Generally, the aircraft industry is described as a very risky one as failure is the norm due to high product development costs. Furthermore it consists of a rival duopoly of the survival jet makers Boeing and Airbus.
The Boeing company’s history of producing jets can be split into two eras. In the 1920s, 1930s and during Worlds War II., it was a military contractor producing bombers and fight aircraft. Later on, in the 1950, Boeing became the world‘ s largest manufacturer of commercial aircraft. Their first jet was the 707 model. Although Boeing was very successful, Airbus remained a serious rival.
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In 1988, Boeing planned to upgrade the 767 model in order to meet the level of Airbus‘ competition which launched two new models. As Boeing had no 300-seat jetlines, nor plans to develop such a jet, the Executive Vice President Philip Condit proposed to design a 767 double-decker jet. To explore the risks, he tried to find out if the customers were interested in such a launch. But United Airlines rejected the idea of a 767 double-decker, as it had no chance against Airbus‘ new model transports. Instead, Condit was won over to develop a completely new commercial Boeing jet which would be called the 777 project.
One of the main characteristics of the Boeing 777 jet was that it was a consumer driven product. In order to decrease the risk of developing the new jet, Boeing approved the project only until it obtained 68 firm orders of the 777 jet by the carrier United Airlines. Only then Boeing commited to the 777 program and the directors approved the close cooperation of the two companies. For the design and development phase Boeing introduced the „Working Together“ with eight more carriers.
Furthermore Boeing 777 was a globally manufactured product, for which 12 international companies were contracted.
Boeing split the risk of the new product on a family of planes consisting of different planes build around a basic 777 model. By that, the design included a maximum flexibility for future changes of the model according to customer preferences.
Besides these facts, the 777 project delivered the first jetliner designed entirely by computers. Instead of old-fashioned two-dimensional methods, the sophisticated computer program „Catia“ (computer aided three-dimensional interactive application) had been used. Furthermore, all team members were connected according to Catia, which made them be cross-functional.
During the 777 project, Boeing implemented a new company culture, where assembly line workers were empowered and encouraged to offer suggestions and participate in the desicion making. Managers also payed attention to problems faced by their workers, such as safety concerns, childcare, etc.
In the 1990 the new 777 aircraft program had been launched and in 1995 the first jet had been delivered, while in 2001 the 777s were flying in the service of major U.S. and international airlines. Although Boeing produced the most successful commercial jetliner, it was a risky project and its process contained unresolved problems.
The main concern of Boeing was its insufficiency to reach the competitive level of its only rival, Airbus. While Boeing had no plans to even develop a 300-seat jetline, Airbus had launched in 1988 two new successful models. Condit’s proposition of a modernization of the already existing 767 model by upgrading it to a double-decker jet, had been refused by United Airlines. United’s contra argument was that a Boeing 767 double-decker was no match to Airbus’s new model transports.
Boeing’s challenge was to create a completely new commercial jet model which should not only be the preferred airplane in the aircraft industry, but at the same time be launched at a competitive price. The most costly and risky part of the development of an aircraft was the production of the jet engine. Its production could cost as much as producing the airplane itself. By deciding to develop a completely new 777 model instead of updating the older 767 model, a new engine had to be developed. Although Boeing had been strong in the 90s, the project still was risky. A failure of the costful new jetliner might have led to a decline of the Boeing company.
The question was how to develop technological and managerial innovations to cut costs. Those innovations in aircraft design, manufacturing and assembly were supposed to update Boeing’s engineering production system and manufacturing strategies. The case focuses on efforts done to survive in the aircraft market by modernization, success and cost effectiveness. All efforts finally run to the question, if Boeing will achieve a better competitive position to Airbus.
The main problem of the company arouse because its latest, eight-year-old, wide-body twin jet 767 Boeing model, even if upgraded and turned into a double-decker, still couldn’t be a match to Airbus’s new 300-seat wide-body models (the two engine A330 and the four engine A340). If Boeing wanted to have future on the market, it quickly had to resolve this issue by planning a way of enhancing its competitive position relative to Airbus.
Boeing was also being urged by the United Airlines and also by other airline carriers to develop a brand new commercial jet, which was even expected to be the most advanced airplane of its generation.
The decision to be made in terms of this issue lies in the responsibility of Frank Shrontz, Boeing’s CEO, in 1988. The stakeholders to be further affected by it were the future customers of the 777 Boeing model – airline carriers from all around the world, like United Airlines. Also relevant to the outcome of Shrontz’s decision were the manager Philip Condit, put in charge for the 777 project, as well as all the others 10 000 employees and lower level managers, that were recruited to work on it. The situation was going to affect as well Boeing’s suppliers for structural components, systems and equipment, which were twelve international companies located in ten countries.
As first constrain for resolving the issue we can note that Boeing’s production system and manufacturing strategies were outmoded and needed to be updated. In order to create an aircraft, which could compete with Airbus’s latest ones, Boeing first needed to revitalize their mass production manufacturing system. Airbus also was ahead of Boeing because of their use of the most advanced technologies, and therefore Boeing had to introduce leading edge technologies into its jetliners.
If we look at Exhibit II in the business case, we will see the market share of shipments of commercial aircraft of Boeing, McDonnell Douglas (MD) (until 1997, before the merger with Boeing) and Airbus, for the period 1992 – 2000. The percentage numbers on the table show the competitive relationship between Boeing and Airbus, especially when they remain the only players in the industry in 1997. Airbus is steadily raising the percentage of its market share of shipment throughout the years, for Boeing’s misfortune respectively. From here we can extend more our understanding of the threat that Boeing had in the face of Airbus and also of the need for the CEO of Boeing to come up with a solution for how to strengthen its competitive position.
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