Value Chain

Boeing Corporation Analysis Paper

Table of Contents

Paper Objective

Commercial Aircraft Industry Summary

Industry Profile

Typical Industry Competitive Strategy

Porter Competitive Model Analysis

Globalization of the Industry

Importance of Information Technology to the Industry

Boeing Company

Boeing Company Profile

Market and Financial Performance

Competitive Strategy Statement

Significance of Information Systems

Strengths and Weaknesses of Boeing as a Company

Bibliography

Boeing Corporation Analysis Paper

Objective of Paper

The objective of this paper is to analyze the commercial jet aircraft industry and more specifically Boeing Corporation to better understand the significance of the role of information systems. At the present time the industry is dominated by two global players; Boeing and Airbus, and their rivalry is in many ways representative of two seemingly incompatibleвЂ"not to say totally opposingвЂ" market philosophies. Boeing is the “free market” champion, while Airbus represents the “not so free” approach of the European Union’s organized and government subsidized competition in the so called strategic markets.

I Airliner Industry Analysis

Industry Profile

The worldwide market for commercial jet aircraft is primarily dependent on long-term trends in airline passenger traffic. And this trend can be explained by factors such as economic growth in developed and emerging markets, political stability, profitability of the airline industry, and the globalization and consolidation of the industry. Other important factors are limitations in air transport infrastructure such as government and environmental regulations and air traffic control. Finally product development strategy and overall competition between manufacturers also impact the market.

Figure 1: World Air Travel, Revenue passenger miles in billions, excluding the former Soviet Union airlines.

World air travel has been steadily increasing at an average annual rate of 5%, including in 1994 , with the exception of the year 1991 due to the Persian Gulf conflict. Despite the steady growth in traffic after 1991, most airlines have cut back their new aircraft orders, mainly due to their dismal financial performance, resulting in dramatic reductions in aircraft manufacturers’ backlogs. Air France, for instance canceled $500 million in orders from Boeing and Airbus in January 1995.

The commercial jet aircraft market is dominated by three major manufacturers; Boeing, Airbus Industrie and McDonnell Douglas. Table 1 illustrates the revenues and earnings of the three players. Other minor players, such as Fokker, British Aerospace and manufacturers of short haul, turboprop engine commuter planes are not included in the market estimates.

Company 1994 Sales in $m 1994 Earnings in $m Market Share %

Boeing 16,851 1,022 62

Airbus Industrie 8,000 N/A 24

McDonnell Douglas 4,760 40 14

Table 1: Revenues and market share of jet aircraft industry leaders, excluding former Soviet Union.

The situation in 1994 degraded significantly, and no indication of recovery is in sight for 1995. Worldwide aircraft shipments dropped sharply from 3189 units to 2402. Boeing registered a decline of 14% in its revenues compared to 1993, and McDonnell Douglas lost market share with its revenues shrinking by 9%. It is likely that McDonnell Douglas will halt temporarilyвЂ"and perhaps permanentlyвЂ" the manufacturing of its wide body MD-11 plane, due to a severe shortage of orders. This may leave for the long term only Boeing and Airbus competing in the long haul, wide body carrier segment. The current struggle between the three vendors seems to develop at the clear disadvantage of McDonnell Douglas. Recently, SAS which traditionally had been a faithful McDonnell Douglas customerвЂ"more than 70% of its current fleet is DouglasвЂ", gave preference to Boeing for 35 new B737-600s over the MD-95, a new model that Douglas was counting on SAS for its market launch.

Company Gross Orders Cancellations Net Orders

Boeing 120 46 74

Airbus Industrie 125 54 71

McDonnell Douglas 23 19 4

Table 2: New Aircraft Orders in 1994

In 1994 it looks like Airbus is about to catch up with Boeing in market share, while McDonnell Douglas has further receded: Indeed Airbus claimed it obtained “nearly 50% market share” in 1994’s orders for new aircraft of more than 100 seats. Table 2 summarizes the new orders received by the three manufacturers in 1994. Although Boeing has a current backlog of 959 units versus Airbus’ 615, if the trend continues, Airbus will soon be in the number one position.

Finally, the industry is very capital intensive, it requires a long time to recoup investments characterized by long development cycles. It needs a large base of skilled workers, high tech sustaining industries and sophisticated and demanding customers to thrive. Government intervention, different countries’ industrial policies and international trade relationships play also a major role in shaping the industry forces. b. Typical Industry Competitive Strategy

The key competitive strategies used by the three big players can be summarized as follows:

Extensive aircraft portfolio to satisfy requirements of customer airlines across the board. Boeing is the best positioned with aircraft capacity ranging from 100 passengers (737-500) to 500 (747-400). Airbus