1. Pamela Herron (PH)
Gloria Mueller (GM)
Harold Parker (HP)
Miguel Pavon (MP)
Maricela Vargas (MV)
November 21, 2013
Group Project

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TABLE OF CONTENTS
EXECUTIVE SUMMARY (MV)....................................................................................................... 6
INTRODUCTION (HP)..................................................................................................................... 8
Background / History (of the Company) (HP) ......................................................................... 9
Mission Statement (PH) ..............................................................................................................10
Mission ............................................................................................................................................10
Business.........................................................................................................................................10
Major Goals ....................................................................................................................................11
Corporate Philosophy .................................................................................................................11
Strategic Evolution (MV).............................................................................................................12
Intended Strategies......................................................................................................................12
Emergent Strategies ....................................................................................................................14
Stakeholders (MP) ........................................................................................................................16
Internal.............................................................................................................................................16
External ...........................................................................................................................................18
Company’s Organization and Structure (GM).......................................................................19
Purpose of the Report (HP)........................................................................................................24
Chart for Team Activities (MV)..................................................................................................25
EXTERNAL ANALYSIS ................................................................................................................26
Basic Industry Information (MP)...............................................................................................26
Industry Growth:..........................................................................................................................26
Industry Profits: ...........................................................................................................................27
Industry Segments:.....................................................................................................................27
Industry Analysis/Porter’s Five Forces (GM)........................................................................29
Risk of Entry by Potential Competitors....................................................................................29
Entry Barriers:......................................................................................................................29
Economies of scale: .......................................................................................................30
Product Differentiation: ..................................................................................................30
Capital Requirements:....................................................................................................30

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Switching Costs:..............................................................................................................31
Access to distribution Channels: ..................................................................................31
Cost Disadvantages Independent of Scale: ...............................................................32
Government Policy: ........................................................................................................32
Expected Retaliation: .........................................................................................................32
Power of Buyers:.........................................................................................................................33
Power of Suppliers: ....................................................................................................................33
Threat of Substitutes: .................................................................................................................34
Intensity of Rivalry among Established Firms: .......................................................................34
Industry Attractiveness/Profitability:.........................................................................................34
Summary (Results) of Five Forces: .........................................................................................36
External/Macro Environment (HP)............................................................................................37
Demographics: ............................................................................................................................37
Economic: ....................................................................................................................................37
Technological: .............................................................................................................................38
Political/Legal: .............................................................................................................................39
Sociocultural: ...............................................................................................................................40
Global: ..........................................................................................................................................40
Summary of Analyses and Impact: ..........................................................................................41
Strategic Group (PH)....................................................................................................................42
Competitor’s Objectives:............................................................................................................44
Assumptions: ...............................................................................................................................44
Capabilities:.................................................................................................................................44
Market Share:..............................................................................................................................45
Competitive Advantages:...........................................................................................................45
Current Strategies:......................................................................................................................46
Opportunities and Threats (MV) ...............................................................................................46
INTERNAL ANALYSIS..................................................................................................................49
Value Chain Analysis (HP) .........................................................................................................50
Primary Activities .......................................................................................................................50
Research and Development (GM): ...............................................................................50
Strengths:.........................................................................................................................56
Weaknesses: ...................................................................................................................56
Production (HP): ...............................................................................................................57
Strengths:.........................................................................................................................59
Weaknesses: ...................................................................................................................59
Marketing and Sales (PH):..............................................................................................59
Strengths:.........................................................................................................................59
Weaknesses: ...................................................................................................................61
Customer Service (MP): ..................................................................................................61
Strengths:.........................................................................................................................61
Weaknesses: ...................................................................................................................62

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Support Activities ........................................................................................................................62
Materials Management (HP):..........................................................................................62
Strengths:.........................................................................................................................64
Weaknesses: ...................................................................................................................64
Human Resource Management (PH):..........................................................................65
Strengths:.........................................................................................................................66
Weaknesses: ...................................................................................................................66
Information Systems (MP): ............................................................................................67
Strengths:.........................................................................................................................67
Weaknesses: ...................................................................................................................67
Firm Infrastructure (PH):.................................................................................................67
Strengths:.........................................................................................................................70
Weaknesses: ...................................................................................................................70
Results of Value Chain Analysis (HP).....................................................................................70
Summary of Value Adding Activities (HP): .............................................................................70
Competitive Advantage Indicators (GM & MP) .....................................................................71
(1) Efficiency (GM)......................................................................................................................71
(2) Quality (GM) ..........................................................................................................................72
(3) Innovation (MP).....................................................................................................................72
(4) Customer Responsiveness (MP)........................................................................................73
Financial Ratio Analysis (MV) ...................................................................................................74
Liquidity Ratio:.............................................................................................................................75
Current Ratio: ......................................................................................................................75
Quick Ratio: .........................................................................................................................76
Leverage Ratios:.........................................................................................................................78
Debt to Asset Ratio:............................................................................................................78
Debt to Equity Ratio: ..........................................................................................................80
Activity Ratios:.............................................................................................................................81
Inventory Turnover Ratio:..................................................................................................81
Days Sales Outstanding Ratio:.........................................................................................82
Profitability Ratios:......................................................................................................................84
Return on Assets Ratio:.....................................................................................................84
Return on Equity Ratio:......................................................................................................85
Results of Financial Analysis: ...................................................................................................87
Interpretation/Evaluation (MV) ..................................................................................................88
Summary of SWOT Analyses (MV): ........................................................................................88
BUSINESS LEVEL STRATEGY (GM)........................ERROR! BOOKMARK NOT DEFINED.
Generic Business Level Strategy (HP, PH, & MP) ...............................................................90
Advantages and Disadvantages of Business-Level Strategy (HP & MV)......................97
Advantages (HP):........................................................................................................................97

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Disadvantages (MV):..................................................................................................................97
CONCLUSION ................................................................................................................................98
Strategic Issues ............................................................................................................................99
Strategic Issue (HP) ...................................................................................................................99
Alternatives: .........................................................................................................................99
Alternative # 1 (PH) ........................................................................................................99
Alternative # 2 (GM) .....................................................................................................103
Recommendation and Justification (MP) ......................................................................108
Future Vision (MV)......................................................................................................................110
APPENDICES.................................................................ERROR! BOOKMARK NOT DEFINED.
BIBLIOGRAPHY / WORK CITED .............................................................................................119

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EXECUTIVE SUMMARY (MV)
The Boeing Company was founded in 1916 by William Boeing in Seattle Washington.
It is the world’s leading aerospace and defense company and the largest manufacturer of
commercial jetliners. Boeing provides products and support services to customers in 150
countries. Headquartered in Chicago, Illinois, Boeing employs over 170,000 people across
the United States and 70 countries. Boeing’s commercial division employs 80,000 people
and posted an impressive $49.1 billion in revenue for 2012.
According to Porter’s five forces, the aerospace and defense industry is considered
to be intense. This is due to a small amount of very large companies which control the price
levels of the product. The five forces depicts that there is a low to high entry barrier, low to
high bargaining power of buyers, low bargaining power of suppliers, low threat of substitutes,
and a high intensity of rivalry among established firms. Boeing’s current competition is
largely from Airbus. A large threat Boeing is facing is that of emerging foreign competitors
from China, Japan, and Russia.
The value chain reveals added value in research and development, marketing and
sales, customer service, and information systems. A neutral value is found in human
resources and company infrastructure. Finally, a negative impact is found in production and
materials management.
The financial analysis shows that in the past four years, Boeing has been working on
reducing its debt and increasing their assets. Boeing is a heavily leveraged company,
however, the analysis suggests this is due to large investments in the new production of the
Dreamliner aircraft.

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The SWOT analysis depicts strength in innovation, multi-tasking ability in production,
customer service, and brand loyalty. Boeing’s weaknesses are outsourcing, lack of
consistency in plant finishing, and poor communication with suppliers. Opportunities for will
come from emerging foreign markets and airline profitability is a major demand driver for
commercial aircraft manufacturing. Finally, threats will come from emerging foreign
competitors and Airbus’ ability to deliver a product at a higher rate.

