have contributed to reduced in travelers. High costs involved in the production of aircraft is another threat, together with competition from Airbus ( A320) and other entrants with low-cost airlines.

Company Strategy

Boeing has always had a strategy of innovating first in the market aircraft and to stay ahead of competitors using airplanes of various forms, sizes, and prices. For example, the 737 aircraft varies in size (110 to 215 seats), range (2,000 to over 5,000 miles), and prices ( 737-600, to $282 million). The company outsources its supplies across the world and can acquire other companies to improve its production process, like when it acquired McDonnell Douglas for its strong military business

Boeing differentiates itself by redesigning its commercial jet aircraft to sell more to the buyers and by innovating efficient planes to get more market share with its wide-bodied 787 that became the fuel-efficient largest jetliner in the world. Boeing also tried to cut prices in an aggressive move to gain share from Airbus but this lead to doubling the production schedule between 1996 and 1997.

investment strategy

Boeing uses the cash flow from sales revenue gained from its innovations to fund investments in more versions of the same aircraft to sell to more customers and to replace old versions. For example, the 757 was designed as a replacement for the aging 727 and this goes on and on.

Are its functional competencies are sufficient for achieving SWOT strategy

In this case, it can be seen that Boeing has suffered great losses caused by delays in the production and supply chain. Lack of control of the suppliers and poor quality components for producing the planes led to the need to seek better production systems which in turn led to sending moonshine teams to Japan’s leading manufacturing companies like Toyota to train in lean production techniques being used there to assemble automobiles and try to use it in the aircraft manufacture. This led to a reduction in production costs.

Boeing's current strategies in globalization and innovation and suggestions for improving strategies

For Boeing, The preferred mode of entry into new markets has been merging, acquisition and innovation. For instance in 1996 Boeing merged with its long-term rival McDonnell Douglas to strengthen its presence in the defense and space side of the aerospace business areas, where McDonnell Douglas was traditionally strong. Boeing purchased a Vought Industries Aircraft plant to exert more control over the production process and to fix the supply chain issues. through innovation to switch to just-in-time inventory systems it now saves on space.

Company's structure and control system and if they match or don't match the company's strategy

The company is made up of a complicated supply chain where the items needed to complete the production of an airplane are too many to be produced by one manufacturer, therefore Boeing outsources these parts from different manufacturers located in different countries. It also tries to maintain good relationships with them but there are times when supplies do not meet the quality standards set by Boeing and this has led to problems in the supply chain because of the complexity and lack of control of these suppliers. In turn, Boeing has suffered great losses due to rework, redesigns, and production holdups.

Ethical issues and social responsibility strategy - and my recommendations for changes to the strategy

In the late 1990s and early 2000s, Boeing had struggled with a number of ethics scandals and production problems that had also tarnished the reputation of the company. There were employee scandals and airplane crashes. My recommendation is Boeing should not rush to produce aircraft that are poorly designed not fully tested.

Financial position and my recommendation

Despite all the ethical issues, scandals and losses, Boeing has remained a financial powerhouse in the aircraft industry. In 2001, for example, the commercial aircraft group accounted for $35 billion in revenues out of a corporate total of $58 billion, or 60%. In 2005, with the delivery cycle at a low point (but the order cycle rebounding), the commercial airplane group accounted for $22.7 billion out of a total of $54.8 billion, or 41%. The balance of revenue was made up of a wide range of military aircraft,

Recommendations are done by answering the questions below:

1. Analyze the economics of the market for large commercial jet aircraft. What are the implications of these economics for the strategy of Boeing?

The large commercial get aircraft industry is generally taken to mean the market for jet aircraft mainly manufactured by the two giants - Airbus and Boeing. They have more seating capacity, use more fuel, and are much more expensive compared to those manufactured by regional jet aircraft, such as Embraer of Brazil and Bombardier of Canada.

The economies are characterized by the following factors:

• The research and development costs associated with manufacturing a new airliner are very high.

• High start-up costs and long periods to break-even point that a company has to wait for and to capture market share.

