Analysis of Boeing and the airplane manufacturing

Boeing was found in the year 1916 in the state of Washington. Which is head quartered at Chicago. Boeing extended its business in 90 countries

Boeing is one of the world’s leading aerospace companies and the largest combined manufacturer of commercial jetliners and military aircraft. It has been the premier manufacturer of commercial jetliners for more than 40 years. Today, its main commercial products are the 737, 747, 767 and 777 families of airplanes and the Boeing Business Jet. New product development efforts are focused on the Boeing 787 Dreamliner, and the 747-8.

The company supports airlines and government customers in more than 90 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defence systems, launch systems, advanced information and communication systems, and performance-based logistics and training.

Since Boing is a leading airplane manufacturer and is one of two companies dominating that industry, it is very likely that everybody that has flown more than once has flown with one of Boeings airplanes.

We will be focusing on Boeings commercial jetliners in this presentation.

Threat of New Entrance:

It is not easy for new companies to enter the manufacturing market of large commercial jetliners. The high cost of developing airplanes and technological knowhow are major factors in prohibiting new entrants to the market, for example it cost US$5.5 billion to develop the Boeing 777 in the 1990s.

The newcomers have more challenges than making a new plane – they need a marketing strategy, a product support service, and a reputation. Since people’s security is at stake in this industry, various regulations need to be followed and skilled labour is very important. Another factor is that reaching break-even point takes a long time as it can be up to 10 to 20 years before new companies entering the market start seeing any profits, and that is even without any guarantee that they will see profits at all.

When competing brand loyalty is extremely important, it is a thing that new entrants do not have. Boeing on the other hand has already gained a good reputation as a manufacturer of commercial airplanes through its experience, in terms of quality, good service and reliability. Gaining brand loyalty itself is a long process as well as providing high quality products it is also necessary to be visible. For example, Boeing found an original way how to remind about itself by encouraging people around the world to name its newest airplane. Boeing’s model 787 aircraft was named ‘Dreamline’. Boeing was smart to be among the first large firms out of the box to sponsor a global naming contest, thus generating global publicity.

Despite all this, there are few companies who are likely to entering the market. Boeing is being challenged by new entrants from Canada, China, Brazil and Russia who are interested in the profitable single-aisle market. Asian Airlines are expected to buy nearly 10,000 new planes by 2025, with more than 2,200 of those going to Chinese airlines and now.

The Canadian firm, Bombardier, a manufacturer of both planes and trains, is bringing to the market a new narrow body, CSeries jet, which competes directly against the Boeing 737 by offering 20% greater efficiency. The plane is scheduled to enter into service in 2014.

China’s Commercial Aircraft Corporation and United Aircraft Corporation from Russia are also entering the market and are launching new airplanes which will be in competition with Boeing’s 737. The new models are called C919, (China) and MS-21 (Russia). What makes these jets special is their new-generation engines that are said to have 15% better fuel efficiency than the engines on the 737, which would mean enormous savings for airlines. The Chinese and Russian jets are expected to enter into service in 2016. They will also be much cheaper. If the Chinese government pressures the country’s big airlines, which are state-owned, to buy the C919, it will be bad news for Boeing. Though China’s government has officially approved the launch of China Commercial Aircrafts, which will manufacture large passenger planes, fulfilling the ambition will take time, said Jin Zhuanglong, president of the new aerospace group. “China’s jumbo jet program will not pose a threat to Boeing, at least in the coming 20 years,”.”Even when China has the capacity to produce large jets it would be able to meet only a small part of domestic demand. Boeing will continue to claim a big chunk of the Chinese market.

After looking at all possibilities it is sure the threat of new entries in to the market of commercial jetliners is considered low, but certainly possible.The industry is still growing and companies that have huge capital investment and enough support of government funding for initiation cost, R&D and other costs can enter the market and try to last there for the long run.

China’s new jumbo-jet firm no threat to Airbus, Boeing: state media; by Staff Writers; Shanghai (AFP) May 12, 2008; http://www.spacemart.com/reports/Chinas_new_jumbojet_firm_no_threat_to_Airbus_Boeing_state_media_999.html

http://www.economist.com/node/15719170

http://gulfnews.com/business/aviation/new-competitors-may-end-airbus-boeing-duopoly-1.655979 New competitors may end Airbus-Boeing duopoly; Canada and China are years from impacting single-aisle market; AP; Published: 00:00 July 19, 2010

“The Boeing Company Annual Report 2009”. Boeing.com. 15 Jun 2009

http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/ba2009.pdf

http://seattletimes.nwsource.com/html/boeingaerospace/2012373506_airshowrivals18.html

Rivalry among competitors

Boeing has contributed about 50% of its revenues among its defence, space, security and Capital Corporation. Even though there are many aircraft manufacturers, the main rivalry for Boeing is Airbus. Both companies have great experience since they have been on the market for more than 30 years.