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INTRODUCTION (HP)
The company we have chosen to analyze is The Boeing Company. The Boeing
Company was founded in 1916 by William Boeing in Seattle, Washington. “Boeing is the
world's leading aerospace company and the largest manufacturer of commercial jetliners
and military aircraft combined. Additionally, Boeing designs and manufactures rotorcraft,
electronic and defense systems, missiles, satellites, launch vehicles and advanced
information and communication systems. As a major service provider to NASA, Boeing is
the prime contractor for the International Space Station. The company also provides
numerous military and commercial airline support services. Boeing provides products and
support services to customers in 150 countries and is one of the largest U.S. exporters in
terms of sales. Headquartered in Chicago, Boeing employs more than 170,000 people
across the United States and in 70 countries. This represents one of the most diverse,
talented and innovative workforces anywhere. More than 140,000 of our people hold college
degrees--including nearly 35,000 advanced degrees--in virtually every business and
technical field from approximately 2,700 colleges and universities worldwide. Our enterprise
also leverages the talents of hundreds of thousands more skilled people working for Boeing
suppliers worldwide (Boeing).”
Boeing’s corporate offices are located in Chicago, Illinois and focus on: “Global
growth strategies, Financial goals and performance, Sharing best practices, technologies
and productivity improvements, Leadership development, and Ethics and compliance (‘The
Boeing Company Overview”, pg. 7).” Boeing Commercial Airplanes headquarters is in the
Puget Sound area of Washington state and is run by CEO Roy Conner. The Commercial
Airplane unit, “comprises five airplane programs, VIP-derivative airplanes, extensive

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fabrication and assembly facilities and a global customer support organization (Boeing, pg.
1, para. 3).” Boeing Commercial employs over 80, 000 people and posted 2012 revenues
of $49.1 billion. They represent three quarters of the market with over 12, 000 jetliners in
operation, while 70 percent of commercial sales are from customers residing outside of U.S.
borders (‘The Boeing Company Overview”, pg 8).
Background / History (of the Company) (HP)
The Boeing Company originally Pacific Aero Products Company was founded in 1916
by William Boeing in Seattle, Washington. With the help of Navy engineer Conrad
Westervelt, William Boeing would build the companies first plane, the B&W seaplane, which
had the capability of flying 320 nautical miles. With contracts from the Navy Boeing would
provide its Model 40 as trainers to pilots and HS-2L to help patrol the skies during World
War I. After the war Boeing would get into the airmail delivery business which was very
successful until 1934, when the government suspended airmail contracts and forced the
delusion of the business disallowing aircraft manufacturing and airline companies to be
involved in the same business. During World War II Boeing would produce bombers most
notably the B-17 (Flying Fortress) and B-29 (Superfortress). After World War II Boeing would
launch the Jetliner Age which began with the 707 and is still going strong.
Today the Boeing Company is an Aerospace company comprised of two business
units Commercial Airplanes and Defense, Space & Security with the Boeing Capital
Corporation providing funding to facilitate these functions. With Boeing Co.’s acquisitions of
Rockwell International Corporation, McDonnell Douglas, Hughes Space & Communications,
and Jeppesen it helped them become the largest manufacturer of commercial jet transports

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(‘The Boeing Company Overview”, pg 2). The company also produces helicopters, missiles,
and space vehicles.
Vision Statement (PH)
The mission of Boeing is a combination of vision and values. Boeing’s vision is
“People working together as a global enterprise of aerospace leadership”. Boeing plans to
get here by running healthy core businesses, leveraging their strengths in new product and
services, and to open new frontier (Boeing.com).
Vision
Boeing has become a leading producer of military and commercial aircraft and
undertook a series of strategic mergers and acquisitions to become the world’s
largest, most diversified aerospace company. (“The Boeing Company Overview”,
pg. 2).”
Business
Boeing has business imperatives that they place a strong emphasis on, such as:
 Detail customer knowledge that anticipate, understand, and respond to the
customer’s needs.
 Systems integration that continually develops and advances technical
excellence.
 An enterprise characterized by efficiency, supplier management, short cycle
times, high quality and low transaction costs.

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Major Goals
Boeing is committed to a set of core values that not only define who they are, but also
serve to help them to become the company they would like to be. They aspire to live
these values every day.
 Leadership- Boeing thrives to be a world-class leader in every aspect of
business. Developing team leadership skills at every level; management
performance, in design, build and support their products, and in financial results.
 Integrity- by practicing the highest ethical standards, and by honoring
commitments, taking personal responsibility for our actions, and treat everyone
fairly and with trust and respect.
 Quality- Striving for continuous quality improvement so they will rank among the
world's premier industrial firms in customer employee and community
satisfaction.
 Customer Satisfaction- Satisfied customers are essential to success. To achieve
total customer satisfaction, it’s imperative to understand what the customer
wants and delivering it flawlessly.
Company Philosophy
Boeing recognizes their strength and our competitive advantage is due to people.
 People working together- Boeing encourage cooperative efforts at every level
and across all activities in our company.
 A diverse and involved team- Boeing fosters a participatory workplace that
enables people to get involved in making decisions about their work that
advance our common business objectives.

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 Good corporate citizenship- By providing a safe workplace and protect the
environment, promoting the health and well-being of Boeing people and their
families, and by working with our communities by volunteering and financially
supporting education and other worthy causes. (Boeing.com).
Boeing’s vision defines what the company inspires to be. Boeing history has shown
to be a world class leader that lives up to its vision. The vision includes the four elements of
why Boeing exist, what Boeing is striving to become in the future, their key values and the
goals for Boeing. The vision, key values, and goals are clear and concise. The goals are
important and attainable. Overall Boeing is an exceptional company who has a reputation
that stands behind their vision, goals, and values.
Strategic Evolution (MV)
Boeing’s strategic evolution for its product is a combination of intended strategies
which has carried over from the early 1900s as well as emergent strategies necessary during
difficult eras of economic change and competition.
Intended Strategies
In 1915, William E. Boeing envisioned a more practical airplane than what was
being manufactured. By 1916, with the help of Westervelt, they designed and built a
twin-float seaplane which was named the B&W. Boeing intended to manufacture
these seaplanes to average American’s who shared his love of flight.
As time went on and technology advanced, so did the airplanes Boeing
manufactured. The airplanes were larger, faster, and were able to carry several
passengers with cargo. In the 1930s, biplanes became outdated and the era of

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monoplanes was now at the top of the companies agenda. Boeing began
manufacturing monoplanes which were used to deliver cargo and mail.
During the height of commercial airlines, Boeing’s Stratocruiser airplanes were
the first to be used as luxury airliners in 1944. From 1957 until 1970 the commercial
airline market was evolving and in order for Boeing to compete it too had to evolve
its product. During that time, they introduced the 707 with turbofan engines which
reduced noise and increased power and range. The 727 was a tri-jet which was
made to accommodate smaller airports with shorter runways. The 737, Boeing’s most
ordered airplane by 1987 was a smaller, short range, twin engine jet. Boeing’s 747
was a jumbo airplane built during the height of air travel which offered great payload
and range.
As the economy began to recover from the recession, airline travel increased
and Boeing introduced the 757 and 767. They were more fuel efficient and offered
further noise reduction. By 1990, Boeing launched the 777 which was a wide-body
transport and was the first jetliner to be 100% digitally designed. In 2003, the 787
“Dreamliner” was introduced. This would be Boeing’s most fuel efficient and
technologically advanced airplane to date. Today, Boeing continues to manufacture
a variety of commercial airplanes staying true to its original intended strategy and in
the process has become one of the largest suppliers. (Boeing.com, History)
Emergent Strategies
Although Boeing did very well manufacturing “practical airplanes”, the
company was not shielded from economic downfall and competitors. In order for the
company to succeed, Boeing knew it had to change its product and manufacturing

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plants and adapt them to what the country needed at that given time. As World War
I approached, Boeing adapted its seaplanes to become training airplanes for the
military. After, WWI the plane was no longer needed and as the economy shifted
into a depression Boeing needed to shift gears. In order to survive they began to
“build dressers, counters and furniture for a corset company and a confectioner’s
shop, as well as flat-bottom boats called sea sleds” (Boeing.com, History).
Once the economy began to bounce back, Boeing received a military contract
to build Navy trainers. This kept Boeing at float until the world again entered into
World War II. In 1942, Boeing was now building B-17s and B-29 (Superfortress) for
the military. By 1944, they were producing 362 planes per month (boeing.com). As
the world emerged victorious from the war, once again Boeing knew it had to expand
its product line in order to survive. In the late 1940s and early 1950s, they began to
build develop operations in missile production. In 1958, Boeing would enter in the
space business when it was awarded the government contract for the Dyna-Soar
development program. In the early 1960s, Boeing continued to develop newer and
more sophisticated jet bombers and a jet aerial tanker as well as the presidents Air
Force One airplane. Boeing also provided the overall systems integration for the
entire Apollo project. (Boeing.com, History)
In the 1970s, to attract new revenue during the recession Boeing expanded
its business to include electronic technology services, designed and built a personal
transit system, light rail vehicles, rapid transit cars, and wind turbines. In the late
1970s and early 1980s, Boeing began building satellites and a supersonic transport.
In the 1990s, they found success in International Space Station program for NASA.

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Today, Boeing continues to find success in a vast array of products such as
electronics, defense systems, military aircrafts (including Air Force One), missiles,
satellites, space crafts, tankers, and many others. (Boeing.com, History)
Throughout Boeing’s history, they have found that in order to have a
successful company they must constantly change in order to keep up with the
innovations and their customer’s needs. They are not afraid to branch out from their
intended strategy and enter into new markets. Boeing is also aware that buying out
the competition can make the company stronger. In making strategic acquisitions of
Rockwell International Corporation, McDonnell Douglas, Hughes Space and
Communications, and Jeppesen have made The Boeing Company stronger and
diversified. Boeing continues to adapt and reconfigure the company in response to
the changing market with new emergent strategies while not losing its original
intended strategy of commercial aviation. (Boeing.com, History)
Stakeholders (MP)
Stakeholders include individuals such as employees, board members (past and
present), groups, and entities that have an interest in the positive performance of an
organization. Boeing’s internal and external stakeholders are identified below.
Internal
The concept of the section is to identify Boeing's Internal Stakeholders which are
individuals or groups with an interest, claim, or stake in the company.

