3. What business-level strategies would be appropriate for Boeing?
This case traces Boeing’s strategic challenges throughout the first decade of the twenty first century. Toward the turn of the century, Boeing was faced with ethics scandals, production problems, and a growing global competitor by the name of Airbus. The launch of Boeing’s 787 jet helped strengthen their competitive position against Airbus by capturing the lead in jet aircraft orders and offering a product with more value. Since the mid-1990s, Boeing had been losing ground to Airbus in aircraft orders and profits. Airbus booked more orders than Boeing for the first time in its history in 1999, and regularly repeated this feat until 2005. In the first half of 2006 however, Boeing had booked more than four times more aircraft orders than Airbus. Since mid-2005, Airbus had announced repeated delays in the delivery of its newest model, the A380, causing it plenty of embarrassment, and its key customers considerable concern. Customers had also panned Airbus’s smaller model, the A350, at the drawing-board stage, requiring rework on that model, too.
Meanwhile, Boeing’s two-engine long-haul 787 Dreamliner, a direct competitor to A350 and A380, had received rave reviews for its technological excellence, backed by firm orders from commercial airlines and aircraft leasing companies.
After its merger with McDonnell Douglas in 1996, Boeing became a broad-based aerospace business within which commercial aerospace accounted for 40 to 60% of total revenue, depending upon the stage of the commercial production cycle. However, as Boeing and Airbus were splitting the market, the aircraft industry became characterized by higher R&D costs, longer times to break even, significant learning effects, increases in assembly complexity, increased consumer demands, and airline competition intensified toward deregulation. As a result, the competitive actions between Airbus and Boeing intensified with each having different demand projections, new aircrafts, new manufacturing efficiencies, trade tensions, and their own production problems. In the competitive process, Boeing’s efforts included streamlining production to make it more efficient (lean production systems), making new bets on the future demand for air travel and the type of products best suited to meet this demand, creating moonshine teams, and fundamentally changing the organizational culture within the company. Unfortunately, some company sources suggest that Boeing erred by not managing its supplier relationships as well as it should have done. In particular, there may have been a lack of ongoing communication between Boeing and key suppliers. In an attempt to fix some of the supply chain issues, in 2009 Boeing purchased a Vought Industries Aircraft plant for $580 million. As Boeing continues with aircraft redesigns, both Airbus and Boeing are faced with environmental changes including aging planes, several potential new entrants, and fuel efficiency technology demands.
These developments have presented Boeing with a major strategic dilemma. Should they continue to evaluate what to do with the 737, perhaps waiting a few more years before making the heavy investment associated with redesign. This would allow them to design a high technology successor to the 737 that would incorporate many of the technologies developed for the 787. Alternatively, should they jump into the fray now, and offer a redesigned version of the 737 that can utilize new engine technology? In a sign of how Boeing’s hand may be forced, in July 2011 Boeing announced a large new order from American Airlines for 200 narrow-bodied aircraft. Boeing agreed to fit half of these aircraft with new engine technology, a requirement that will necessitate substantially higher R&D spending. At the same time, American Airlines announced that it would buy 260 A320 aircraft from Airbus, half of which will be A320NEOs. This is the first order from American Airlines for Airbus since the 1980s.
