5page case analysis need in 15 hours

Brooke Walker

CMR 495 HA

Professor Meyers

9/23/19

Mini-Case Response – Mini-Case # 20

Introduction:

The following mini-case response revolves around mini case #20: “Microsoft: From Gates to Satya Nadella”. This case provided through MindTap discusses Microsoft’s reactions in the fourth industrial revolution. Between the emergence of The Cloud, technological advancements such as mobile devices including tablets and smartphones, emerging competitors from different aspects of innovation (the internet or videogames becoming a market), and how they balanced competition and cooperation with their fellow competitors, Microsoft underwent some major adaptations due to the impact of the fourth industrial revolution. The idea of competing and cooperating was produced not only through typical business partnerships, but also their development into new innovations as well. Since Apple and Android had taken a step ahead in the game, Microsoft decided to catch up through the use of compatibility. Creating services like Microsoft Office that could be used on Apple products began to turn the tables on Microsoft’s products being substitutes for Apples, and rather made them appear as complements. Some may argue this fact due to Apple releasing a substitute Office suite, the iWork productivity suite, but this case confirms there were no substitutes to Microsoft’s Office suite at this time. Appeal also grew from the ability to use Microsoft Office on Apple or Microsoft products, enabling a fluent transfer of documents with assistance from programs like One Drive. Microsoft proceeded to establish their infrastructure and specify focus on primary and support activities. After establishing external relationships with competitors, their internal management needed work in producing effective human resources so that programmers were willing to work together and improve creations rather than starting a new one after every finished product. Focusing on primary activities, Research and Development and Marketing and Sales, while hiring in management for support activities, infrastructure and Human Resources, caused the company to excel.

The emergence of the Internet and a few changes in high management caused a few more falters in Microsoft before they established a strong strategic plan. At first, Microsoft exceled due to learning about the Internet prior and utilizing that knowledge. They gained advantage through offering free internet, considering it a package deal in advertising, and whether they intended to or not, they gained advantage through compatibility as they lost their law case and offered competitors their information so that they could make their programs suitable to work on Microsoft products. The hierarchal management Microsoft produced to enable programmers to work well together soon became unnecessary with all of these advancements. The company benefited by establishing a simple hierarchal management and “flattening” the company, losing unnecessary components. Although Microsoft went through the innovation of The Cloud and the Internet, and established a type of lean management to help their reactions to these innovations and adaptations in the future, technological innovation continued to get in their way. Focusing on the core, their operational systems, or diverse products, the Xbox became their first hurdle as they struggled with marketing to their consumers in deciding whether to establish the system as all purpose or focus on the gaming market. Then a struggle came out of getting their search engine, now known as Bing, into the market and on the same level or past Google. Finally, tablets and smartphones began to overrun core processors. Microsoft focused too keenly on their operational software at this time causing them to fall behind in so many innovational markets. Therefore struggles such as an acquisition with Nokia and glitches and security problems, as in Vista, began to show up in rushed products as Microsoft tried to catch up with competition. After Sinofsky flattens out the work force once again, Windows 7 is made properly and has a better release with consumers, The Metro system in Windows 8 for tablets gained glitches and security issues as well, portraying Microsoft has a problem with time management and maintaining lean management. Finally, Satya Nadella established that Cloud services should become the companies main focus as they’re spreading themselves thin for operational systems that aren’t selling as well as they used to. “Mobile-first, Cloud-first”, is Nadella’s motto as he reinforces the lean management strategy and covering more primary activities more effectively like customer service. This would enable the company to become more efficient and effective.

Some Threats that Microsoft should focus on in this mini-case are as follows:

· Focusing solely on innovation or adaptation – Microsoft has had several errors due to focusing on one or the other, when there should be a balance between the two. If they focus solely on innovating they lose knowledge of their competitors findings, and if they focus solely on their competitors findings then they have no innovative product to match their competitors.

· Focusing too keenly on certain primary activities – Microsoft’s downfalls could be produced from focusing on Marketing and Sales and R&D while ignoring the other primary activities. I believe this due to Nadella’s emphasis on the need for customer service. Focus on all primary activities may not need balanced, but their should be some focus on all primary activities.

· New competitors and technological advancements emerging – With the fourth industrial revolution, technological innovations are bound to keep emerging and fluctuating the market for Microsoft. They should be prepared for these innovations and hold the ability to maintain their infrastructure, as it seems they’ve struggled with in the past.

· Failing to maintain and recognize their company maturity – Microsoft’s operational software still held high revenues, but they were criticized in their industry for depleting stocks and couldn’t understand why. I believe this is due to their operational software hitting a mature state, they need to move on to a new market such as developing in the cloud. If they had recognized this sooner than Nadella, they would be better off as a business.

· Not clearly establishing multiple markets – Microsoft has connected The Cloud as a type of add-on to operational systems, and I believe this is why they struggled with it for so long. They should’ve been viewing The Cloud as a new market, then they could develop their operational systems and processes for The Cloud without comparing the two and pushing themselves backwards due to participating in a market they haven’t clearly defined.

· Security and time management issues – Glitches have arisen out of time management issues in pushing a product out to market in order to keep up with trends. This has caused consumers to be skeptical about Microsoft’s claimed security, and turned them away from the product also due to frustrating glitches.

Thesis statement:

Microsoft seems to hold a hard focus that deteriorates their company’s progress because they’re dropping focus completely from essential components. Microsoft should enable a focus on adaption, market research, and creating a solid infrastructure. But they should still establish some focus on all the other components of running a business. A company is doomed if they resort to piling all of their focus into one category, a machine can not run without many cogs it uses to operate. Nadella is currently taking a step in the right direction as he develops focus in Customer Service. The success of Microsoft in the future will only be determine by whether or not Nadella has success in maintaining Lean management and distributing focus on primary and support activities as necessary. So far Nadella has proven his strategy works well for Microsoft, but only the future holds if it’ll be maintained.

Background:

The details in Microsoft’s history provides us with the faults in their strategic process. The shifts in management and their particular external strategies all come into play when regarding their lack of focus, or rather their extreme focus clouding the fact they’ve dropped focus from other important components.

The emergence of the cloud established three conflicts throughout time with Microsoft. The question raised of whether they should focus on the core, their operational software, or diversity, platforms like Xbox. Trying to develop Bing to the level of attention Google had garnered. Finally, tablets overtaking traditional computers, an acquisition developing with Nokia, and the production of the Surface tablet. Each of these conflicts has progressed after a change in management or a management strategy was implemented to pull the company to a resolution.

Developing core verses diverse systems became a struggle to Microsoft because as Steve Ballmer entered the video game market, Bill Gates was smitten with the idea of interactive tv that was internet enabled established in the average families living room. The company also had the background in gaming to enter this market as they held a popular gaming website and best selling PC games, one example being Age of Empire. Outsourcing reliably provided hardware for the Xbox, but steady competition was demanded from Nintendo and Sony as they produced the Wii and PlayStation. Xbox had setbacks in faulty systems often known as “The Red Ring of Death” in 2007, the poor-quality consoles mentioned in the mini-case. But Xbox Live was able to pull them out of this rut, as they wrote off the damages for the poor-quality consoles and gained an influx of revenue through online subscriptions offering internet services and free monthly games. They continued this positive progression with releasing the Xbox Kinect to compete with the Wii, it registered well with consumers. Their downfall came in diverging from Sony competition and advertising the Xbox One as an all purpose device, while Sony focused on the PlayStation being a gaming device. I believe there could also be an uncontrolled variable in the controllers design because the Xbox One held a major renovation many were not happy with. Nadella is now focusing on Xbox One’s gaming capabilities and their Halo and Call of Duty franchises, a sound strategy.

