Introduction :

The case traces the history of Boeing, one of the two makers of commercial aircraft. At
last in the year 2006 Boeing have recovered from its multi year setback in its competitive
position with its competitor Airbus industries in the commercial aircraft industry. From
mid 1990 Boeing had been losing in aircraft order and profit. Airbus booked more order
than Boeing in its history in the year 1999 and repeated regularly until 2005. In the first
half of 2006, Boeing booked 4 times more aircraft than Airbus. In 2005 Airbus repeatedly
delayed in the delivery of its newest model A380, causing embarrassment, customer had
also panned Airbus smallest model A350 at the drawing board stage and requiring rework
on the model.

Boeing two engine long haul 787 Dreamliner, a direct competitor to A380 and A350, had
received rave reviews for its technological excellence, backed by firm orders from
commercial airlines and aircraft leasing companies. Commercial airlines are the customer
of Boeing and Airbus, had collectively losing in the early 2000. Some times the concern
people were thinking of Boeing. Did the Boeing learn its lesson and the current good
fortunes reflect in the long run. Could they able to ride on Airbus due to their missteps
and misfortune? Boeing showing its excellence in design, solid order book position and
their efficiency and production increased.

The Company is almost synonymous with commercial air travel, due to the worldwide
acceptance of its product. One of the distinctive and commercially successful product of
Boeing is 747, the four engine aircraft with bubble upper deck. After merger with
Mcdonnell Douglas in 1996, Boeing became a broad based aerospace business with
which commercial aerospace accounted for 40-60% of the total revenue. The late 1990s
and early 2000s were the traumatic time for Boeing’s history, even though its rival grew
strength to strength and aggressively courted customer all over the world.

The case traces Boeing’s action to turn itself around, streamlining production to make it
more efficient. The case also provides the insight trouble faced by the Airbus. Initially
Airbus was a consortium of four countries – Germany, France, Spain and Great Britain.
In 2001 Airbus became a fully integrated company. The European Defense and space
company (EADS), formed by a merger between French, German and Spanish interests
acquired 80% shares in EAD , Britain and BAE took 20% share.

Strategic issue:

Boeing adds either differentiation advantage or a cost advantages. The value chain of
Boeing was significantly improved. Top management maintained risk taking culture
which leads to the development of the Boeing 787 Dreamliner. Rather than wallow in
“Not invented here” syndrome, enabled the management learning from other successful
manufacturing system. The move of Boeing headquarter from Seattle to Chicago enabled
them to take a project for the long term not for the short term strategic health. The
manager became familiar to worm and focused for the organization not for the functional
manager.

They tried to learn from the global surroundings. Boeing engineers and workers
committed themselves to learning from Toyota’s production system including JIT(just in
time) inventory, assembly line system for Boeing 737. The single largest positive impact
of this issues was just reduction of inventories and being customize the plane faster. The
Boeing changed in inbound logistics activities.

The management were working with suppliers who had distinctive competencies in
developing and making subassemblies. They simplified the production in house.

Cooperation with each other:

Boeing and Airbus compete actively in all level. They also look at the cooperation with
each other rather than competitiveness. Boeing and Airbus identify the area where they
cooperate, such as design of basic materials and standards and compete in the final
product. Consumer electronic company uses these approaches to reduce the cost of
development, lower their prices, rapid increase in market size. Toshiba and JVC develop
basic standards for consumer’s devices such as CD and DVD players, which eliminates
duplication and uncertainty in this area. Thereby they set a standard and enhanced the
manufacturing quality.

Boeing and Airbus collaborate to standardize some aspects of their aircraft, such as
cockpit controls and safety, which would minimize training cost and make the aircrews
interchangeable between planes made by both manufactures.

Industry at a glance:

R&D costs in this industry are high and have a long gestation period for recovery. The
airline industry, however in most of the world has been weak and has limited capacity to
buy new planes at fast clip.

In domestic routes, especially in the United States, the Major airlines are switching from
larger aircraft to regional jets. Neither Boeing nor Airbus makes regional Aircraft.
Regional jets are cheaper to operate, labor cost savings- such as pilot salaries are based
on the weight of the aircraft they fly. The demand of traditional favorites aircraft Boeing
737 and Airbus 319 and 320 decreased for the regional jet which produced by Canada’s
Bombardier and Brazil’s Embraer.

Both Boeing and Airbus now have a full range of Aircraft. Boeing offer five aircraft
families that range in size from 100 to 500 seats. They are the narrow bodied 737 and
wide bodied 747, 767, 777 and 787. Similarly Airbus offers four families. The narrow
bodied A320 family and the wide bodied A300/310, A330/340 and A380 families which
have a seat ranges from 100-550.
The economics of development and production in the industry characterized by a number
of facts.

1. The R&D and tooling costs associated with developing a new airline are very
high. R&D cost for 777 is $5b, 787 is $8b and A380 is $15b.
2. Given the high upfront costs to break even a company has to capture a significant
share of projected world demand.
3. There are significant learning effects in aircraft production. On average unit costs
fall by 20% each time cumulative output of a specific model doubled.
4. The assembly of aircraft is an enormously complex process. Modern aircraft have
over 1 million of parts which have to designed to fit with each other. In the
history many times the complex parts took more time to designed and produced
so there resulted a losses. Historically the airline manufacturer tried to manage the
supply process through vertical integration. There has been a trend to contract out
production of components and even entire subassemblies to independent
suppliers.
5. Finally all new aircraft are now designed digitally and assembled virtually before
a single component is produced.

What is going on:

Boeing key competitor Airbus was investing and courting countries experiencing rapid
economic growth and boom in air travel. They abandoned the restriction or fascination
not to invest outside of the Europe. In October 2006 Airbus won a huge order to supply
150 of A320 short haul jet. Airbus announced to established a production line at China.
In December 2006, Airbus announced to invest $1 billion in India to meet the vigorous
demand in its travel market in the next decades.

At the same time the Airbus was trying to improve the production in Europe. Airbus
was not about to through in the towel in the flight with Boeing for the market share and
profit. Boeing could hardly rest on its laurels and count Airbus out as a formidable and
fierce competitor. U.S airlines would need many new planes to replace their fleet
typically they are need to be replaced after 25 years of its services. This is a negative note
for the U.S market because Boeing and Airbus are booked up to 2012 for their production
lines and distribution.

Demand for commercial aircraft is very volatile and tend to reflect the financial health of
the commercial airlines industry. Losses were particularly severe among the big six
airlines in the world’s largest market the U.S ( American airlines, united, Delta,
Continental and Northwest). Three of them seek bankruptcy protection. The budget
airlines in 1999, Air Tran and Jet blue held a share of 16% of U.S market which rised
29% in the mid 2004.
The key to success of Budget airlines is a strategy that gives them a 30% to 505 cost
advantages over traditional airlines.
They follows:
1. Purchase just one type of aircraft.
2. Hire nonunion labor and cross trained employee to perform multiple jobs.
3. They favor flying point to point rather than through hubs and often use less costly
secondary airport rather than major one.
4. They focus on large markets with lots of traffic.
5. No frill on the flights.
6. Prices are set low to fill up the seat.

Demand Projection:

Both Boeing and Airbus issue annual projects of likely future demand for commercial
jet aircraft. These projection are based on assumptions about future global economic
growth , the resulting growth in demand for air travel and financial health of the world’s
airlines.

Airbus believes that hubs will continue to play an important role in airline travel.
Particularly international travel, and that very large jets will be required to transport
people between hubs.

Boeing have a different view of the future. The hub will be congested in future and many
people will seek to avoid them. Boeing thinks passenger prefers frequent nonstop
services between two cities.