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... ucceeds in entering the market with a low cost, no frills product strategy, especially in emerging countries. Finally, although highly unlikely, existing defense aerospace companies my be tempted by a late entry or re-entry such as Lockheed as they see their traditional military market dwindle. Threats of Substitute Products or Services It is difficult to imagine, for the foreseeable future, a direct substitute for commercial aircraft, especially in the long haul transport.
Air travel is the most effective, secure, convenient and economic transportation method. However, a few threats exist, especially in Fast bullet trains offer between cities less than 400 miles apart a very attractive solution. As their speeds approach and exceed 200 mph, they bring such travel below two hours from downtown to downtown; a performance that hardly any airline can match. After the start of TGV service between Paris and Lyons, Air Inter faced a 50 % reduction in air travel between the two cities. If such solutions are implemented widely in the USAa very speculative assumption between, say San Francisco and Los Angeles for instance, a great many airlines may lose market share and as a consequence reduce their fleets.
Likewise, advances in automotive industry, such as cars capable of very high speeds, under electronic control on specially equipped freeways may have an impact on air travel. Finally, advances in telecommunications techniques, collaborative computing, desktop video-conferencing based on broadband ISDN type services may reduce business travel requirements and impact the airlines investment in new planes and routes. Globalization of the Commercial Aircraft Industry The industry is rapidly becoming global for the following reasons: There are very few players, but intense competition and very high capital requirements drive the need to maximize volume and tap all possible markets. It is unthinkable to have a national or regional strategy and expect to succeed in this industry.
As many customers including various governments across the world consider the aircraft industry strategic, they want a share of the action. As a consequence, partnerships, joint ventures are aplenty. In fact such deals, mergers and joint ventures become a must in order to remove trade barriers. Importance of I/T to the Industry I/Ts importance to the industry can be evaluated from two different Operations management, such as in inventory management, etc. I/T is key to optimize resources, reduce costs, improve efficiencies. As an extremely high technology and complex industry, integrating electronics, mechanics, chemicals, metallurgy, etc.
CAD/CAM tools used in simulation, modeling, concurrent engineering are not only key in reducing time to market but also a must in the industry's ability to cope with the complexity of the task. As it can be observed from the value chain (figure 3, page 13), I/T intervenes in almost every phase of Boeing's operations. Its role is most significant in inbound logistics, operations and service. These are the steps of the value chain where Boeing uses I/T to gain a competitive advantage.
I/Ts presence in the other segments is not negligible either, but its value is limited to a more traditional Boeing has three business units: Commercial Jet Aircraft (President: Ron Woodward): By far the largest, this unit designs, develops and manufactures commercial jet aircraft. It has a very comprehensive product portfolio ranging from the 737 series with seating capacity from about 100 to 150 passengers, to the 747 with seating capacity from 420 to 566 passengers. Other models are the twinsets Boeing 767 (long range, 210 to 325 passengers) and the 757 (mid-range, 180 to 230 passengers). The company introduced in 1993 its newest model, the Boeing 777 with seating capacity of 305 to 440 passengers and the first to be 100 percent equipped with fly-by-wire technology. Boeing also plans to renew its 737 line with the next generation 737 - 700 which is scheduled for delivery in 1997. Boeing's commercial aircraft sales amounted to $ 20, 568 million in 1993.
Defense and Space (President: Jerry King): Despite the strong decline in the U. S. Defense projects and Boeing's declining sales in this domain, the company had sales of $ 4, 742 million defense business with an operating profit of $ 303 million. Major contributors to the defense revenues were Space Station work packages, F- 22 fighter aircraft, V- 22 Osprey tilt rotor transport and RAH- 66 Comanche helicopter. These programs are principally funded under cost-reimbursement type contracts.
Computer Services (President: John Warner): Although this divisions primary mission is to provide cost-efficient computing support for company operations, it generated revenues of $ 331 million by mainly competing for selected federal contracts to manage information systems. Profits for this group were a slim $ 2 million, down from $ 16 million in 1993. However, this groups main mission is to serve the other internal divisions and it is still remarkable that it is more than self sustaining. The company is based in Seattle.
Frank Shrontz is its Chairman and Chief Executive Officer and Philip M. Condit is its President. Market and Financial Performance Highlights of Boeing's financial performance for the last five years are summarized in tables 3 and 4; After an all time high of revenues in 1992, Boeing faced a severe downturn, due to the dismal financial performance of most airlines and increased competition from Airbus. The trend continued in 1994; Boeing closed the fourth quarter with sales of $ 5, 120 million, down 9 % from the previous year, and the overall results in 1994 were $ 21, 924 million, down 14 % from 1993 sales of 1993.