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Major Institutional Shareholders (GM)
Holder Shares % Held Date Reported
Capital World Investors 73,464,500 9.74 June 30, 2013
Evercore Trust Company, N.A. 55,925,358 7.42 June 30, 2013
BlackRock Advisors LLC 36,536,140 4.84 June 30, 2013
Vanguard Group, Inc. 34,874,740 4.63 June 30, 2013
State Street Corp. 33,133.482 4.39 June 30, 2013
Major Fund Shareholders (GM)
Holder Shares % Held Date Reported
American Funds Washington Mutual A 28,130,000 3.73 June 30, 2013
American Funds American Balanced A 15,525,000 2.06 June 30, 2013
American Funds Fundamental
Invs A
12,255,000 1.63 June 30, 2013
Vanguard Total Stock Market Index 10,843,842 1.44 June 30, 2013
SPDR S&P 500 6,707,085 0.89 June 30, 2013
(www.finance.yahoo.com/q/mh?s=PG+Major+Holders)
The top five internal stakeholders for Boeing are John F. McDonnell, Corporate
Director, W. James McNerney, Chief Executive Officer, James F. Albaugh, former
Executive Vice President of The Boeing Company and former Chief Executive Officer of
Boeing Commercial Airplanes, Dennis A. Muilenburg, President and Chief Executive

17. 17
Officer of Defense, Space and Security, and James A. Bell, former President, Executive
Vice President and Chief Financial Officer of The Boeing Company. The biggest
transactions that help Boeing are with their top stock holders which are mutual and
institutional funds. Some of the top institutional funds are "Capital World Investors with
73,464,500 stocks bought with a total of 7,525,793,380 valued in the stock". Evercore
Trust Company stocks bought with a total of 55,925,358 and the value of the stock which
was 5,728,993,673." This information was stated by Yahoo Finance. Two of the top
Mutual Funds that hold most of the market for Boeing's stock are "Washington Mutual
Investors Fund which bought a total of 28,130,000 in stocks and had a value of
2,888,637,2000. Another Mutual Investor Fund is American Balance Fund that bought
15,525,000 which has a stock value of 1,590,381,000. (Yahoo Finance). These big time
investors own much of the company and whatever decisions they make, even if they don't
work directly with Boeing, are able to have somewhat control and have the company’s
future reports on their hands besides other reasons.
Major Individual Officers (GM)
Holder Shares Date Reported
McDonnell, John F. 1,154,926 January 31, 2012
McNerney, W. James, Jr. 463,467 August 8, 2013
Albaugh, James F. 241,092 May 10, 2012

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Muilenburg, Dennis A. 120,170 August 8, 2013
Bell, James A. 116,174 March 2, 2012
(www.finance.yahoo.com/q/mh?s=PG+Major+Holders)
External (MP)
The other concept of this section is to identify Boeing External Stakeholders
which are individuals or groups with an interest, claim or stake outside the company.
Boeing’s External Stockholders can be customers, suppliers, unions, local
communities and general public. One external stakeholder is the amount of suppliers
Boeing is partners with. Articles provided by Boeing website itself states that "Outside
Manufacturing which is Folsom Tool Com- Aston, Penn, Interiors by Teague- Seattle,
and Avionics by Ball Aerospace & Technologies Corp. - Westminster. In Colorado
there are a few suppliers that were recently recognized and honored for their
exceptional performance with all of the work and support they bring to Boeing.
Another external stakeholder is the unions since they make up 39% of all total
workforce which is approximately 68,000 employees which was provided by the
Boeing Annual Report 2012. These employees work very hard to make a difference
in the world and Boeing is pleased to have them in their company. Boeing’s largest
customer which is another external stakeholder is International Lease Finance Corp.
(ILFC) which "buys new jets from Boeing and Airbus, then leases them to airlines
around the world. It also provides asset value guarantees and a limited number of
loan guarantees to aircraft buyers," (Seattle pi website).
Company’s Organization and Structure (GM)

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The Boeing Company is divided into two major business units: Boeing Commercial
Airplanes and Defense, Space and Security. Two additional units support these two major
business units: Boeing Capital Corporation, which provides global financing solutions, and
the Shared Services Group, which provides a wide range of services to Boeing worldwide
and Boeing Engineering, Operations & Technology, which helps create, develop, acquire,
apply and protect its innovative technologies and processes.
At the top business level, Boeing uses a divisional structure which is appropriate for
a business that wants to react quickly to ever-changing environments and grow its workforce
with a broader skillset. In a divisional organization, each business unit has its own
accounting department, sales force, research and production teams and human resource
department.
W. James (Jim) McNerney, Jr. currently serves as Chairman of the Board, President
and Chief Executive Officer overseeing the strategic direction of The Boeing Company
Business Units and Services.
For the purpose of this report, we illustrate how Boeing’s corporate hierarchy is
structured from its top business units and services and the individuals who oversee those
business units, the functions supporting those business units, and then our main focus--
Boeing Commercial Airplanes.

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Boeing’s corporate organizational structure and leaders are depicted in the chart
following this narrative. To ensure efficiency of the company’s operations, the corporate
functions are segregated into eight areas: Communications, Engineering, Operations and
Technology, Finance, Government Operations, Human Resources and Administration,
Internal Governance, International and Legal.
Communications
Communications delivers accurate and timely information key stakeholders,
employees, shareholders, governments, partners, vendors and customers and the
community on a global basis.
Engineering, Operations & Technology (EO&T)
EO&T is responsible for defining and implementing corporate strategies to maintain
functional and technical excellence across the enterprise. Areas within this function are:
Engineering, Operations, Supplier Management and Quality Assurance, Information
Technology, Phantom Works, Intellectual Property Management, and Environment, Health
and Safety.
Finance

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Finance is responsible for developing and maintaining financial management
systems in for the company to conduct business.
Government Operations
This organization is responsible for influencing public policy and opinion in support of
Boeing’s business objectives.
Human Resources and Administration
Human Resources and Administration is responsible for labor relations, leadership
development, executive protection and security investigations, diversity in the workplace,
corporate contributions, global corporate citizenship and executive flight operations.
Internal Governance
This area is responsible for Internal Audit, Import-Export Compliance, Foreign Sales
Consultants and Sarbanes-Oxley (SOX) governance requirements.
International
Boeing International is responsible for assisting with ongoing globalization efforts.
The organization is composed of Strategy Development, Europe Relations, Asia Relations
and numerous country and regional operations.
Law Department
The law department is responsible for resolving legal matters, mitigating risk to the
company and protecting the interest of Boeing stakeholders across the globe.
(Boeing.com)

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.
Boeing Commercial Airplanes (BCA), a business unit of The Boeing Company, is
committed to being the leader in commercial aviation by offering airplanes and services that
deliver superior design, efficiency and value to customers around the world. The President
and Chief Executive Officer of BCA is Raymond L. Conner. He also serves as Executive
Vice President of The Boeing Company, and reports directly to Jim, McNerney, CEO.
As illustrated in the organizational chart below, BCA has a matrix structure which
“groups employees in two ways simultaneously by function and by product or project to
maximize the rate at which different kinds of products can be developed” (Hill 447). “Matrix
structures were first developed by companies in high-technology industries such as

23. 23
aerospace and electronics” (Hill 449). To be successful, Boeing uses the matrix system to
streamline efficiencies and to have a better flow of communication across the enterprise.

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Purpose of the Report (HP)
As we move forward we plan to further analyze Boeing’s Commercial Airplane
business unit. In this report you will find: an external analysis of the industry to include
trends, opportunities available, and threats in the market, an internal analysis to include
value chain analysis providing strengths and weakness of the company, along with a
summary SWOT analysis, business level strategy to include the advantages and
disadvantages, a conclusion including strategic issues and recommendations, and finishing
with the future vision to include where the company and commercial airplane manufacturing
industry will be in the next five years.

25. 25
Chart for Team Activities (MV)

26. 26
EXTERNAL ANALYSIS (MP)
This section identifies all of the necessary steps to find out what the external
environment consist of. To get a little bit more in depth on the Industry values, the analysis
of the industry environment, external and or macro environment; as well as, the competitor’s
industry analysis. While the industry analyzes these statistics, they are looking out for red
flags that would indicate whether the industry is currently attractive to earn profits, and
revenue or unattractive where it will be much harder to earn a profit at all The industry is
main focus is on Opportunities and Threats of the industry externally. Opportunities such as
the economic aspect like the fact that the airline profitability is a major demand driver for
commercial aircraft. Another opportunity is the continuous development of new
technological innovations to increase fuel efficiency for the aircraft. In addition the industry
is now opening to new markets in Asia, Middle East, Eastern Europe, and Latin America,
since this industry is seeing a demand for business and personal travel. This increases
global spending on the aerospace and defense industry suppliers. Some threats that will be
explained on the industries threats are the increase in raw material, weakness in job
markets, high unemployment, sluggish U.S economy, energy prices, and weak household
income levels. Another big threat is that the Chinese are entering the aircraft manufacturing
business. Not only are they but so is Japan is and Russia is developing a MC 21 which
competes' with 150-201 passenger carriers.
Basic Industry Information (MP)
Industry Growth (MP)
Some of the drivers, in this article, explains that the industry growth is based
mainly on the demand for aircraft; which is said to link to the increase in wealth,