Airbus acquired 644 new orders last year, worth $84bn at their full list price – with 200 placed in December. Representing 51 per cent of the 2010 gross worldwide market share for aircraft with passenger capacities of more 100 seats (52 per cent net). That was enough to push Boeing into second place with 625 plane orders. A new delivery record was attained by Airbus in 2010 as it provided 510 commercial aircraft.  This compared to a total of 498 deliveries in 2009.  Whereas Boeing has sold out 462 which is 4% below when compared to 481 of 2009.

(In 40 yrs time, Airbus has sold above 10,000 aircraft and delivered over 6,500 since its first airliner entered service in 1974)

Revenues of Boeing

BOEING

2010 (bn)

2009(bn)

2008 (bn)

Commercial

$34051

$28263

Military

$33661

$32074

BCC

$660

$703

Total

$68372

$61040

(2010’s fiscal data will be released on 26th Jan, 2011)

Airbus also maintained its eight-year lead over Boeing in the number of deliveries of finished planes. In addition to that it also is the quietest long-haul aircraft flying today, generating 50 per cent less noise on departure than the nearest competitor, as well as three to four time less when landing, all while carrying 40 per cent more passengers.

The aerospace industry is growing rapidly and the airline customers double every 15 years in the world and in Asia pacific region especially in China and India the airline customers doubles every 6 years. In 2014, the Indian airlines industry is forecast to have a value of $17.9 billion, an increase of 155.7% since 2009 and estimated to have 156.2 million passengers increase of 111.6% since 2009. In 2014, the Chinese airlines industry y is forecast to have a value of $52 billion, an increase of 106.3% since 2009 and estimated to have 222.3 million passengers with an increase of 70%

With this increase it’s good to have fewer airplanes with more seating capacities as well as being more economical. Boeings maximum seating capacity is 290 in 787-9 and 250 in 787-8, which are its largest jets. Airbus’s A380 on the other hand has a seating capacity of 525 (3 classes) and 853 when it only has economy class. With the heavy competition from airbus, Boeing needs to focus more on market research and design the aircraft based on the future requirements in order to enhance its business.

As mentioned before Boeing have great experience in this field and good reputations, this will help them in the competition against its competitors.

Bombardier and Embraer are also , a manufacturer of both planes and trains. Bombardier is bringing to the market a new narrow body, CSeries jet, which competes directly against the Boeing 737-700 as well as the Airbus A319. The plane is scheduled to enter into service in 2013 and what makes CSeries jet special is its new-generation Pratt & Whitney engine that is said to have 15% better fuel efficiency than the engines on the 737, which would mean enormous savings for airlines.

Bargaining power of buyers

In this market there are a great deal more customers compared to the firms in this business. Boeing has for example customers all over the world, in more than 90 countries, such as K.L.M from Germany, Air India, Canadian pacific Air Lines, Nigeria Airways, Air France and Icelandair.

Due to the market output of Boeing, the customers have the ability to put the Boeing industry under pressure if they fail to meet the high quality expectations of their customers. The customers that are able to do this are those who purchases large quantities of the Boeing’s output, such as International Lease Finance Corp. (ILFC), which is Boeing’s biggest overall customer. As well as being its largest buyer of the upcoming 787 Dreamliner, which is already three years behind schedule. The head of ILFC said, in late 2010, that Boeing needs to put an end to the growing pattern of delays.

Till the second quarter of 2010, 863 airplanes had been ordered for the 787, for 56 customers. Both Air New Zealand and Air India have said they will be seeking compensation for the delays of the 787. Analysts, though think that compensations will be settled through aircraft discounts and maintenance agreements rather than cash payments.

As this indicates Boeing needs to do everything it can to keep their customers happy since they have the ability to switch to its main rivalry, Airbus, if they think Boeing is not performing well enough. The cost of doing so does though for example incur the cost of training the airlines pilots for the different jets as well as the difference in cost of jets between companies. When compared with Airbus, Boeing seems to be more economical as can be seen in the case of A321 which is 95.5 million US$ whereas 737-900ER costs 85.8 million US$.

Looking at these examples we consider the bargaining power of buyers moderate.