• There are significant learning periods in the large aircraft production industry and the need to be more efficient, reducing assembly time, boosting productivity, and lower costs.

• At several times in the history of the industry, problems with the supply of critical components have held up production schedules and resulted in losses because of the complexities of manufacturing an aircraft that has millions of parts. Over the last two decades, however, there has been a trend to contract out production of components and even entire subassemblies to independent suppliers

• All-new aircraft are now designed digitally and assembled virtually before a single component is produced.

Therefore, Boeing has to decide whether to continue redesigning aircraft in this category or wait for future opportunities to first come.

2. What advantages do the two incumbents, Boeing and Airbus, enjoy over potential rivals (most notably Embraer, Bombardier, and the Commercial Aircraft Corporation of China)?

Economies of Scale: Boeing and Airbus benefit from large economies of scale because they produce various large aircraft with lower resources which new entrants cannot manage.

Learning period. The learning cycle of managing and producing these large aircraft is long therefore

the incumbents have a tremendous cost advantage over potential rivals when it comes to knowledge.

Competences. When it comes to experience, knowledge, and skills associated with designing and manufacturing, Boeing and Airbus have an upper hand.

Customer Loyalty. customers are more likely to prefer the products of Airbus or Boeing than those of new entrants.

3. What does this mean for Entry Barriers?

This means that the entry barriers to the large commercial jet aircraft are high for new entrants, therefore the companies like Embraer, Bombardier, and the Commercial Aircraft Corporation of China would rather stick to the production of small planes.

4. Does this mean that Boeing and Airbus are secure from new entry? Which segment of the market are potential new entrants most likely to focus on?

The answer is no because they are new entrants like Southwest Airlines, the Ryanair a 200+ plane order that could go as high as 400, the Embraer and Bombardiers with their regional jets, and the Chinese companies building 170- to 190-seaters.

5. What are buyers looking for from Boeing and Airbus? How much power do they have? What are the strategic implications for Boeing?

When it comes to Boeing and Airbus, their buyers are looking for fuel-efficient, safe, reliable, and inexpensive commercial aircraft that suit their business environment and economy.

The buyers have a lot of bargaining power because both companies (Airbus and Boeing) can not stay in the market without the buyers while buyers can still place orders from companies outside Boeing and Airbus. The buyers also have the ability to make these two companies compete in price wars to get better bargains.

The strategic implication for Boeing are:

Remain an innovative or first in the market inventor of superior designs, safe and efficient airplanes with the latest technology to stand out from the competitors and bargain in their favor.

To be profitable by Continuing to lower manufacturing costs through future innovations like the lean production systems as the case state that The key to the success of the budget airlines is a strategy that gives them a 30 to 50% cost advantage and to create variations of planes produced to suit buyers needs.

Produce smaller aircraft for nonstop flights between cities with no frills on the flights; no in-flight food or complimentary drinks therefore low prices for seats.

charging higher prices than the discount airlines, particularly for business travelers, who pay more to book late and to fly business or first class.

Conclusion

The case covers the history of Boeing since its inception, it has the data and information regarding the company and its rivalry with Airbus. However, it does not cover other pressing issues that Boeing faced like failures and crushes of aircraft, losses of profits due to buyers refusing to order for aircraft, and security issues caused by poor management of the supply chain, handling of suppliers, and incompetence of the workforce. Despite these shortfalls, the case still has valuable insights into the positives achievements of one of the most successful aircraft manufacturers in history.

References

• case 11 Boeing Commercial aircraft 02277_Case11_rev02.indd 39

• Levine, D. A. (2015). The Dragon Takes Flight. Brill.

• Dutt, R. (2021). Radical Product Thinking. Macmillan Publishers.

• Christopher, M. (2016). Logistics & Supply Chain Management. Pearson Education Limited.

• Naimzade, Kamal. (2018). Case study: The Boeing company strategic analysis. 10.13140/RG.2.2.12570.49602. Term project for Strategic management class: A case study The Boeing company, strategic analysis.