27. 27
increasing per capita income, and positive Gross Domestic Product. The Industry
growth is due for many things; for instance, GDP global affected this industry; as well
as, the oil prices that this kind of industry uses a lot of to keep their aircrafts running
(capgemini.com).
Industry Profits (MP)
Aerospace and defense industry is growing by the year, and seems to be very
successful; especially, when the airline industry is always booming, and there is so
much rivalry between companies. The need for the new and advanced aircraft is to
call upon by aerospace and defense. This diagram below shows the Net Profits of
Aerospace and Defenses over the last three years. Based upon this chart I can infer
that the trend throughout the years wasn't profitability at all. By 2011 the Net Profit
was negative. (Key Business Ratios D&B)
2009 2010 2011
Net Profit After
Tax
2373647 1.50% 494903 2.10% -721083 -2.20%
Industry Segments (MP)
The industry is considered “Highly Scaled Segmented”. The industry is
segmented into Large Commercial Aircrafts, Regional Aircrafts, Business Jets, and
Helicopters (biz.yahoo). This industry is definitely highly segmented because many
airlines, companies, and military use these aircrafts on a day-to-day basis. The
Business jets are uses for company’s executives, for example. Helicopters are used
in the military for coast guards, or the police, or government. Large Commercial

28. 28
Aircrafts are used for the people globally. The first charts below show the sales of the
last 11 years. Just in 2013 alone airplane made 1,014 planes which cost Boeing 10.4
billion dollars which is 8.9% higher than the year prior in 2012. The second chart
show the huge amount of order form buyers the US. mainly their commercial airlines
and military defense purchase 39% of the planes, Europe purchases 21% of the
airplanes, Middle East purchase 5% of the planes, China purchase 3% of aircraft,
India purchase 2% of planes and the Rest of the world other than the ones listed
purchase 30% of the planes. (biz.yahoo)

29. 29
Industry Analysis/Porter’s Five Forces (GM)
Michael E. Porter developed a model of five forces to help businesses identify
competitive strategy. The idea behind this model is to determine a firm’s competitive strength
and position in the marketplace. Many business strategists use Porter’s five forces to gain
an understanding as to whether products and/or services are profitable. Porter’s framework
outlines the forces that drive competition among various businesses. He suggests that the
intensity of competition is determined by the comparative strength of five forces which shape
every industry. The five forces are rivalry among competitors, bargaining power of suppliers,
bargaining power of buyers, threat of new entrants and threat of substitutes. The objective
is to identify and modify competitive forces in such a way that the market position of an
organization is improved. Based on the information derived from the analysis of the five
forces, business managers can make a decision on how to influence or to take advantage
of particular characteristics within their industry.
Risk of Entry by Potential Competitors (GM)
Porter states, “rivalry among competing firms is usually the most powerful of the
competitive forces” (David 75). Intensity of rivalry is the most valuable contribution of
Porter's five forces model and is a determinant for industry attractiveness. Both potential
and existing competitors can influence the industry’s profitability. In the commercial
airplane industry, rivalry is strong because airplane manufacturers carry various products
that sell to major airline companies across the globe (WSJ: Michaels). “The commercial
aircraft industry essentially exhibits the qualities of an oligopolistic competition with
intense rivalry” (Szymanski 8). Because rivalry is intense, entry barriers are high.
Economies of scale:

30. 30
The economics of the commercial aircraft industry in particular are marked by
“high start-up costs and the need to achieve economies of scale in order to produce
efficient aircraft” (Harrison). A low number of buyers of commercial aircraft, along with
the government and wealthy individuals create a demand structure so that only the
most efficient and the lowest-cost producers have a chance to compete. For this
reason barriers to entry are high for a potential competitor.
Product Differentiation:
The world’s dominant airplane makers continue to battle to maintain their
share of the $100 billion per year commercial airline market. Two main manufacturers
have been fighting over the performance of their latest refurbished airplanes for
market share by offering fuel savings to major airline companies. Both plane makers
are refurbishing 150-seat jets which should be ready for use toward the middle of the
decade. Manufacturers offer similar sized aircraft with similar cruising ranges so
product differentiation is low. The main driver for innovative airplanes is fuel
efficiency and lower raw material costs. Because of brand identification and
customer loyalty, new entrants would have to spend a hefty amount of money to
overcome this which will be difficult. Barrier entries for a potential competitor are high
(cnbc.com).
Capital Requirements:
The commercial aircraft industry requires very large capital requirements for
new entrants. A new airplane manufacturer would need sizable facilities for
production, research and development and overhead expenses. Since a substantially
large amount of capital is needed, many new firms don’t enter the aircraft market

31. 31
because the potential profits don’t justify the investment. The risk is too high and
capital cannot be obtained. For this reason, entry barriers are high (Vasigh 188).
Switching Costs:
The bargaining power of buyers can be low or high depending on the situation
at a particular point in time. Airplane manufacturers have tried to offer buyers lower
cost airplanes and better services to increase their competitiveness; however,
switching costs for buyers from one plane manufacturer to another can be high
because of the training involved. It is costly for airline companies to train pilots and
crewmembers on completely different operating systems (Unagwuna 187). For this
reason, barriers for entry are high.
Access to distribution Channels:
The distribution channel for delivering a finished airplane has two components-
-the manufacturer and the customer. Access to distribution channels is relatively easy
because the airplane itself does not need a distribution channel. A “ferry flight” will
get the aircraft from the manufacturer’s facility to the customer location. Airplane
manufacturers provide services that accompany the product such as maintenance,
training of pilots and crewmembers and after-delivery customer service (Ferreri 276).
Airplane manufacturers today have a reputation for their products. Airline companies
rely on name brands making it difficult for new entrants. For this reason, access to
distribution channel barriers is high for potential competitors.
Cost Disadvantages Independent of Scale:
Current airplane manufacturers have cost advantages that cannot be
duplicated by any new entrant. The factors that support this include knowledge and

32. 32
experience, product innovation and technology, access to raw materials and
government subsidies. For this reason, barriers for entry are high.
Government Policy:
Government has the ability to control entry into any industry by limiting it or
preventing it. “Historically, government regulations have constituted a major entry
barrier for many industries” (Hill 52). Government has various controls on licensing
requirements and limitations on access to raw materials. For this reason, entry
barriers can be high for potential competitors.
Expected Retaliation:
It is natural to expect a response when new entrants try to obtain market share.
The prospect of a threat by a new competitor can cause retaliation. A number of
factors involve retaliation to new entrants such as:
● A history of retaliation
● Established firms with substantial resources (excess cash, distribution
channel leverage, and excess productive capacity
● Established firms with a commitment to the industry and highly illiquid
assets
● Slow industry growth
(www.marsdd.com/articles/barriers-to-entry)
Overall, the commercial aircraft industry has very high barriers to entry, and
firms have to sell a significant number of aircraft in order to make any profit at all.
“The large commercial jet aviation market is a duopoly shared by the U.S. aircraft
manufacturer Boeing and the European aircraft maker Airbus, with fierce competition

33. 33
between the two companies. The regional jet market is dominated by two non-U.S.
headquartered manufacturers, Brazil’s Embraer and Canada’s Bombardier, both of
which utilize a high level of U.S. produced content in their products. The general
aviation market includes companies such as Cessna and Gulfstream” (FAS.org). The
commercial airplane industry is well-established and any new entrant would have a
difficult time penetrating this industry, along with the capital investment that is
involved.
Power of Buyers (GM):
The buyers in the commercial airplane industry include major domestic and
international airline companies, the U.S. military and government. The bargaining power
of buyers can either be high or low depending on the current economic situation. At
times of economic downturn such as the 9/11 terrorist attacks, the bargaining power of
buyers resulted in a decrease of orders. Airline companies repositioned themselves
strategically and streamlined operations which reduced their investment. In turn, this
placed competitive pressure on aircraft manufacturers (Investopedia).
Power of Suppliers (GM):
The power of suppliers can either be low or high depending on the circumstances.
Boeing and its competitors can obtain raw materials and components from competitive
supplier markets. However, most part suppliers do more business by selling
replacement parts to airlines directly than selling original equipment and parts to aircraft
manufacturing firms. “There are few suppliers with whom Boeing and Airbus hold the
upper hand”. Boeing’s suppliers include General Electric who competes directly with
Pratt & Whitney and Rolls Royce in the manufacturing of airplane engines. When Boeing

34. 34
does well then these companies can negotiate more favorable contracts. Currently,
more than half of Boeing’s workforce is unionized, and this gives laborer’s supplier power
through strikes which can cause Boeing to lose substantial profits (Besanko 343).
Threat of Substitutes (GM):
The threat of substitutes is relatively low because alternative means of travel are
constrained by distance and time. There are limited forms of transportation in
geographical locations. For instance, you can travel across the pond by ship but the
time involved would take longer than by airplane. Other forms of transportation could
include public transportation versus a personal automobile but again if the distance is
long, this means of transportation does not get you to your destination quickly. Business
travelers can cut back on traveling domestically and internationally and rely on mobile
meeting devices such as iPads and tablets. This allows outstanding savings of time
and money (Ferreri 57).
Intensity of Rivalry among Established Firms (GM):
Intense rivalry is common among numerous or equally balanced competitors.
Industries with only a few firms or equivalent size and power tend to have strong rivalry.
The rivalry among established firms in the commercial airplane manufacturing industry
is intense; especially with the two top rivals: Boeing and Airbus. These competitors try
to stay ahead of each other with new and more efficient aircraft in order to gain an edge
in the market. When the market is in a growth spurt, the pressure to take customers isn’t
as intense. On the other hand, when growth is slow or is stunted; rivalry becomes more
intense and firms began to battle to attract their competitors’ customers.