Pressure from substitute products

There are no substitutes that apply for Boeing’s direct customers since airlines can’t change their whole business idea. Looking from the point of our indirect customers, there are some implications Passenger cars accounted for 83.3 % of inland passenger transport in the EU-27 in 2008, with buses and coaches (9.4 %) and railways, trams and metros (7.3 %) both accounting for slightly less than a tenth of the total volume of traffic (as measured by the number of inland passenger-kilometres (pkm) travelled by each mode) – see Table 1.

Location may affect people’s choices of travelling. Cars, busses and trains can be used for short distances within or between countries in mainland. But in case of access to an island, ships and cruises can be used to reach the destination.

It also depends on time, airways are the fastest way of travelling but still it depends on individual.

One more thing is the price you pay for travelling. Let’s take a trip from London to Paris. Going there by Eurostar train takes 2.5 hours and costs £40 one way while going there with Easy jet airways, takes you about 1 hour and 20 minutes and it costs from £35. Customer’s choice may be affected by the weight they want to carry.

It is worth to mention that recent inventions like faster trains or bullet train have attracted a few airline passengers towards it.

Also recent invention in communications such as Skype, helps to connect business people worldwide easily through video conferencing which has also limited the use of airlines.

But in the case of international travelling airways are considered as the most effective means of transport.

Passenger cars accounted for 83.3 % of inland passenger transport in the EU-27 in 2008, with buses and coaches (9.4 %) and railways, trams and metros (7.3 %) both accounting for slightly less than a tenth of the total volume of traffic (as measured by the number of inland passenger-kilometres (pkm) travelled by each mode) – see Table 1.

Passenger cars accounted for 83.3 % of inland passenger transport in the EU-27 in 2008, with buses and coaches (9.4 %) and railways, trams and metros (7.3 %) both accounting for slightly less than a tenth of the total volume of traffic (as measured by the number of inland passenger-kilometres (pkm) travelled by each mode) – see Table 1.

Bargaining power of suppliers

Boeing has 22.000 suppliers globally, providing everything from engines and fuselages to sets and exit signs.

Among major suppliers are China’s Xian Aircraft Company that makes the 737 vertical fins, Japan’s Mitsubishi Heavy Industries which provides the wing’s inboard flaps and UK’s Rolls-Royce, USA’s General Electric and Pratt and Whitney, producing Boeing’s engines.

As well as outsourcing some service to save cost, Boeing also has some internal suppliers. The Interiors Responsibility Centre produces the interior panels for boing 737. They look at themselves as Boeing’s suppliers; always doing their very best at all times to prove that they are the best choice for this job.

Boeing has learned that it is necessary to find the right balance between the production of components in its own plant and production acquired from outside companies. After having outsourced extensively, in the design and building of the 787 Dreamliner aircraft components, which led to bad communication and delays. The 787 was supposed to be rolled out in May 2008 but the latest news declare that the delivery of the first new-generation 787 Dreamliner aircraft will not be until the third quarter of 2011. Boeing believes they failed by giving outsiders too much responsibility for designing integral parts of the aircraft. They claim the setback is due to the availability of a Rolls-Royce engine needed for the final phases of flight testing.

Boeing, along with Airbus, is dominating in the airline industry and is therefore a very important customer for all its suppliers. Most of Boeing’s suppliers are international companies, serving more than one industry. The products that Boeing buys from its suppliers are unique and there are no substitutes for those products. But there are more than one company that can supply them with each product they need so they have the opportunity to switch suppliers for better prices or quality. Switching suppliers does though take a long time and also involves some substantial cost, for example installation and testing cost. Although this cost is high it might not matter in the long run if the cost of the new product is considerably lower than of the old product. Another possibility is that the company being switched to would pay the switching cost in order to get Boing as a new customer. After evaluating this information our opinion is that the bargaining power of suppliers is moderate since both are strongly dependent on each other.

I got this information from this article and then Boeing.com

Hundreds of suppliers, one Boeing 737 airplane, For best-selling jet, vendors provide everything from engines to seats.

http://www.msnbc.msn.com/id/36507420/ns/business-us_business/

http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft655.pdf

Conclusion

They have outsourced to countries such as China, and India where labor is cheaper, this addresses the strength of their suppler. In return, they have obtained aircraft sales from these countries which are also two of the largest and fastest growing airplane markets in the world. Japan also helped with building the newest Boeing 787 Dreamliner.

in Japan, China, Korea, Germany, UK and Spain