Bing gaining the level of attention Google garnered became Microsoft’s next conflict to overcome. The development of Internet search engines also occurred during Ballmer’s era. By underestimating the demand in a search engine, Microsoft fell behind. Search Engine Optimization and keeping the engine “pure” through separating paid and organic search results pushed Google ahead in search engines. Google stepped competitively onto Microsoft’s territory through search engines, free internet browsers, and entering the mobile industry. Microsoft was able to gain a benefit in this situation through partnering with Yahoo, the second US search engine in the market while Bing was the third.

The introduction of tablets, acquisition with Nokia, and the release of the Surface tablet is the last covered diverse issue Microsoft had to overcome. Apple became fierce competition in the smartphone and tablet industry. The compatibility, accessibility, and simplicity of Apple products drew in consumers. The Metro interface was created as a solution. It was adequate while Microsoft went through a merger with Nokia due to them holding the most business with Microsoft smartphones and Microsoft wishing to maintain this factor. Nokia had also been damaged by Apple’s competition. The tablet business was also developing, which introduced Microsoft’s Surface tablet. The Surface was a combination of a laptop and tablet, these tablets hadn’t kicked off until 2014.

Overall, these details provide us with information on the trials that Microsoft struggled with. It’s determined where Microsoft was halted when it came to The Cloud and new technological innovation. They’ve made it through varying competitors and circumstances, but it also becomes clear that a few issues have been repeating themselves in the core of Microsoft’s technology.

Alternatives:

This case follows Microsoft’s history closely, and details how they’ve come out on or near the top through their progressions. But it fails to determine why they must keep altering their strategic process in the same way repeatedly. Why does Microsoft keep falling into the same issues? Is it due to them appearing different because problems emerge within different markets? In that case would focusing evenly on primary activities prove to be more beneficial than focusing on specific primary activities? These questions can only be answered once Microsoft defines purpose within their markets. The following alternatives should be considered:

1. Dropping focus on core operating systems – If Microsoft were to establish focus on their core operating systems, instead of dividing attention between their older systems and newer innovative products, they might be able to push their operating systems back into the market. Developing partnerships throughout competitors and making their software compatible across all devices as they have done in the past may even put them on a different platform as it turns their competitors substitutable products into complementary products. But focusing on just their newer models also provides a type of lean production, such as the lean management they’ve been implementing that has been beneficial. If production was strategically transitioned to a lean system it may boost the company ahead once again. It would also help them put in place a solid infrastructure as they have a solid focus on what they’re producing, so it becomes easier to establish systematic processes that work best for the industry.

2. Establishing Cloud services as a second market – Microsoft could also establish their Cloud services as a second market, and continue to sell operating systems in their original market. Microsoft has grouped together Cloud services with operating systems, but they’re a whole step above in technological advancements. They should be considered a separated market and R&D should recognize this. They would gain benefit in continuing to make revenue from older operating systems, while Cloud services and new renovations gain stocks from interested consumers. This would push Microsoft back to the top of the industry, and enable them to continue working with all the products they currently do. The only change would be a more defined focus as they recognize these products as two separate markets and appropriately segment them in order to get a better read on their consumers and their competition.

3. Dismissing Cloud services and trying to maintain core operating systems – The final alternative is to drop Cloud services and focus entirely on their core operating systems. Just as the first alternative provides benefits in lean production and focusing on their industry, so does this alternative. But by focusing on their older systems they are stuck with the situation of depleting stocks. Older systems would require innovation of some sort in order for Microsoft to stay in the market. I don’t believe this would be impossible, but I also believe it would be the most difficult of the options. It’s entirely up to chance as to whether or not Microsoft could make a break through big enough to step ahead of today’s innovations after taking a step back or whether they’d get lost in the past. This alternative holds the highest risk out of the three.

Only implementation could tell which of these alternatives would be beneficial to Microsoft. But one of these alternatives must be selected in order for Microsoft to gain a solid understanding of their strategies and implement the most efficient and effective process. Once one of these alternatives is chosen, Microsoft would gain a better understanding of their competitors, their own company/product, and how their past strategic processes may help them implement a strategy for the future.

Proposed Solution:

Deductive reasoning concludes that the best solution is to open up into a second market for Cloud services. If Microsoft opens a second market they may continue to sell their original operational software across platforms along with their new innovative Cloud services. They may be able to take over the industry this way if they were able to achieve cross compatibility through various partnerships.

Setting up a second market for Cloud services would not only be beneficial externally through partnerships and competitive research, but it would also prove beneficial internally through sufficiently balancing support and primary activities and establishing an effective infrastructure. Lean management and production would become clearly needed throughout this process and examination of past conflicts. It would push the company forwards in a time management aspect as well due to less scattered management resulting in firmer decisions quickly. Focus on support and primary activities could be balanced more fluently as a hierarchy is established on what is most important reflecting the market. This would still ensure that primary activities gain more focus. Older operational systems may be able to be cut down just to support activities since the sales aren’t doing well and the market remains solely for additional revenue. The older operational software market has also matured, so focus on primary activities would be better spent in the entrance of the new Cloud services market.

It becomes apparent that separated these products into different markets could be influential because they may require different infrastructures. Since both products are at different growth periods and they have different competitor knowledge and consumer demands, establishing them as two different markets would dramatically benefit Microsoft. Refocusing support and primary activities in a way that’s best for the company and each individual product could boost production tremendously.

Recommendations:

Many of the recommendations I’m about to provide stem from obvious solutions that emerge repeatedly out of Microsoft’s past conflicts. Microsoft must implement the following solutions continuously so that they may thrive in this fourth industrial revolution:

1. Maintain lean production and management – By establishing lean processes Microsoft loses unnecessary assets that complicate their company with political warfare. They improve their time management by the lack of conflict in arguing parties due to scattered management. Lean production would enable them to respond faster to incidents such as ‘The Red Ring of Death”, ensuring their consumers happiness and avoiding law suits or write offs.

2. Balance innovation with other primary activities – By worrying about innovation in R&D Microsoft can gain an edge in their competitive environment in technological innovation. But they tend to fall behind due to the lack of a balance in other primary activities. While Microsoft focused on Marketing and Sales and R&D, they ignored other key factors such as Customer Service. Nadella has already began to further balance out Microsoft’s primary activities in this way by stating more emphasis needs to be put on Customer Service. If Customer Service had more focus than a support activity, it’s possible “The Red Ring of Death” or the dissatisfaction with the Xbox One’s controller could’ve been dealt with in an efficient and effective manner.

3. Recognize adaptation, new markets, and technological advancements – By recognizing these factors, Microsoft can gain stability within their industry. Ripples will continuously cause effects inside the industry of technological innovation, but by recognizing when an adaptation is coming and how they can work with it, establishing when an innovation has changed enough to be considered a new market such as The Cloud, and working on relative technological advancements of their own Microsoft can create some form of stability for their company.

These recommendations are applicable to anyone in a fluctuating industry. Causation can provide stable ground as you try to make it in an innovative industry. Microsoft has used almost all of these recommendations at one point, and it always proves to be beneficial for the company. But it seems as if they have troubles maintaining these recommendations. Only time will tell if Nadella has better luck reading the market and providing that stability, but he seems to be making a satisfactory impact now.