35. 35
Fixed costs and high storage costs can intensify rivalry among firms. Industries with
many companies offering different products have less rivalry. The airplane
manufacturing industry has both high fixed costs and storage costs accounting for a large
part of the total cost to build an airplane. “The pattern of excess capacity at the industry
level followed by intense rivalry at the firm level is observed frequently in industries with
high storage costs” (Hoskisson 84).
In the aircraft manufacturing industry, rivalry is intense because both Boeing and
Airbus have few differentiated features and capabilities. Aircraft buyers view the product
as a commodity which intensifies rivalry. The competitors entering the aircraft
manufacturing business include China, Japan’s Mitsubishi and Russia who is developing
the MC-21 to compete with 150-210 passenger carrier.
Lastly, exit barriers contribute to intense rivalry. Some companies continue to
compete in an industry even though the return on investment is low or even negative.
These firms face high exit barriers which include: investment in assets, high fixed costs
of exit (ie., health benefits, severance pay, worker pension plans), emotional attachment,
economic dependence, need for specialized assets and government regulations (Hill
57).
Industry Attractiveness/Profitability (GM):
The aircraft manufacturing industry is mature and is relatively attractive to new
entrants. As outlined through Porter’s Five Forces, major findings indicate that
government support and the general need for air travel illustrate that there is still a need
for airplanes of different sizes. While the market is relatively attractive, new entrants

36. 36
need to understand that there is a high risk of capital investment. Even though major
airlines are struggling and air travel has slowed down, ageing fleets need to be replaced.
There are substitutes for air travel; however, airplanes are the easiest and quickest form
of transportation. Current aircraft manufacturers and their potential competitors offer
similar products in size and speed so few substitutes exist. The top two aircraft
manufacturers are Boeing and Airbus whom continue to battle to be the market leader
in the industry. Both continue to look for innovative ways to meet the demands for fuel
efficiency and low cost solutions so those cost advantages can be passed on to their
customers.
Summary (Results) of Five Forces (GM):
PORTER’S FIVE FORCES ASSESSMENT FOR THE INDUSTRY
Risk of Entry by Potential Competitors Low to High
Bargaining Power of Buyers Low to High
Bargaining Power of Suppliers Low
Threat of Substitutes Low
Intensity of Rivalry established firms High
External/Macro Environment (HP)
When taking a look at the macro environment it is important to understand what it is
and how it impacts the industry. The macro environment consists of the demographic,
economic, technological, political/legal, social, and global forces that have the ability to shift
an industry in a positive or negative direction. The strength and attractiveness of the industry

37. 37
can also hinge on changes within the macro environment that can happen to forces
independently or as a group.
Demographics (HP):
The demographic force covers changes in population and segmented by age,
gender, race, ethnicity, social class, and sexual orientation. The aircraft manufacturing
industry is impacted by some of these segmentations more than others. The age
segmentation is one that impacts them on a rather large scale. With the average age of
an aircraft maintenance engineer in the United States being 53 and Europe 40, the
industry could soon be facing a crisis. Without properly trained technicians to
troubleshoot and maintain air planes, a major threat to the industry is forthcoming. In
2010 the United States the Department of Labor reported 142,300 aircraft technician
positions were being filled. They also only expect a 6 % growth over the next ten years
adding 9,100 more jobs (“Aircraft and Avionics Equipment…”). The industry also
depends heavily on union workers who are known to strike only increasing the threat
the industry faces.
Economic (HP):
The economic force covers changes to the nation or region as a whole and affect an
industry's’ ability to receive a positive return on investment. When the economy is going
well companies/individuals have the ability to place orders for planes and borrow money
with somewhat of low interest rates available. At present time interest rates for aircrafts
are low in the US (2.88%-4%) and Europe (3%-4.88%) where both major competitors
are headquartered. This is good news considering the economic recession the US is
coming out of where they saw unemployment as high as 10% in 2009. The UK found

38. 38
itself in a similar situation during its own economic downturn where unemployment
reached as high as 8.3% in 2011. As the economy grows and becomes more stable it
will be possible to utilize funds and profits to help boost the industry. With emerging
markets in Asia, the Middle East, Eastern Europe and Latin America more funds will be
available as spending and travel increases around the world. The low rates will allow for
orders to be placed and more flights to be utilized providing opportunity for the industry.
With the rising prices of raw materials and export restrictions countries are losing out on
revenue given their inability to ship materials. The receivers of these materials are
finding it harder to maintain operation and households are seeing less money coming in
with the diminishment of resources. This is all coming at a time where energy prices are
increasing worldwide only adding to the bills families have to endure.
Technological (HP):
The technological force covers changes to products in the market. Within the aircraft
manufacturing industry technological change has become a small threat. With every
passing day a new innovation is being thought of and a way to implement into the
industry is being tested. With so much money tied up in producing a plane and the lead
time required to make changes the industry is slowly working on catching up to demands
for innovation. With so many planes currently in use, it would be impossible to change
out the entire fleet. What aircraft manufacturing companies have begun to do is make
small changes to older model planes and push new versions even in smaller models to
provide customers better planes they can fly aboard. Some innovations being offered
are seats that turn into beds, personal work stations, Wi-Fi calling, Wi-Fi internet, wider
planes, low fuel economy, and satellite television to name a few. The industry

39. 39
understands the needs and with two major suppliers they are working to better each
other so they also see and opportunity for profits when it is all said and done.
Political/Legal (HP):
The political/legal force covers changes in laws and regulations. “Congress has been
discussing broad issues affecting the competitiveness of the nation’s aerospace
manufacturing industry for most of this decade. In the early 2000s, the Presidential
Commission on the Future of the U.S. Aerospace Industry released its recommendations
on how to maintain the competitiveness of the aerospace sector. The Aerospace
Commission called for a national aerospace policy along with a government-wide
framework to implement this policy, as well as the removal of prohibitive legal and
regulatory barriers that impede the ability of the industry to
grow. The Commission also advanced policies to maintain U.S. global aerospace
leadership by proposing investments in America’s industrial base, workforce, and
research and development infrastructure (Platzer, pg. 8, para. 3).” These changes would
potentially allow the industry to grow globally and have the funding available to
strengthen the entire industry through development and training.
Sociocultural (HP):
The sociocultural force covers changes in values and social mores. With the world
wanting to become more eco-friendly the industry is working to find ways to make more
fuel efficient airliners that burn less emissions. “How to limit the environmental impact of
aviation is a hotly debated topic in the United States and many foreign countries.
Concerns include the possibility that some countries could establish unilateral measures
to limit greenhouse gas emissions (GHG) for aviation. For instance, the EU’s Emissions

40. 40
Trading Scheme (ETS)—a cap-and-trade system—wants the aviation industry to take
responsibility for the emissions it contributes to the atmosphere, and all intra-EU and
international flights are set to be included under the ETS beginning on January 1, 2012
(Platzer, pg 9. para. 3).” This change has given the industry an opportunity to promote
more efficient planes and sell them to companies seeking to meet standards.
Global (HP):
The global force covers changes to the world focusing on barriers to international
trade and sustained economic growth worldwide. “Many industry analysts argue that
globalization helps the United States achieve its business objectives and enhances the
competitiveness and vitality of aerospace exporters. But U.S. export licensing laws can
negatively impact a customer’s ability to acquire aerospace products and parts from the
United States. While larger firms have learned to manage export control requirements,
they remain a heavy burden for smaller companies, which in some cases inhibit the
ability of second- and third-tier suppliers to compete in the international marketplace.
The response by some overseas competitors to U.S. export control policies has been to
develop products that do not contain any U.S. components (Platzer, pg. 9, para 2).”
Since the U.S. is not willing to change its laws they are putting suppliers in a bind and
aircraft parts and services are being sourced elsewhere. This is coming at a time where
emerging markets such as Asia, the Middle East, and Latin America are seeing an
increase in demand for business and personal travel which could allow for more global
spending. If these laws change it will allow for more money to be made in the industry
even amongst smaller companies.
Summary of Analyses and Impact (HP):

41. 41
Overall the macro environment is having a large impact on the aircraft manufacturing
industry. There are some threats being present in the demographic force with age,
economic with energy prices, unemployment rates, sluggish economies, and raw
material prices, political/legal force with policies, and global force with barriers to trade.
While opportunities are evident in the economic force with funding and upturn,
technological and social forces with innovation and product refinement, and global force
with increased global spending, increased travel, emerging foreign market in Asia, the
Middle East, Eastern Europe and Latin America. The macro environment is very telling
of the state of the industry. While it is attractive personnel, laws, and policies can restrict
smaller companies from competing in the industry. For those on top the industry
opportunity exist with continued development and refinement of products to meet
consumer demand, and allow for profits in the future.
Strategic Group (PH)
The top competitors for Boeing are Airbus, Bombardier, and Embraer; however
Boeing and Airbus are in intense competition. Airbus has been known to surpass Boeing in
order production and delivery in recently. (Hoovers, a D&B Company)
Airbus S.A.S. located in France, is a subsidiary of Netherlands-based EADS. Airbus
contends with Boeing to be the world's #1 commercial jet maker. Airbus' commercial division
manufactures more than a dozen aircraft models that seat 100 to 525 passengers.
(Hoovers.com)