Profitability severely declined also with net earnings of $ 856 million; - 31 % compared to last year. 1993 1992 1991 1990 $ 20, 568 $ 24, 133 $ 22, 970 $ 21, 230 4, 407 5, 429 5, 846 5, 862 463 622 498 503 25, 438 30, 184 29, 314 27, 595 1, 244 1, 554 1, 567 1, 385 3. 66 4. 57 4. 56 4. 0661 1, 846 1, 417 827 134, 400 148, 600 159, 100 161, 700 Table 3: Summary of Boeing's Operations Business Week lists Boeing in Aerospace & Defense category. The average return on common equity in the industry is 13. 1 %, while Boeing only achieves 8. 9 %. However, Boeing is the least military of its group and this comparison is probably not very fair. Interestingly enough, McDonnell Douglas, the only other defense company with a significant commercial activity in this group fares quite well with 15. 7 % return. While Boeing's defense activity is dwindling, McDonnell Douglas remains strong and probably helps keep it afloat in the commercial aircraft business. Boeing's employment figures show great variations and match closely its financial performance.
It is expected that Boeing cut its employment by at least 7, 000 jobs in 1995, as the industry doesnt show any strong recovery signs. 1993 1992 1991 1990 20, 450 18, 147 15, 924 14, 591 2, 601 1, 947 2, 462 1, 396 7, 088 6, 724 5, 530 4, 448 3, 108 3, 614 3, 453 3, 326 2, 630 1, 793 1, 317 315 8, 983 8, 056 8, 093 6, 973 $ 70, 497 $ 82, 649 $ 92, 826 $ 91, 475 Table 4: Boeing Balance Sheet Boeing has a strong balance sheet as of 12 / 31 / 94, however, as seen in table 4, there are some negative trends; debt has significantly increased during the last three years. The cash situation remains strong although it has shrunk by nearly $ 1 billion in the last two years, but new aircraft orders backlog has been steadily shrinking since 1991. Finally its profitability still follows a negative trend, with net earnings having receded from $ 1, 244 million in 1993 to In the 1993 annual report, Frank Shrontz says: ... the cornerstone of our business strategy, is continuous improvement in the quality of products and processes.
Boeing is committed to continuous improvement, and we are determined to cut waste and boost productivity with the goal of producing higher quality products in less time at the lowest possible cost. It is clear from these lines that Boeing is betting on higher productivity in beating its archrival, Airbus. The underlying assumption here is that Boeing will not be able to outspend Airbus that can always count on government subsidies and friendly national airlines, therefore it must be able to match Airbus Industries lower sale prices and it must be first to the market with innovative and technologically advanced products. Significance of Information Systems Boeing's action plan as outlined by Condit and Shrontz is Slash costs by 25 % to 30 % by year 2000.
Speed up manufacturing time for the 737 from 13 months to 6 Cut inventory, moving toward a just-in-time system. Train the entire workforce in competitiveness; 15, 000 managers have already completed four-day course. Bring customers and suppliers into the once-secret process of A quick look at the Porter Value Chain model (Figure 3) indicates where and how these efforts will enhance Boeing's competitiveness. Boeing has nearly $ 8 billion of inventory that turns only twice a year, compared with nearly 10 times a year or higher for world class manufacturers in other industries. And since an aircraft has about 132, 500 engineered parts, plus about three million rivets, screws, etc. , it becomes apparent that the management of such an inventory and its procurement with a just-in-time system will not only require world class Information Technology, but it will also need to be closely integrated with its principal suppliers. On the other hand, the quick development and manufacturing cycles that Boeing has targeted require state of the art CAD/CAM systems that enable the transition from concept to fabrication without costly and time consuming adjustments.
Ironically and probably quite rightfully Boeing chose a French CAD tool; Catia, developed by Dassault, a military aircraft manufacturer, designer among others of Figure 3: Porter Value Chain for Boeing Therefore advanced Information Technology tools and their application in both design and development, and operations are critically important to Boeing's success in implementing its Strengths and Weaknesses of Boeing We will assess Boeing's strengths and weaknesses under the light of its formulated strategy in competing against Airbus. Boeing doesnt believe that just having the best technology will be enough to conquer the markets, but the final battle will be fought on pricing and financing. It is therefore key for Boeing to improve its productivity and achieve the lowest possible cost structure and flexibility to beat Airbus, despite its being subsidized. Boeing is already on its way to achieve its goals in productivity, and it is safe to assume that it already has a lower cost structure than Airbus. It has trimmed its workforce to the minimum and it has plans to further cut 7000 jobs this year. It Bibliography:
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