Conclusion:

This case has covered various issues that Microsoft has dealt with and overcame over the years. But the case leaves off on the minimal improvements Nadella has achieved. In the future, we can determine whether Nadella has had a successful time maintaining lean production and management, and distributing balance between supporting and primary activities. The preferred solution is the most acceptable way of making this happen by deductive reasoning, but it seems Nadella is following the first alternative as he goes all in on Cloud services. Regardless these alternatives hold risk, and it is commendable that Nadella is taking them in appropriate ways as he focuses on internal and external aspects of the company.

 

1. Minimum of 5 pages, double spaced…all papers need to be stapled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2. Must include all references used in the paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 3. I am looking for a thorough analysis of the business case that covers the following topics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 ————————————————————–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·Case History: Look for critical incidents in company growth and determine why they are important.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·Strengths and Weaknesses: Identify the company’s internal strengths and weaknesses, and how they relate to the company’s value function.

 

 

 

 

 

 

 

 

 

 

·Opportunities and Threats: Identify the opportunities and threats that exist in the company’s environment and analyze them using the Competitive Forces Model and life-cycle model.

 

 

 

 

 

 

·Corporate-Level Strategy: Identify the company’s mission and goals and evaluate the company’s corporate strategy based on lines of business, subsidiaries, and acquisitions.

 

 

 

 

 

 

 

·Business-Level Strategy: Determine if the company is using a differentiation, focus, or low-cost strategy, and what the company’s investment strategy is. Decide if company’s functional competencies are sufficient for achieving SWOT strategy.

·Global and/or Innovation Strategy: Complete analysis of current strategies in globalization and innovation, with well-supported suggestions for improving strategies in both areas.

 

 

 

 

 

 

·Structure and Control Systems: Identify company’s structure and control system and specify how they match or don’t match the company’s strategy.

 

 

 

 

 

 

 

 

 

·Social Responsibility and Ethics: Draw relationships between ethical issues and the company’s social responsibility strategy. Make recommendations for changes to the strategy, using key facts from the case. 

 

 

 

·Financial Analysis: Analyze company’s financial position based on profit, liquidity, activity, leverage, shareholder-return ratios, and cash flow. Make recommendations for improving the company’s financial position.

 

 

 

Recommendations: Offer recommendations for improving the company’s strategy and competitive position wh

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 4. Answer the written questions for each case

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C-39

11
Boeing
CommerCial
airCraft

IntroductIon

The first 15 years of the 21st century were a period
of ups and downs for Boeing Commercial Airplane,
the commercial aircraft division of the world’s largest
aerospace company. In the late 1990s and early 2000s,
Boeing had struggled with a number of ethics scan-
dals and production problems that had tarnished the
reputation of the company and led to subpar finan-
cial performance. To make matters worse, its global
rival, Airbus, had been gaining market share. Between
2001 and 2005, the European company regularly gar-
nered more new orders than Boeing.

Boeing started to gain an edge over its rival in
2003, when it formally launched its next-generation
jet, the 787. Built largely out of carbon-fiber com-
posites, the wide-bodied 787 was billed as the most
fuel-efficient large jetliner in the world. The 787 was
forecast to consume 20% less fuel than Boeing’s older
wide-bodied jet, the 767. By 2006, the 787 was log-
ging significant orders. This, together with strong
interest in Boeing’s bestselling narrow-bodied jet, the
737, helped the company recapture the lead in new
commercial jet aircraft orders. Moreover, in 2006,
Boeing’s rival Airbus was struggling with significant
production problems and weak orders for its new

aircraft, the A380 super- jumbo. Airbus was also late
to market with a rival for the 787, the wide-bodied
Airbus A350, which would also be built largely out
of carbon fiber. While the 787 was scheduled to enter
service in 2008, the A350 would not do so until 2012,
giving Boeing a significant lead.

Over the next few years, Boeing encountered a
number of production problems and technical design
issues with the 787 that resulted in the introduction
of the 787 being delayed five times. The 787 finally
entered service in 2011, more than 3 years later than
planned. From that point on, production ramped up
rapidly. By the end of 2014, Boeing had delivered
225  787s, helping to propel the company to record
revenues and earnings. Boeing also had a very healthy
backlog of over 843 firm orders for 787. Airbus has
encountered production problems of its own with the
A350, and did not deliver its first A350 until late 2014,
more than 2 years behind schedule. Still, Airbus had
grown its order book for the A350, and by 2014 had
779 firm orders.

By 2011, Boeing had to make another impor-
tant decision regarding its venerable narrow-bodied
737 aircraft family, which accounts for some 60% of
Boeing’s total aircraft deliveries. The main competitor
for the 737 has long been Airbus’s A320. In late 2010,
Airbus announced that it would build a new version

02277_Case11_rev02.indd 39 01/10/15 5:30 PM

C-40 Case 11 Boeing Commercial Aircraft

of the A320 designed to use advanced engines from
Pratt & Whitney that are estimated to be 10 to 15%
more efficient than existing engines. Known as the
A320neo (neo stands for “new engine option”), by
August 2011 the aircraft had garnered an impressive
1,029 orders. Airbus’s success forced Boeing’s hand.
Boeing too stated that they would offer a version of
the 737, known as the 737 MAX, using new engines
(which required some redesign of the 737, driving up
Boeing’s R&D costs). Initially, the company was con-
sidering a complete redesign of the 737 to incorporate
the carbon-fiber technology used in the 787. However,
it opted not to go down this road on the grounds that
the redesign would have pushed out delivery of the
new plane too far, enabling Airbus to gain a lead in
the narrow-bodied market. By March 2015, Boeing
had assembled a backlog of 2,715 orders for the 737
MAX. The first planes are scheduled to enter service
in late 2017. However, by January 2015, Airbus had a
backlog of 3,621 orders for the A320neo.

To complicate matters, for the first time in a gen-
eration, there are several new entrants of the horizon.
The Canadian regional jet manufacturer, Bombardier,
is booking orders for 110- to 130-seat narrow-bodied
CSeries jet, which would place it in direct competition
with the smallest of the 737 and A320 family. In addi-
tion, the Commercial Aircraft Corporation of China
(Comac) has announced that it will build a 170- to
190-seat narrow-bodied jet.

The CompeTiTive
environmenT

By the 2000s, the market for large commercial jet air-
craft was dominated by just two companies, Boeing
and Airbus. A third player in the industry, McDon-
nell Douglas, had been significant historically but had
lost share during the 1980s and 1990s. In 1997, Boeing
acquired McDonnell Douglas, primarily for its strong
military business. Since the mid-1990s, Airbus has
been gaining orders at Boeing’s expense. By the mid-
2000s, the two companies were splitting the market, a
situation that has continued to the present day.

Both Boeing and Airbus have a full range of
aircraft. Boeing offers five aircraft “families” that
range in size from 100 to over 500 seats. They are the

narrow-bodied 737 and the wide-bodied 747, 767, 777,
and 787 families. Each family comes in various forms.
For example, there are currently four main variants
of the 737 aircraft. They vary in size from 110 to 215
seats, and in range from 2,000 to over 5,000 miles. List
prices vary from $47 million for the smallest member
of the 737 family, the 737-600, to $282 million for the
largest Boeing aircraft, the 747-8. The newest member
of the Boeing family, the 787, lists for between $138
million and $188 million depending upon the model.1

Similarly, Airbus offers five families: the narrow-
bodied A320 family, and the wide-bodied A300/310,
A330/340, A350, and A380 families. These aircraft
vary in size from 100 to 550 seats. The range of list
prices is similar to Boeing’s. The A380 super-jumbo
lists for between $282 million to $302 million, while
the smaller A320 lists for between $62 million and
$66.5 million.2 Both companies also offer freighter
versions of their wide-bodied aircraft.