42. 42
Bombardier is located Montreal, Canada. Bombardier is the world's only
manufacturer of both planes and trains. The company's Aerospace division manufactures
business Learjet, commercial CSeries, and amphibious military Bombardier 415 aircraft.
(Hoovers.com)
Embraer S.A., is located in Brazil. The company makes smaller commercial jets that
seat between 30-120 passengers and seven models of executive jets, it’s executive jet
production rivals that of Bombardier. Half of the company’s revenues come from commercial
jet sales. Executive jets account for 20% of its revenue. The company's defense and security
division generates 12% of sales. Embraer manufactures light attack, trainer, and
surveillance aircraft for military markets, and is developing a jet-powered military tactical
transport for the Brazilian Air Force. The company generates about 40% of its sales in North
and South America and is rapidly increasing its customer base worldwide. (Hoovers.com)
Boeing is trailing Airbus in new commercial airplane orders. Last year Boeing was
leading Airbus with 1203 compared to 833 orders for Airbus. Last year, Boeing's commercial
airplane order book was driven by strong order volumes for its newly launched single-aisle
Boeing 737MAX. Due to the absence of any major launches in the single-aisle airplane
category, which constitutes the largest portion of orders from airlines Airbus has gained the
lead. Airbus has held a lead over Boeing in new commercial airplane orders for much of the
last decade. However, the gap in these orders for Boeing and Airbus has been very narrow,
which is shows the intense competition that exists between the two players. (NASDAQ,
Boeing Trails Airbus in the Race for New Commercial Airplane Orders, By Trefis, September
12, 2013)

43. 43
Single-aisle airplanes, which generally seat between 90 and 230 passengers and fly
on short to medium range domestic routes, form the bulk of airplane orders from airlines. Of
the 786 commercial airplane orders received through August by Boeing, 662 were for single-
aisles. In the case of Airbus as well, single-aisle airplanes constituted nearly 88% of all
orders in the year-to-date period. The single-aisle airplane segment plays the most
important role in determining who between Boeing and Airbus leads in the race for
commercial airplane orders. Boeing's 737 series competes with Airbus' A320 family of
airplanes. There is intense competition between the current generations of these airplanes.
Airbus has a lead over Boeing in the next-generation of these airplanes. Airbus launched
the next-generation of A320 family, A320neo in 2010, while Boeing launched the next-
generation of its 737 series the 737MAX in late 2011. The A320neo is expected to enter
service with airlines in 2015, two years before the 737MAX is expected to make its first
delivery. Airbus' capacity to make deliveries of the A320neo a couple of years prior to the
737MAX is weighing in its favor as airlines are eager to induct more fuel-efficient airplanes.
Airlines are looking to expand their margins and also reduce the proportion of fuel costs in
their total costs. Both A320neo and 737MAX are 10%-15% more fuel-efficient than their
previous generations and also produce much less noise and emissions.
Overall, we figure that due in part to its prior launch, the A320neo family received
more orders to drive growth in Airbus' total commercial airplane orders. As of August 2013,
the Airbus A320neo family received 2,179 orders, compared to 1,498 orders for Boeing
737MAX series. However, in the long term, when both next-generation airplanes enter
service, orders growth will depend on the operational performance and production rates.

44. 44
The latter determines the waiting period for airlines between placing an order and getting
the delivery. (NASDAQ.com)
Competitor’s Objectives (PH):
Airbus is committed to build aircrafts that are part of the solution to the environmental
challenges.
Assumptions (PH):
Airbus believes there is a need for some 29,000 passenger and freighter aircraft,
reconfirming an upward trend in the pace of new aircraft deliveries for the 2013-2032
timeframe. This outlook, which is titled "Future Journeys," also outlines how emerging
economic regions will further increase their importance in overall traffic growth. Airbus is
also commitment to constructive ways towards greener skies. (airbus.com)
Capabilities (PH):
The Airbus A380 which will be entering into service this year will be the most efficient
aircraft in its category. Airbus has successfully set up an innovative environment
management system. Airbus is aimed at continuously improving the environmental
performance of the company, at every stage of the lifetime of an aircraft. Airbus uses
this integrated lifecycle approach to map, better understand, monitor and minimize the
environmental impact an aircraft and its production process may have over its lifecycle,
from design to dismantling. (enviro.aero, A380 case study)
Market Share (PH):
The Airbus 2012 figures were closely in line with estimates of more than 900 orders
and a market share of 41 percent reported by Reuters after a late surge allowed Airbus
to narrow the gap with Boeing. Airbus also confirmed it had delivered 588 aircraft in

45. 45
2012, up 10 percent from the previous year and above target. But it was outpaced by
Boeing's total of 601 planes delivered. Airbus set a target of more than 600 deliveries
and 700 gross orders for 2013. (reuters.com)
Competitive Advantages (PH):
Airbus designed the A380 with a view of appealing to customers wishing to purchase
a product that was currently unavailable in the market place. It would deliver benefits not
available in existing aircraft an aircraft with features that Boeing were not providing and
did not have ideas of designing at that time. The A380 would be the biggest aircraft in
the sky capable of transporting more than 500 passengers in luxury. By providing luxury
travel, it would include bigger cinemas, restaurants and bars on board. The idea driving
the design was to appear to the commercial jetliners to reduce cost with less aircraft and
increase profit margin through increasing the volumes in heavy traffic passages, and
also to appeal to the customers. Airbus is focus on low fuel consumption and less noise
with the A380. Airbus is concentrating on its increase in new aircraft orders and
delivering on the orders. (globaltradeandlogistics.com)
Current Strategies (PH):
An aircraft with unprecedented levels of efficiency and environmental
performance and which is a real-world solution for a cleaner, quieter and smarter way
to fly. The Airbus A380 is one of the quietest long-range aircraft in the world, despite
its size. With twice as many passengers, it even creates lower noise than the A340 -
one of the quietest aircraft in its category. The Airbus A380 has a very low fuel
consumption of less than 3 liters per passenger per 100 kilometers. The Airbus A380

46. 46
provides a new way to cope with air traffic growth in major markets worldwide, thanks
to its unique capacity. Greater numbers of people can be moved in and out of airports
with each take-off and landing. (enviro.aero, A380 case study)
Opportunities and Threats (MV)
Opportunities Threats
Economic
● Airline profitability is a major
demand driver for commercial
aircraft
● Increase in U.S. consumer
spending
● Continued low interest rates
Demographics
● Not replacing retiring engineers with
properly trained technicians to
troubleshoot and maintain air
planes can be a major threat to the
industry
Technological
 Adopting new technologies to
innovate bigger and better
aircrafts
 Using carbon fiber reinforced
plastic for fuselage and wing
structures
 New designed aerodynamic body
and wide use of composites
Economic
● Increase in raw materials
● Weakness in job markets
● High unemployment
● Sluggish U.S. economy
● Energy prices
● Weak household income levels

47. 47
 The need to replace aging and
less fuel-efficient planes to
address rising fuel prices
 Increase in air traffic
● Use of electronics onboard the
aircraft (WiFi)
Socio-cultural
● Going Green/Eco Friendly;
composite use
● Fuel efficiency
● Environmental emissions
● Noise reduction
Political/Legal
● Federal Aviation rules and
regulations
● State laws and state regulatory
agencies
● Foreign Jurisdictions
Global
 Emerging markets in Asia, the
Middle East, Eastern Europe, and
Latin America are seeing an
increase in demand for business
and personal travel.
Global
● Sluggish European economy

48. 48
 Emerging markets such as Asia,
the Middle East, Eastern Europe,
and Latin America.
 Increase in global spending.
High Entry Barriers
 Potential and existing competitors
can influence the industry
profitability
 Oligopolistic competition
 High start-up costs (large capital
needed)
 Sizable facilities needed
High Intense Internal Rivalry
● Chinese entering the aircraft
manufacturing business
● Japan’s Mitsubishi now entering the
aircraft manufacturing business
● Russia develops the MC-21 to
compete with 150-210 passenger
carrier
● Airbus ability to deliver aircrafts at a
higher rate
Low Bargaining Power of Suppliers
 Buying power of industry leaders
allows for their ability to raise
input prices
Low to High Bargaining Power of
Buyers
● Long term contracts benefit buyer
which shifts the financial risk to the
aircraft manufacturer.
● Switching costs due to training

49. 49
Low Threat of Substitutes
 Alternative means of travel are
constrained to distance and time
INTERNAL ANALYSIS (HP)
The internal analysis is a focus on the internal workings of a company. It is used to
help identify what a company can do. While evaluating Boeing Commercial, the utilization
of Value Chain Analysis and Financial Ratio Analysis will aid in determining the strengths
and weaknesses that exist within the company. The Value Chain Analysis will include the
strengths and weaknesses of Primary Activities to include: Research and Development
(R&D), Production, Marketing and Sales, and Customer Service. As well as the Support
Activities to include: Material Management, Human Resource Management, Information
Systems, Firm Infrastructure and results thereof. The Financial Ratio Analysis will include:
Liquidity Ratios, Leverage Ratios, Activity Ratios, Profitability Ratios and results thereof.
Value Chain Analysis (HP)
The Value Chain Analysis allows the company to understand how its business can
maximize its operations and sustain/elevate its value over time. There are four primary
activities: research and development (R&D), production, marketing and sale, and customer
service. There are also four support activities: materials management (logistics), human
resources, information systems, and company infrastructure. These functions together help
the company realize which areas need improvement and are prospering.

