Boeing Case

Title of the Case: The Boeing Commercial Airplanes Group Decision (2001)

I. CASE ABSTRACT

The Boeing Commercial Airplanes Group was the core business of the Boeing Company of Chicago, Illinois. Achieving its first success in the 1920s with the B-9 bomber, Boeing had a successful history of designing and producing large aircraft for both military and civilian markets. During the 1980s and 1990s the aircraft industry consolidated, with Boeing as the sole surviving American manufacturer of large aircrafts. Paradoxically, a European start-up consortium named Airbus Industrie competed for market share with Boeing. After 20 years, using state-of-the-art technology, Airbus had garnered a market share of nearly 50 percent.

Although Fortune magazine once printed that Boeing had a license "to print money," their position was weakening, particularly with Airbus' challenge to Boeing's sole ownership of the jumbo-jet market. The Boeing 747-700 had been the world's standard for intercontinental transport and with no competitive equal, Boeing's profits were buoyed by this design. Following extensive market research, Airbus Industrie decided to create a super jumbo-jet, which it labeled the A-380.

Boeing's equally intensive market research led them to conclude the market would be too small to justify commercialization of a super-jumbo. However, Boeing had the potential to up-size the 747-400 into a 747-X, about half way between the size of an A-380 and a 747-400. The development cost would only be about one third of the A-380's development cost.

Boeing was faced with the decision of whether to proceed with the 747-X or wait and watch to see whether Airbus' A-380 was a success.

Decision Date: 2001 2000 Sales: $51,321,000,000

2000 Net Earnings: $ 2,128,000,000

Note: Commercial Airplane sales and earnings in 2000 were:

Sales: $31,171,000,000

Earnings: $ 2,736,000,000

II. CASE ISSUES AND SUBJECTS

Airframe Industry

Strategic Business Units (SBU) Sonic Cruiser

Political/Legal Issues

Geopolitical Issues Financial Management

Super-Jumbo Jets Corporate Governance

Boeing's Acquisition of McDonnell Douglas Marketing Strategy

Competitive Strategy

Core Competency Growth Strategy

Distinctive Competency Global Markets

Technology Strategies Industry Analysis

Consortium/Ownership Issue of Antitrust

Acquisitions Boeing 747-X Dropped

IV. CASE GOALS / OBJECTIVES

1. To discuss the competition between Boeing and Airbus for global airline dominance

2. To discuss Porter's industry analysis in the airframe industry with two manufacturers (suppliers) of aircraft and over 200 airlines as customers

3. To discuss what core competencies Boeing has, if any

4. To discuss what distinctive competency Boeing has, if any

5. To discuss the merger of Boeing and McDonnell Douglas

Ð'* To discuss the benefits and impact on Boeing

Ð'* To discuss the impact on Airbus

6. To discuss what strategies Boeing must develop and implement to remain number one

7. To discuss the risks to Boeing to develop a super-jumbo jet, and the risks not to develop a super-jumbo jet

8. To discuss how Boeing can improve its profit situation in the future

VI. DISSCUSSION QUESTIONS

1. What are the strengths and weaknesses facing Boeing?

2. What are the opportunities and threats facing Boeing?

3. What are the strategic factors facing Boeing?

1. Does Boeing have any core competencies? If yes, what are they?

2. Does Boeing have any distinctive competency? If yes, what is it?

6. Discuss Porter's industry analysis forces and how each force pertains to Boeing.

1. Can the industry allow for both Boeing and Airbus to "build" their

strategic positions at the same time?

Airbus successfully developed the A-300 design as a niche design in the industry. Then, they turned to replicate Boeing's different functional aircraft designs (i.e. A-300 to compete against the Boeing 777 and A-319/320/321 to compete against the Boeing 757). The Airbus A-380 is a leapfrog over the Boeing 747-400.

If Airbus is successful with the A-380 the 747-400 will be substantially reduced, but not eliminated. Boeing's history has been the development of new designs that offer new advantage to their customers. It seems quite unlikely that the 747-X offers much advantage to the airlines. The development costs that either company faces require significant market development to be successful. In the event that break-even quantities do not materialize, or if both companies proceed with development and thereby limit each other in sales, it becomes apparent that if airbus proceeds, the only way Boeing can win is not to develop a 747-X.

The below matrix charts the options.

AIRBUS INDUSTRIE and A-300

BOEING LOSES BOEING LOSES

AIRBUS WINS AIRBUS WINS

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