Airbus, a relatively recent entrant into the market,
began as a consortium between a French company
and Germany company in 1970. Later, a British and
Spanish company joined the consortium. Initially, few
people gave Airbus much chance for success, but the
consortium gained ground by innovating. It was the
first aircraft maker to build planes that “flew by wire,”
made extensive use of composites, had only two flight
crew members (most had three), and used a common
cockpit layout across models. It also gained sales by
being the first company to offer a wide-bodied twin-
engine jet, the A300, which was positioned between
smaller, single-aisle planes like the 737 and large air-
craft like the Boeing 747.

In 2001, Airbus became a fully integrated com-
pany. The European Defense and Space Company
(EADS), formed by a merger between French, Ger-
man, and Spanish interests, acquired 80% of the
shares in EADS, and BAE Systems, a British com-
pany, took a 20% stake.

Development and Production
The economics of development and production in
the industry are characterized by several factors.
First, the R&D and tooling costs associated with
developing a new airliner are very high. Boeing
spent some $5 billion to develop the 777. Its lat-
est aircraft, the 787, was initially expected to cost
$8 billion to develop, but delays increased that to

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C-41Case 11 Boeing Commercial Aircraft

at least $15 billion. Development costs for Airbus’
A380 super-jumbo reportedly exceeded $15 billion.

Second, given the high upfront costs, in order to
break even a company has to capture a significant
share of projected world demand. The breakeven
point for the Airbus super-jumbo, for example, has
been estimated to be between 250 and 270 aircraft.
While it was being developed, estimates of the total
potential market for this aircraft varied widely. Boe-
ing suggested that the total world market would be
for no more than 320 aircraft over the first 20 years of
its existence—Airbus believed that there would be de-
mand for some 1,250 aircraft of this size. In the event,
by the end of 2014 Airbus had only delivered 152
A380s, and its order backlog was just 165, suggesting
that Boeing’s demand estimates may have been closer
to the mark. It now looks as if the A380 won’t break
even until the 2020s, and that on top of years of nega-
tive cash flow during development.3

Third, there are significant learning effects in air-
craft production.4 On average, unit costs fall by about
20 percent each time cumulative output of a specific
model is doubled. The phenomenon occurs because
managers and shop floor workers learn over time
how to assemble a particular model of plane more
efficiently, reducing assembly time, boosting produc-
tivity, and lowering the marginal costs of producing
subsequent aircraft.

Fourth, the assembly of aircraft is an enormously
complex process. Modern planes have over 1 million
component parts that have to be designed to fit with
each other, and then produced and assembled at the

right time in order to produce the engine. At several
times in the history of the industry, problems with the
supply of critical components have held up production
schedules and resulted in losses. In 1997, Boeing took
a charge of $1.6 billion against earnings when it had to
halt the production of its 737 and 747 models due to a
lack of component parts. In 2008, Boeing had to delay
production of the 787 due to a shortage of fasteners.

Historically, airline manufacturers tried to manage
the supply process through vertical integration, mak-
ing many of the component parts that went into an
aircraft (engines were long the exception to this). Over
the last two decades, however, there has been a trend to
contract out production of components and even entire
subassemblies to independent suppliers. On the 777, for
example, Boeing outsourced about 65 % of the aircraft
production, by value, excluding the engines.5 While help-
ing to reduce costs, contracting out places enormous
demands on airline manufacturers to work closely with
suppliers to coordinate the entire production process.

Finally, all new aircraft are now designed digitally
and assembled virtually before a single component is
produced. Boeing was the first to do this with its 777
in the early 1990s, and its new version of the 737 in
the late 1990s.

Customer

s

Demand for commercial jet aircraft is very volatile and
tends to reflect the financial health of the commercial
airline industry, which is prone to boom-and-bust
cycles (see Figures 1, 2, and 3). The airline industry

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O
rd

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Boeing Airbus

1500

2500

Figure 1 order for Boeing and Airbus Commercial Aircraft, 1990–2014

Source: Boeing and Airbus websites.

02277_Case11_rev02.indd 41 01/10/15 5:30 PM

C-42 Case 11 Boeing Commercial Aircraft

has long been characterized by excess capacity, intense
price competition, and a perception among the travel-
ling public that airline travel is a commodity. After a
moderate boom during the 1990s, the airline industry
went through a nasty downturn during 2001–2005.
The downturn started in early 2001, due to a slow-
down in business travel after the boom of the 1990s. It

was compounded by a dramatic slump in airline travel
after the terrorist attacks on the United States in Sep-
tember 2001. Between 2001 and 2005, the entire global
airline industry lost some $40 billion—more money
than it had made since its inception.6

The industry recovered in 2006 and 2007, only
to rack up big losses again in 2008 and 2009 due to

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ill

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s

Figure 2 World Airline industry revenues

Source: IATA Data.

0

–5

–10

–

15

–20

5
10
15
20

25

$
B

ill
io

n
s

20
13
20
14
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12

Figure 3 World Airline industry net profit 2000–2014

Source: IATA Data.

02277_Case11_rev02.indd 42 01/10/15 5:30 PM

C-43Case 11 Boeing Commercial Aircraft

the recession that was ushered in by the 2008–2009
global financial crisis. High fuel prices since the early
2000s have made matters worse. The bill for jet fuel
represented over 25% of the industry’s total operating
costs in 2006, compared to less than 10% in 2001.7 By
2014, as a result of high prices for oil and jet fuel, fuel
accounted for 33% of operating expenses for U.S. air-
lines. Wages and benefits were the second biggest op-
erating expense, accounting for 25% of costs in 2014.8

During the 2001–2005 period, losses were particu-
larly severe among the big six airlines in the world’s
largest market, the United States (American Air-
lines, United, Delta, Continental, US Airways, and
Northwest). Three of these airlines (United, Delta,
and Northwest) were forced to seek Chapter 11 bank-
ruptcy protection. Even though demand and profits
plummeted at the big six airlines, some carriers con-
tinued to make profits during 2001–2005, most nota-
bly the budget airline Southwest. In addition, newer
budget airlines including AirTran and Jet Blue (which
was started in 2000) gained market share during this
period. Indeed, between 2000 and 2003, the budget
airlines in the United States expanded capacity by
44% even as the majors slashed their carrying capac-
ity and parked unused planes in the desert. In 1998,
the budget airlines held a 16% share of U.S. market;
by mid-2004, their share had risen to 29%.9

The key to the success of the budget airlines is a
strategy that gives them a 30 to 50% cost advantage
over traditional airlines. The budget airlines all fol-
low the same basic script. They purchase just one type
of aircraft (some standardize on Boeing 737s, others
on Airbus 320s). They hire nonunion labor and cross-
train employees to perform multiple jobs (e.g., to help
meet turnaround times, the pilots might help check
tickets at the gate). As a result of flexible work rules,
Southwest needs only 80 employees to support and
fly an aircraft, compared to 115 at traditional airlines.
The budget airlines also favor flying “point to point”
rather than through hubs, and often use cheaper sec-
ondary airports rather than major hubs. They focus
on large markets with lots of traffic (e.g., up and
down the east coast). There are no frills on the flights;
no inflight food or complementary drinks. And prices
are set low to fill the seats.