50. 50
Primary Activities (GM)
Many organizations are concerned with the conversion of inputs and outputs and
map functional activities using the value chain model. By mapping the activities of a unit,
“managers are able to determine how the continuing usefulness of an output can provide
the best possible utility” (Williamson 104) making them more attractive to customers. The
primary activities associated with the value chain model include: design, creation, product
delivery, product marketing and its after-sale service support. These activities fall into four
functions: Research and Development, Production, Marketing and Sales, and Customer
Service.
Research and Development (GM):
Research and Development (R&D) is related to the design and production
process of a product and/or service,. It is a valuable tool to help grow and improve a
business and give an image of superior value. R&D involves extensive research of the
market coupled with customer needs to assist in developing new and innovative
products and services to meet and fit those needs. A successful R&D strategy is
essential in elevating a business’ competitive advantage.
“Boeing Commercial Airplanes, a business unit of The Boeing Company, is
committed to being the leader in commercial aviation by offering airplanes and services
that deliver superior design, efficiency and value to customers around the world. There
are more than 12,000 Boeing commercial jetliners in service, which fly passengers and
freight more efficiently than competing models in the market” (Boeing.com)
As times change, Boeing remains steadfast in its “commitment to responsible
environmental leadership and sustainable growth -- building a better Boeing and helping

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build a better planet” (Boeing.com). Through R&D, Boeing finds a way to operate more
efficiently and effectively. Therefore, “more than 75 percent of Boeing Commercial
Airplanes’ R&D efforts contribute to advancing environmentally progressive innovations”
(Boeing.com). Boeing engineers have faced a need to “design in” with products that are
environmentally friendly. “Designs out” have included an efficient use of energy and
water and the use of sustainable materials for an environmentally friendly carbon
footprint. The design and manufacture also includes an “in-service” and “end-of-service”
recycling and disposal program.
For over 40 years, Boeing has been recognized as the premier manufacturer of
commercial aircraft. Its merger with McDonnell Douglas in 1997 gives the company a
combined 70-year legacy in the commercial aircraft industry. Today, Boeing
Commercial Airplane models include the 737, 747, 767 and 777 and the Boeing
Business Jet, a jet designed for the private, business and governmental sector. Boeing
prides itself on new product development and its current focus is on the newest addition
to the jetliner family: the 787 Dreamliner, a super-efficient passenger airplane, and the
747-8 Freighter, the latest version its cargo fleet.
The design of the 787 Dreamliner and the 747-8 Freighter aircraft have reduced
the carbon footprint in double digits compared to the airplanes they replace. The 787-9
Dreamliner has an extended fuselage and will carry 40 more passengers an additional
300 nautical miles; it will use 20 percent less fuel and 20 percent fewer emissions than
similarly sized airplanes. Some of the features include large dimmable windows, larger
luggage bins, modern LED lighting, higher humidity, a lower cabin altitude, an air
filtration system, and a smoother ride (Boeing mediaroom).

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However, a serious design flaw in the 787 lithium-ion battery and wiring system
caused the battery to overheat and start fires on board the aircraft. This created a major
setback in the 787 delivery and put the entire Boeing enterprise in jeopardy. In a cost
cutting initiative Boeing subcontracted the 787s power conversion system to a French
company, Thales. “Thales, in turn, used GS Yuasa to build the lithium-ion batteries for
the planes. But a GS Yuasa executive made clear during a safety board hearing that
both Boeing and Thales were involved in all of its testing and design phases” (New York
Times.com). This setback could have damaged Boeing’s reputation for creating and
designing dependable airplanes. Boeing trust has not been hampered. “It is altering the
overall design of the battery by adding insulation, a spacer and heat resistant housing
for wires to improve thermal and electrical isolation. The overall goal is to prevent
overcharging of the batteries. Boeing is correcting the problem by designing and
creating an enclosure to eliminate the potential for fire from bursting batteries”
(Gizmodo.com).
Currently, Boeing is in discussions with customers on the 777X, an aircraft which
is expected to provide the lowest fuel consumption per seat of any other airplane in
commercial service. A product that is currently in the development stage is the 737
MAX. This model features a 13 percent smaller carbon footprint than today’s 737 Next
Generation (a modified version of the original 737 model). The 737 MAX is currently
considered the most fuel-efficient airplane in its class.
Along with Boeing’s aircraft, it has unrivaled 24/7 technical support to assist
operators with maintenance of its product. The commercial aviation department offers
top-notch services in engineering, modification, logistics, information systems and flight

53. 53
crew training. This service is provided to passenger and cargo airlines as well as
maintenance, repair and overhaul facilities around the globe, adding additional value to
the product offering.
Boeing maintains its role as the leader in the global effort to achieve carbon-neutral
growth within the commercial aviation industry. Together with its international partners,
R&D continues to be an important part of moving sustainable biofuels from the testing
process to everyday use. Boeing invests in innovative technologies to meet customers’
demands for precision performance and game-changing environmental improvements.
Boeing's total R&D expenses amounted to $3.3 billion, $3.9 billion, $4.1 billion
and $6.5 billion in 2012, 2011, 2010 and 2009, respectively. R&D expenses in 2009
included $2.7 billion of production costs related to the first three flight test of the 787
aircraft that cannot be sold due to the inordinate amount of rework and unique and
extensive modifications that would be made to the aircraft.
Boeing's R&D Expenses by Business Segment (million U.S. Dollars):
Research and Development 2012 2011 2010 2009
Commercial Airplanes 2,049 2,715 2,975 5,383
Boeing Defense, Space & Security 1,189 1,138 1,136 1,101
Other Segments 60 65 10 22
Total R&D Spending 3,298 3,918 4,121 6,506
(www.bga-aeroweb.com)

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In 2012, Boeing met key milestones in R&D programs which help the company
stay innovative and provide the edge it needs to stay ahead of the competition. The
company rolled out an “EcoDemonstrator” program. The results had a positive effect
towards designing environmentally friendly products. “The program applies new
technologies and materials that make Boeing’s aircraft cleaner, quieter and more fuel
efficient. According to the October 2013 edition of Boeing Frontiers magazine, Boeing
is leading through research and technology with its new engine exhaust nozzle made of
ceramic matrix composite which is designed to make engines quieter, lighter and more
fuel efficient.
Boeing’s R&D efforts have formed partnership with major airlines, the aviation
industry and Federal Aviation Administration’s Continuous Lower Energy Emissions and
Noise (CLEEN) program, a program created to accelerate the development of new
technology leading to cleaner and quieter aircraft (Boeing Frontiers). These efforts add
customer value by offering lower operating costs and providing the best economics of
any large passenger or freighter airplane while at the same time providing enhanced
environmental performance (Boeing.com).
Boeing’s strength in R&D begins with its “one company, one technology”
philosophy called “One Boeing”. This strategy gives the company a competitive
advantage because teams across the Boeing enterprise work together to understand
how new technology can add value for customers. Boeing research begins and ends
with customer needs. With intense competition in the marketplace, innovation through
technology is the key to the future success of Boeing Commercial Airplane (BCA) and
the company as a whole. Boeing strives to meet the challenge of a changing

55. 55
environment, executes its commitment to the customer and the planet by delivering eco-
friendly products at affordable prices while maintaining a safe and quality product.
The main focus of Boeing’s R&D investments is on market-driven products and
services. Boeing leaders rely on new technologies to maximize potential returns to
stimulate growth today and in the future. In May 2013, Boeing opened its largest R&D
laboratory in Port Melbourne, Australia. This new technology lab will further enhance
Boeing's R&D capabilities because the composite materials, structures and robotic
technologies used for Boeing’s new 787 Dreamliner are developed in Australia.
"Boosting innovation through R&D is the best way to keep Australian industry
internationally competitive, with Boeing Australia having been a significant contributor
to, and a beneficiary of, Australian R&D" (Investor Updates). Competition is a driving
force to strengthen Boeing’s R&D.
Strengths:
● Innovative
● Environmentally Conscious
● Flexible and customer-focused
● Committed to delivering quality and safe products
● Economically competitive
● Provide training and top-notch after sales maintenance and technical support
● Collaborate with domestic and international forces for mutual technological
benefits

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Weaknesses:
● Serious design flaw in the 787 lithium-ion battery and wiring system grounded
and delayed new orders of aircraft
● Cost-cutting initiative to outsource / subcontract the design of 787 power
conversion system
The “One Boeing” philosophy illustrates an unwavering commitment for
Boeing to be the best in designing and creating new and efficient products. The
company is very committed to leading the way and it works extremely hard to
overcome obstacles and weaknesses in the aircraft manufacturing industry. The
company is aware of its competition, and is constantly making decisions to remain
competitive today, tomorrow and in the future. This is what makes Boeing the leading
commercial aircraft manufacturer.
Production (HP):
The Boeing Company utilizes three major production facilities (Everett,
Washington, Renton, Washington, and South Carolina) to deliver commercial
airliners to customers. Each facility is operating under the Boeing Production System
(BPS) and its principles which include: Lean manufacturing, Six Sigma, value
streams, global manufacturing and supplier relationships. “By breaking down all
aspects of producing an airplane into manageable chunks—or streams—of activity,
it becomes easier to identify areas for improvement. This in turn helps increase the
focus on what's value-added and what isn't, fundamentally reducing costs and

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improving quality. In Commercial Airplanes, part of the value-stream process has
resulted in the implementation of many successful practices like those Japanese
manufacturers use in environments such as Toyota and Fujisawa. In-house design
and right-sized equipment and machines are considered a competitive advantage.
Activities are time-based, paced to the production line, which is in turn paced to
customer demand. Inventory is replenished based on kanban "pull." Mistake-proofing
and built-in quality are throughout the entire factory and part of every process
(Arkell).”
The Everett, Washington facility is used to produce 747s, 767s, 777s and the
new 787 Dreamliner’s. It is by volume the largest building ever constructed covering
almost one hundred acres. The Everett location focuses on assembling aircrafts with
the help of pre-assembled parts shipped via truck, train, or Dreamlifter. The
Dreamlifter is a modified 747-400 with a 65, 000 cubic feet internal cargo capacity.
The use of pre-assembled parts for example allows the facility to assemble a 787 in
as little as three days. The massive facility allows for each plane to be constructed in
its area. Tours of the facility are offered daily giving patrons the opportunity to view
the future of flight.
The Renton, Washington facility produces Next-Generation 737 airplanes.
This location serves as a final assembly site for the plane and has the distinction
of also producing the P-8A Poseidon. The production of the P-8A a military
derivative aircraft is a first for the moving assembly line of Renton. The
collaboration of commercial activities in a military market provides Boeing a

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competitive advantage and new business model. As of 2008, 42 percent of jetliners
in use in the world have come from the Renton facility.
The Boeing South Carolina facility is responsible for assembling and
installing systems for the rear fuselage sections of the 787 Dreamliner while also
joining and integrating midbody fuselage sections. The site is also location to the
final assembly and delivery of the 787 Dreamliner. Once complete aft and midbody
sections are either shipped to Everett facility in Washington or transported across
campus to final assembly in North Charleston, South Carolina. In December 2011,
Boeing’s Interiors Responsibility Center opened just 10 miles from there other South
Carolina plants. The facility is responsible for 787 interior parts to include: closets,
stow bins, class dividers, partitions, floor stow bins for flight attendants, overhead
flight-crew rests, overhead flight attendant crew rests, video-control stations and
attendant modules. In mid-2015 Boeing plans to begin assembly of 737 MAX engine
inlets as part of a new engineering strategy that includes an IT Center of Excellence
and an Engineering Design Center to be located in a new facility in South Carolina.
Strengths:
● Large facilities allow for multiple aircrafts to be assembled at once
● Production and Delivery are not outsourced allowing for cost saving
● Dreamlifters shorten wait times on delivery of products from weeks to hours
● Continuous moving assembly line allows for progress tracking
● Ability to produce multiple types of aircrafts at once
● Over 13,000 jetliners in operation
● Parts arrive prefabricated to help shorten assembly times

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● In-house design and right-sized equipment
● Mistake-proofing and built-in quality are throughout the entire factory and part
of every process
Weaknesses:
● With some parts coming from suppliers overseas in Italy and Japan backlog is
possible
● Not all plants in the United States deliver the same finished planes so if delays
happen orders may not be met
● If customer demand is low production will slow and could shut down
● Constant need to pay to operate Dreamlifter’s to transport parts
Marketing and Sales (PH):
The Boeing Company is known around the world as a leading manufacturer of
commercial airplanes. Boeing is also a leader in space technology, defense aircraft and
systems, and communication systems. Boeing advertising campaigns close the gap
between current perceptions of Boeing and their true scope as a global aerospace
company. Boeing run Commercial Airplanes' advertising runs worldwide in many major
financial and aviation trade publications. (boeing.com)
Boeing has the Current Market Outlook their long-term forecast of air traffic volumes
and airplane demand. It helps to shape product strategy and provides guidance for long-
term business planning. Boeing has shared the forecast with the public since 1964 to
help airlines, suppliers, and the financial communities make informed decisions.
(boeing.com)

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Boeing is restructuring its commercial airplane strategy and marketing functions.
Marketing functions will be shifted to the sales group and led by marketing vice president
Randy Tinseth, who'll report to global sales chief John Wojick. This decision was made
days after hearing that one of their biggest customer Japan Airlines, entered into a deal
with Airbus to buy 9.5 billion worth of jetliners.(finance.yahoo.com, Reuters –Thurs
October 10, 2013)
The IATA estimates that global airlines earned a collective $8.8 billion net profit in
2011 and $6.7 billion in 2012. The order books at Boeing and Airbus contain six to seven
years of production at current levels. Both companies have announced significant
production rate increases that stretch through mid-2014, with both expecting deliveries
to increase by about 40% from 2011 to 2014.The business jet market, which has been
battered by both falling corporate profits and political headwinds, has begun to improve.
We also see the aftermarket parts and service business, for business jets and large
commercial airplanes, continuing to stage a recovery into 2013, on increased flight hours
for both categories. (Standard & Poor’s, Aerospace & Defense/February 14, 2013)
Strengths:
● Known globally as the number one manufacturer of commercial airplanes.
● Commercial Airplanes' advertising runs worldwide in many major financial and
aviation trade publications.
● Continues to beat the competition with total annual sales.
Weaknesses:
● JAL entered a deal with Boeing’s top competitor.

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● Not able to get orders completed and ship to customers sooner than
competitors.
Customer Service (MP):
Strengths:
● Boeing is committed to round the clock service. To be precise, “Boeing is
committed to assist with any problems such as; technical, engineering, and
maintenance problems” (Boeing.com).
● “Their customer service management process is 24 hours a day, 7 days a
week, and 365 days a year” (Boeing.com). With Boeing management style
and expectations, their customers build a stronger brand loyalty to the
company, this is one strength Boeing has.
● Boeing China customer service center works closely with Boeing's
engineering in Seattle, Washington, and Long Beach California. This is a
strength because Boeing is able to communicate within their company to
become more efficient.
Weaknesses:
● Delivering their 787 Dreamliner. “Boeing outsourced on their wings and fuselage.
Boeing had 50 partners in 103 locations” (Boeing.com). Boeing delayed their
Dreamliner plane to China for 3 years.
● Boeing did not communicate well which led to un professional customer service.
● Boeing delayed their Dreamliner plane to China because they didn't collaborate on
how much supplies they needed which made their customer service look bad on their
to in China's eyes. (Boeing.com)

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Support Activities (HP)
The support activities of the value chain provide inputs that allow the primary activities
to take place. These activities are broken down into four functions; material management
(or logistics) includes controls the transmission of physical materials through the value chain
, human resources ensures that the company has the right skilled people to perform
operations, information systems are electronic systems put in place to effectively increase
the company’s ability to do business and connect with customers, and company
infrastructure is the companywide context within which all other value creation activities take
place: the organizational structure, control systems, and company structure (Hill, Jones).
Materials Management (HP):
Materials Management encompasses the process of organizing, planning, and
tracking the flow of materials for an organization. Taking things a step further Boeing
uses its Material Services department which joins Materials Management and Boeing
subsidiary Aviall. While both services handle customer’s parts and service needs,
Material Services provides assembly and delivery of materials ranging from a few
pieces to a full load to aid in overhaul and/or incident repair.
Materials Management utilize six distribution centers in the U.S., Europe,
Middle East and Asia maintaining 500, 000 different parts with staff available
24/7/365. This allows customers to get their equipment back in operation generating
money. “Customers include airlines, government organizations, private aircraft
operators and owners, aircraft parts distributors, MRO providers and other parties
that engage in the business of aircraft operations and maintenance. Boeing provides
a number of contract services, including managing inventory that is forward-deployed

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to customer locations around the world and providing repair, lease, exchange and
overhaul of component parts and assemblies (Boeing Company).”
Boeing subsidiary Aviall Services, Inc. is one of the world's largest providers
of new aviation parts and related aftermarket operations. They distribute for over 235
manufactures offering 2 million catalog items utilizing 40 customer service centers in
North America, Europe, and Asia-Pacific. Aviall ships 3,500 orders per day with 99
percent error efficiency to over 25,000 global customers. Customers also enjoy the
same error free service on same-day shipments. “Aviall’s Inventory Locator Service
(ILS) provides information and facilitates global e-commerce via its electronic
marketplace that enables subscribers to buy and sell commercial parts equipment
and services. ILS provides e-business services to the aviation, marine and defense
industries (Boeing Company).”
The Emergent Build Center is designed to help supply customers with parts
that have been discontinued or non-stocked while also providing fabricated parts for
Boeing airplanes. Boeing also utilizes an Integrated Materials Management (IMM)
process that directly links a customer’s systems to that of Boeing and its suppliers.
As a result customers receive unparalleled parts service, reliability, improved
performance for network suppliers, reduced parts cost, inventory holding, and
logistics. Boeing also guarantees service and even stocks additional parts at no cost
to the customer until the parts are used reducing buffer stock. IMM is also compatible
with Airplane On Ground (AOG) and expedited service is available at no additional
cost working in conjunction with Boeing’s top priority of supporting the customer’s
business.