In contrast, the operations of major airlines are
based on the network or “hub-and-spoke” system.
Under this system, the network airlines route their
flights through major hubs. Often, a single airline

will dominate a hub (thus, United dominates Chi-
cago O’Hare airport, American Airlines dominates
Dallas, and so on). This system was developed for
good reason: It was a way of efficiently using airline
capacity when there wasn’t enough demand to fill a
plane flying point to point. By using a hub-and-spoke
system, the major network airlines have been able to
serve some 38,000 city pairs, some of which generate
fewer than 50 passengers per day. But by focusing a
few hundred city pairs where there is sufficient de-
mand to fill their planes, and flying directly between
them (point to point), the budget airlines seem to have
found a way around this constraint. The network car-
riers also suffer from a higher cost structure due to
their legacy of a unionized workforce. In addition,
their costs are pushed higher by their superior in-
flight service. In good times, the network carriers can
recoup their costs by charging higher prices than the
discount airlines, particularly for business travelers,
who pay more to book late and to fly business or first
class. In the competitive environment of the 2000s,
however, this was no longer the case. Indeed, between
2000 and 2010, the price of an average, round-trip,
domestic ticket in the United States increased from
$317 to $338—an increase of 6.7% over the decade—
while the consumer price index increased 26.6% (that
is, in real terms, prices fell).10

Due to the effect of increased competition, the
real yield that U.S. airlines got from passengers
fell from 8.70 cents per mile in 1980 to 6.37 cents
per mile in 1990, 5.12 cents per mile in 2000, and
4.00 cents per mile in 2005 (these figures are
expressed in constant 1978 cents).11 Real yields are
also declining elsewhere. With real yields declining,
the only way that airlines can become profitable is to
reduce their operating costs.

Outside of the United States, competition has in-
tensified as deregulation has allowed low-cost airlines
to enter local markets and capture share from long-
established, national airlines that utilize the hub-and-
spoke model. In Europe, for example, Ryan Air and
Easy Jet have adopted the business model of South-
west and used it to grow aggressively.

By the mid-2000s, large airlines in the United
States were starting to improve their operating effi-
ciency, helped by growing traffic volumes, higher load
factors, and reductions in operating costs, particularly
labor costs. Load factor refers to the percentage of a
plane that is full on average, which hit a record 86%

02277_Case11_rev02.indd 43 01/10/15 5:30 PM

C-44 Case 11 Boeing Commercial Aircraft

in mid-2006 in the United States, and 81% in interna-
tional markets. Load factors have remained reason-
ably high since then, moving between 75 and 85% on
a monthly basis between 2006 and 2015.

Demand Projections
Both Boeing and Airbus issue annual projects of like-
ly future demand for commercial jet aircraft. These
projections are based upon assumptions about future
global economic growth, the resulting growth in de-
mand for air travel, and the financial health of the
world’s airlines.

In its 2014 report, Boeing assumed that the world
economy would grow by 3.2% per annum over the
next 20 years, which should generate growth in pas-
senger traffic of 5.0% and growth in cargo traffic of
4.7% per annum. On this basis, Boeing forecast de-
mand for some 36,770 new aircraft valued at more
$5.2 trillion over the next 20 years. In 2033, Boeing
estimates that the total global fleet of aircraft will be
42,180, up from 17,330 in 2005. Boeing believes that
North America will account for 21% of all new orders
by unit share, Asia Pacific for 37%, and Europe for
20%. Passenger traffic is projected to grow at 6.3% per
annum in Asia, versus 2.9% in North America and
3.9% in Europe.12

Regarding the mix of orders, Boeing believes that
70% of all orders by units will be for narrow-bodied
aircraft such as the 737 and A320, 22% will be for
wide-bodied, twin-aisle jets such as the 787 and 747,
and less than 2% for large aircraft such as the 747 and
A380, with regional jets accounting for the balance.

The latest Airbus forecast covers 2014–2033. Over
that period, Airbus forecasts world passenger traf-
fic to grow by 4.7% per annum and predicts demand
for 31,358 new aircraft worth $4.6 trillion. (Note that
Airbus excludes regional jets from its forecast; there
are some 2,400 regional jet deliveries included in Boe-
ing’s forecasts). Airbus believes that demand for very
large aircraft will be more robust, amounting to 1,501
large passenger aircraft and freighters in the 747 and
A380 range and above, or 4% of the total units of
aircraft delivered.13

The difference in the mix of orders projected by
Boeing and Airbus reflect different views of how fu-
ture demand will evolve. Airbus believes that hubs will
continue to play an important role in airline travel,
particularly international travel, and that very large

jets will be required to transport people between hubs.
Airbus bases this assumption partly on an analysis of
data over the last 20 years, which shows that traffic be-
tween major airline hubs has grown faster than traffic
between other city pairs. Airbus also assumes that ur-
ban concentrations will continue to grow. Airbus states
that demand is simply a function of where people want
to go, and most people want to travel between major
urban centers. The company notes, for example, that
90% of travelers from the United States to China go
to three major cities. Fifty other cities make up the
remaining 10%, and Airbus believes that very few of
these cities will have demand large enough to justify
nonstop service from North America or Europe. Based
on this assumption, Airbus sees continued demand for
very large aircraft, particularly its A380 offering.

Boeing has a different view of the future. The com-
pany has theorized that hubs will become increasingly
congested, and that many travelers will seek to avoid
them. Boeing thinks that passengers prefer frequent,
nonstop service between the cities they wish to visit.
Boeing also sees growth in travel between city pairs
as being large enough to support an increasing num-
ber of direct, long-haul flights. The company notes
that continued liberalization of regulations governing
airline routes around the world will allow for the es-
tablishment of more direct flights between city pairs.
As in the United States, the company believes that
long-haul, low-cost airlines will emerge that focus on
serving city pairs and avoid hubs.

In sum, Boeing believes that airline travelers will
demand more frequent nonstop flights, not larger air-
craft.14 It cites data showing that all growth in airline
travel since 1995 has been met by the introduction of
new, nonstop flights between city pairs, and by an in-
creased frequency of flights between city pairs, and
not by an increase in airplane size. For example, Boe-
ing notes that following the introduction of the 767,
airlines introduced more flights between city pairs in
North America and Europe, and more frequent de-
partures. In 1984, 63% of all flights across the North
Atlantic were made by the 747. By 2004, the figure
had declined to 13%, with smaller, wide-bodied
aircraft such as the 767 and 777 dominating traffic.
Following the introduction of the 777, which can fly
nonstop across the Pacific and is smaller than the 747,
the same process occurred in the North Pacific. In
2006, there were 72 daily flights serving 26 city pairs
in North America and Asia.

02277_Case11_rev02.indd 44 01/10/15 5:30 PM

C-45Case 11 Boeing Commercial Aircraft

Boeing’S hiSTory15

William Boeing established the Boeing Company in
1916 in Seattle. In the early 1950s, Boeing took an
enormous gamble when it decided to build a large
jet aircraft that could be sold both to the military as
a tanker and to commercial airlines as a passenger
plane. Known as the Dash 80, the plane had swept-
back wings and four jet engines. Boeing invested
$16 million to develop the Dash 80, two-thirds of the
company’s entire profits during the postwar years. The
Dash 80 was the basis for two aircraft—the KC-135
Air Force tanker and the Boeing 707. Introduced into
service in 1957, the 707 was the world’s first commer-
cially successful passenger jet aircraft. Boeing went on
to sell some 856 Boeing 707s, along with 820 KC-135s.
The final 707, a freighter, rolled off the production
line in 1994 (production of passenger planes ended
in 1978). The closest rival to the 707 was the Douglas
DC 8, of which some 556 were ultimately sold.

The 707 was followed by a number of other suc-
cessful jetliners, including the 727 (entered service in
1962), the 737 (entered service in 1967), and the 747
(entered service in 1970). The single-aisle 737 went
on to become the workhorse of many airlines. In the
2000s, a completely redesigned version of the 737 that
could seat between 110 and 180 passengers was still
selling strong. Cumulative sales of the 737 totaled
6,500 by mid-2006, making it by far the most popular
commercial jet aircraft ever sold.

It was the 747 “jumbo jet,” however, that probably
best defined Boeing. In 1966, when Boeing’s board
took the decision to develop the 747, they were widely
viewed as betting the company on the jet. The 747 was
born out of the desire of Pan Am, then America’s larg-
est airline, for a 400-seat passenger aircraft that could
fly 5,000 miles. Pan Am believed that the aircraft
would ideal for the growing volume of transconti-
nental traffic. However, beyond Pan Am, which com-
mitted to purchasing 25 aircraft, demand was very
uncertain. Moreover, the estimated $400 million in
development and tooling costs placed a heavy burden
on Boeing’s financial resources. To make a return on
its investment, the company estimated it would have
to sell close to 400 aircraft. To complicate matters fur-
ther, Boeing’s principal competitors, Lockheed and
McDonnell Douglas, were each developing 250-seat
jumbo jets.

Boeing’s big bet turned out to be auspicious. Pan
Am’s competitors feared being left behind, and by the
end of 1970 almost 200 orders for the aircraft had
been placed. Successive models of the 747 extended
the range of the aircraft. The 747-400, introduced
in 1989, had a range of 8,000 miles and a maximum
seating capacity of 550 (although most configurations
seated around 400 passengers). By this time, both
Douglas and Lockheed had exited the market, giving
Boeing a lucrative monopoly in the very large com-
mercial jet category. By 2005, the company had sold
some 1,430 747s, and was actively selling its latest ver-
sion of the 747 family, the 747-8, which was scheduled
to enter service in 2008.

By the mid-1970s, Boeing was past the breakeven
point on all of its models (707, 727, 737, and 747).
The positive cash flow helped to fund investment
in two new aircraft, the narrow-bodied 757 and the
wide-bodied 767. The 757 was designed as a replace-
ment to the aging 727, while the 767 was a response
to a similar aircraft from Airbus. These were the first
Boeing aircraft to be designed with two-person cock-
pits (rather than three-person). Indeed, the cockpit
layout was identical, allowing crew to shift from one
aircraft to the other. The 767 was also the first aircraft
for which Boeing subcontracted a significant amount
of work to a trio of three Japanese manufacturers—
Mitsubishi, Kawasaki, and Fuji—that supplied about
15% of the airframe. Introduced in 1981, both aircraft
were successful. Some 1049 757s were sold during the
life of the program (which ended in 2003). Over 950
767s had been sold by 2006, and the program was still
ongoing.

The next Boeing plane was the 777. A two-engine,
wide-bodied aircraft with seating capacity of up to
400 and a range of almost 8,000 miles, the 777 pro-
gram was initiated in 1990. The 777 was seen as a
response to Airbus’ successful A330 and A340 aircraft.
Development costs were estimated at some $5 billion.
The 777 was the first wide-bodied, long-haul jet
to have only two engines. It was also the first to be
designed virtually. To develop the 777, for the first
time Boeing used cross-functional teams composed
of engineering and production employees. It also
brought major suppliers and customers into the
development process. As with the 767, a significant
amount of work was outsourced to foreign manu-
facturers, including the Japanese trio of Mitsubishi,
Kawasaki, and Fuji, who supplied 20% of the 777

02277_Case11_rev02.indd 45 01/10/15 5:30 PM

C-46 Case 11 Boeing Commercial Aircraft

airframe. In total, some 60% of parts for the 777 were
outsourced. The 777 proved to be another successful
venture: By mid-2006, 850 777s had been ordered—
far greater than the 200 or so required to break even.

In December 1996, Boeing stunned the aerospace
industry by announcing it would merge with long-
time rival McDonnell Douglas in a deal estimated
to be worth $13.3 billion. The merger was driven
by Boeing’s desire to strengthen its presence in the
defense and space side of the aerospace business areas,
where McDonnell Douglas was traditionally strong.
On the commercial side of the aerospace business,
Douglas had been losing market share since the 1970s.
By 1996, Douglas accounted for less than 10% of pro-
duction in the large commercial jet aircraft market and
only 3% of new orders placed that year. The dearth of
new orders meant the long-term outlook for Douglas’s
commercial business was increasingly murky. With or
without the merger, many analysts felt that it was only
a matter of time before McDonnell Douglas would be
forced to exit from the commercial jet aircraft busi-
ness. In their view, the merger with Boeing merely
accelerated that process.

The merger transformed Boeing into a broad
based aerospace business within which commercial
aerospace accounted for 40 to 60% of total revenue
depending upon the stage of the commercial produc-
tion cycle. In 2001, for example, the commercial air-
craft group accounted for $35 billion in revenues out
of a corporate total of $58 billion, or 60%. In 2005,
with the delivery cycle at a low point (but the order
cycle rebounding), the commercial airplane group ac-
counted for $22.7 billion out of a total of $54.8 bil-
lion, or 41%. The balance of revenue was made up
by a wide range of military aircraft, weapons and de-
fense systems, and space systems.

In the early 2000s, in a highly symbolic act, Boe-
ing moved its corporate headquarters from Seattle to
Chicago. The move was an attempt to put some dis-
tance between top corporate officers and the commer-
cial aerospace business, the headquarters of which
remained in Seattle. The move was also intended to
signal to the investment community that Boeing was
far more than its commercial businesses.

To some extent, the move to Chicago may have
been driven by a number of production missteps in
the late 1990s that hit the company at a time when
it should have been enjoying financial success. Dur-
ing the mid-1990s, orders had boomed as Boeing

cut prices in an aggressive move to gain share from
Airbus. However, delivering these aircraft meant that
Boeing had to more than double its production sched-
ule between 1996 and 1997. As it attempted to do this,
the company ran into some server production bottle-
necks.16 It scrambled to hire and train some 41,000
workers, recruiting many from suppliers—a move it
came to regret when many of the suppliers could not
meet Boeing’s demands and shipments of parts were
delayed. In the Fall 1997, things got so bad that Boe-
ing shut down its 747 and 737 production lines so that
workers could catch up with out-of-sequence work
and wait for back ordered parts to arrive. Ultimately,
the company had to take a $1.6-billion charge against
earnings to account for higher costs and penalties
paid to airlines for the late delivery of jets. As a result,
Boeing made very little money out of its mid-1990s
order boom. The head of Boeing’s commercial aero-
space business was fired, and the company committed
itself to a major acceleration of its attempt to over-
haul its production system, elements of which dated
back half a century.

Boeing in The 2000s

In the 2000s, three things dominated the development
of Boeing Commercial Aerospace. First, the company
accelerated a decade long project aimed at improving
the company’s production methods by adopting the
lean production systems initially developed by Toyota
and applying them to the manufacture of large jet
aircraft. Second, the company considered and then
rejected the idea of building a successor to the 747.
Third, Boeing decided to develop a new wide-bodied
long-haul jetliner, the 787.

lean Production at Boeing
Boeing’s attempt to revolutionize the way planes are
built dates back to the early 1990s. Beginning in 1990,
the company started to send teams of executives to
Japan to study the production systems of Japan’s
leading manufacturers, particularly Toyota. Toyota
had pioneered a new way of assembling automobiles,
known as lean production (in contrast to convention-
al mass production).

02277_Case11_rev02.indd 46 01/10/15 5:30 PM

C-47Case 11 Boeing Commercial Aircraft

Toyota’s lean production system was developed
by one of the company’s engineers, Ohno Taiichi.17
After working at Toyota for 5 years and visiting
Ford’s U.S. plants, Ohno became convinced that the
mass-production philosophy for making cars was
flawed. He saw numerous problems, including three
major drawbacks. First, long production runs created
massive inventories, which had to be stored in large
warehouses. This was expensive because of the cost of
warehousing and because inventories tied up capital
in unproductive uses. Second, if the initial machine
settings were wrong, long production runs resulted in
the production of a large number of defects (that is,
waste). And third, the mass-production system was
unable to accommodate consumer preferences for
product diversity.

In looking for ways to make shorter production
runs economical, Ohno developed a number of tech-
niques designed to reduce setup times for produc-
tion equipment, a major source of fixed costs. By
using a system of levers and pulleys, he was able to
reduce the time required to change dies on stamp-
ing equipment from a full day in 1950 to 3 minutes
by 1971. This advance made small production runs
economical, which allowed Toyota to respond bet-
ter to consumer demands for product diversity.
Small production runs also eliminated the need to
hold large inventories, thereby reducing warehous-
ing costs. Furthermore, small production runs and
the lack of inventory meant that defective parts were
produced only in small numbers and entered the as-
sembly process immediately. This reduced waste and
made it easier to trace defects to their source and
fix the problem. In sum, Ohno’s innovations enabled
Toyota to produce a more diverse product range at a
lower unit cost than was possible with conventional
mass production.

Impressed with what Toyota had done, in the mid-
1990s, Boeing started to experiment with applying
Toyota-like lean production methods to the manu-
facture of aircraft. Production at Boeing used to be
all about producing parts in high volumes, and then
storing them in warehouses until they were ready to
be used in the assembly process. After visiting Toyota,
engineers realize that Boeing was drowning in inven-
tory. A huge amount of space and capital was tied up
in items that didn’t add value. Moreover, expensive,
specialized machines often took up a lot of space and
were frequently idle for long stretches of time.

Like Ohno at Toyota, the company engineers
started to think about how they could modify equip-
ment and processes at Boeing to reduce waste. Boeing
set aside space and time for teams of creative plant
employees—design engineers, maintenance techni-
cians, electricians, machinists, and operators—to
experiment with machinery. They called these teams
“moonshiners.” The term “moonshine” was coined by
Japanese executives who visited the United States af-
ter World War II. They were impressed by two things
in the United States—supermarkets and the stills built
by people in the Appalachian hills. They noticed that
people built these stills with no money. They would
use salvaged parts to make small stills that produced
alcohol that they sold for money. The Japanese took
this philosophy home with them and applied it to
industrial machinery—which is where Boeing execu-
tives saw the concept in operation in the 1990s. With
the help of Japanese consultants, they decided to ap-
ply the moonshine creative philosophy at Boeing to
produce new, “right-sized” machines with very little
money which then could be used to make money.

The moonshine teams were trained in lean pro-
duction techniques, given a small budget, and then
set loose. Initially many moonshine teams focused
on redesigning equipment to produce parts. Underly-
ing this choice was a Boeing study which showed that
more than 80% of the parts manufactured for aircraft
are less than 12 inches long, and yet the metalwork-
ing machinery is huge, inflexible, and could only eco-
nomically produce parts in large lots.18

Soon empowered moonshine teams were design-
ing their own equipment—small-scale machines with
wheels on that could be moved around the plant and
took up little space. A case in point: One team replaced
a large stamping machine that cost six figures and was
used to produce L-shaped metal parts in batches of
1,000 with a miniature stamping machine powered by
a small, hydraulic motor that could be wheeled around
the plant. With the small machine, which cost a cou-
ple of thousand dollars, parts could be produced very
quickly in small lots, eliminating the need for inventory.
They also made a sanding machine and a parts cleaner
of equal size. Now the entire process—from stamping
the raw material to the finished part—is completed in
minutes (instead of hours or days) just by configur-
ing these machines into a small cell and having them
serviced by a single person. The small scale and quick
turnaround now make it possible to produce these

02277_Case11_rev02.indd 47 01/10/15 5:30 PM

C-48 Case 11 Boeing Commercial Aircraft

parts just in time, eliminating the need to produce and
store inventory.19

Another example of a moonshine innovation
concerns the process for loading seats onto a plane
during assembly. Historically, this was a cumbersome
process. After the seats would arrive at Boeing from a
supplier, wheels were attached to each seat, and then
the seats were delivered to the factory floor in a large
container. An overhead crane lifted the container up
to the level of the aircraft door. Then the seats were
unloaded and rolled into the aircraft before being in-
stalled. The process was repeated until all of the seats
had been loaded. For a single-aisle plane, this could
take 12 hours. For a wide-bodied jet, it would take
much longer. A moonshine team adapted a hay eleva-
tor to perform the same job. It cost a lot less, delivered
seats quickly through the passenger door, and took
just 2 hours, while eliminating the need for cranes.20

Multiply such examples and soon you start to have
a very significant impact on production costs. A drill
machine was built for 5% of the cost of a full-scale ma-
chine from Ingersoll-Rand; portable routers were built
for 0.2% of the cost of a large, fixed router; one process
that took 2,000 minutes for a 100-part order (20 min-
utes per part because of setup, machining, and transit)
now takes 100 minutes (1 minute per part); employees
building 737 floor beams reduced labor hours by 74%,
increased inventory turns from 2 to 18 per year, and re-
duced manufacturing space by 50%; employees build-
ing the 777 tail cut lead time by 70% and reduced space
and work in progress by 50%; and production of parts
for landing gear support used to take 32 moves from
machine to machine and required 10 months—now it
takes 3 moves and 25 days.21

In general, Boeing found that it was able to pro-
duce smaller lots of parts economically, often from
machines that it had built, which were smaller and
cost less than the machines available from outside
vendors. In turn, these innovations enabled Boeing
to switch to just-in-time inventory systems and re-
duce waste. Boeing was also able to save on space. By
eliminating large production machinery at its Auburn
facility, replacing much of it with smaller more flex-
ible machines, Boeing was able to free up 1.3 million
square feet of space, and sold seven buildings.22

In addition to moonshine teams, Boeing adopted
other process improvement methodologies, using them
when deemed appropriate. Six Sigma quality improve-
ment processes are widely used within Boeing. The

most wide-reaching process change, however, was the
decision to switch from a static assembly line to a mov-
ing line. In traditional aircraft manufacture, planes are
docked in angled stalls. Ramps surround each plane,
and workers go in and out to find parts and install
them. Moving a plane to the next workstation was a
complex process. The aircraft had to be down jacked
from its workstation, a powered cart was bought in,
the aircraft was towed to the next station, and then it
was jacked up. This could take two shifts. Much time
was wasted bringing parts to a stall, and moving a
plane from one stall to the next.

In 2001, Boeing introduced a moving assembly
line into its Renton plant near Seattle, which manu-
factures the 737. With a moving line each aircraft is
attached to a “sled” that rides a magnetic strip embed-
ded in the factory floor, pulling the aircraft at a rate of
2 inches per minute, moving past a series of stations
where tools and parts arrive at the moment needed,
allowing workers to install the proper assemblies. The
setup eliminates wandering for tools and parts, as well
as expensive tug pulls or crane lifts (just having tools
delivered to workstations, rather than having work-
ers fetch them, was found to save 20 to 45 minutes
on every shift). Preassembly tasks are performed on
feeder lines. For example, inboard and outboard flaps
are assembled on the wing before it arrives for joining
to the fuselage.23

Like a Toyota assembly line, the moving line can
be stopped if a problem arises. Lights are used to in-
dicate the state of the line. A green light indicates a
normal work flow, the first sign of a stoppage brings
a yellow warning light, and if the problem isn’t solved
within 15 minutes, a purple light indicates that the line
has stopped. Each work area and feeder line has its
own lights, so there is no doubt where the problem is.24

The cumulative effects of these process innova-
tions have been significant. By 2005, assembly time for
the 737 had been cut from 22 days to just 11 days. In
addition, work-in-process inventory had been reduced
by 55 percent and stored inventory by 59 percent.25 By
2006, all of Boeing’s production lines except that for
the 747 had shifted from static bays to a moving line.
The 747 shifted to a moving line in the late 2000s.

the Super-Jumbo Decisions
In the early 1990s, Boeing and Airbus started to con-
template new aircraft to replace Boeing’s aging 747.

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C-49Case 11 Boeing Commercial Aircraft

The success of the 747 had given Boeing a monopoly
in the market for very large jet aircraft, making the
plane one of the most profitable in the jet age, but
the basic design dated back to the 1960s, and some
believed there might be sufficient demand for a super-
jumbo aircraft with as many as 900 seats.

Initially, the two companies considered establish-
ing a joint venture to share the costs and risks asso-
ciated with a developing a super-jumbo aircraft, but
Boeing withdrew in 1995 citing costs and uncertain
demand prospects. Airbus subsequently concluded
that Boeing was never serious about the joint venture,
and the discussions were nothing more than a ploy to
keep Airbus from developing its own plane.26

After Boeing withdrew, Airbus started to contem-
plate a competitor to the 747. The plane, dubbed the
A3XX, was to be a super-jumbo with capacity for over
500 passengers. Indeed, Airbus stated that some versions
of the plane might carry as many as 900 passengers.
Airbus initially estimated that there would be demand
for some 1,400 planes of this size over 20 years, and
that development costs would total around $9 billion
(estimates ultimately increased to some $15 billion).
Boeing’s latest 747 offering—the 747-400—could carry
around 416 passengers in three classes.

Boeing responded by drafting plans to develop
new versions of the 747 family, the 747-500X and the
747-600X. The 747-600X was to have a new (larger)
wing, a fuselage almost 50 feet longer than the 747-
400, would carry 550 passengers in three classes, and
have a range of 7,700 miles. The smaller 747-500X
would have carried 460 passengers in three classes and
had a range of 8,700 miles.

After taking a close look at the market for a super-
jumbo replacement to the 747, in early 1997 Boeing
announced that it would not proceed with the pro-
gram. The reasons given for this decision included the
limited market and high development costs, which at
the time were estimated to be $7 billion. There were
also fears that the wider wing span of the new planes
would mean that airports would have to redesign
some of their gates to accommodate the aircraft. Boe-
ing, McDonnell Douglas (prior to the merger with
Boeing), and the major manufacturers of jet engines
all forecast demand for about 500–750 such aircraft
over the next 20 years. Airbus alone forecast demand
has high as 1,400 aircraft. Boeing stated that the frag-
mentation of the market due to the rise of “point-to-
point” flights across oceans would limit demand for a

super-jumbo. Instead of focusing on the super-jumbo
category, Boeing stated that it would develop new ver-
sions of the 767 and 777 aircraft that could fly up to
9,000 miles and carry as many as 400 passengers.

Airbus, however, continued to push forward with
plans to develop the A3XX. In December 2000,
with more than 50 orders in hand, the board of
EADS, Airbus’ parent company, approved develop-
ment of the plane, which was now dubbed the A380.
Development costs at this point were pegged at $12
billion, and the plane was forecast to enter service in
2006 with Singapore Airlines. The A380 was to have
two passenger decks, more space per seat, and wider
aisles. It would carry 555 passengers in great comfort,
something that passengers would appreciate on long
transoceanic flights. According to Airbus, the plane
would carry up to 35% more passengers than the
most popular 747-400 configuration, yet cost per seat
would be 15 to 20% lower due to operating efficien-
cies. Concerns were raised about turnaround time at
airport gates for such a large plane, but Airbus stated
that dual boarding bridges and wider aisles meant
that turnaround times would be no more than those
for the 747-400.

Airbus also stated that the A380 was also designed
to operate on existing runways and within existing
gates. However, London’s Heathrow airport found
that it had to spend some $450 million to accom-
modate the A380, widening taxiways and building a
baggage reclaim area for the plane. Similarly, 18 U.S.
airports had reportedly spent some $1 billion just to
accommodate the A380.27

the 787
While Airbus pushed forward with the A380,
Boeing announced, in March 2001, the development
of a radically new aircraft. Dubbed the sonic cruiser,
the plane would carry 250 passengers 9,000 miles and
fly just below the speed of sound, cutting 1 hour of
transatlantic flights and 3 hours of transpacific flights.
To keep down operating costs, the sonic cruiser would
be built out of low-weight, carbon-fiber “composites.”
Although the announcement created considerable
interest in the aviation community, in the wake of the
recession that hit the airline industry after September
11, 2001, both Boeing and the airlines became consid-
erably less enthusiastic. In March 2002, the program
was cancelled. Instead, Boeing said that it would

02277_Case11_rev02.indd 49 01/10/15 5:30 PM

C-50 Case 11 Boeing Commercial Aircraft

develop a more conventional aircraft using compos-
ite technology. The plane was initially known as the
7E7, with the E standing for “efficient” (the plane was
renamed the 787 in early 2005).

In April 2004, the 7E7 program was formally
launched with an order for 50 aircraft worth $6 billion
from All Nippon Airlines of Japan. It was the largest
launch order in Boeing’s history. The 7E7 was a twin-
aisle, wide-bodied, two-engine plane designed to car-
ry 200 to 300 passengers up to 8,500 miles, making the
7E7 well suited for long-haul, point-to-point flights.
The range exceeded all but the longest range plane in
the 777 family, and the 7E7 could fly 750 miles more
than Airbus’ closest competitor, the mid-sized A330-
200. With a fuselage built entirely out of composites,
the aircraft was lighter and would use 20% less fuel
than existing aircraft of comparable size.

The plane was also designed with passenger com-
fort in mind. The seats would be wider, as would the
aisles, and the windows were larger than in existing
aircraft. The plane would be pressurized at 6,000 feet
altitude, as opposed to 8,000 feet, which is standard
industry practice. Airline cabin humidity was typical-
ly kept at 10% to avoid moisture buildup and corro-
sion, but because composites don’t corrode, humidity
would be closer to 20 to 30%.28

Initial estimates suggested that the jet would
cost some $7–8 billion to develop and enter service
in 2008. Boeing decided to outsource more work for
the 787 than on any other aircraft to date. Some 35%
of the plane’s fuselage and wing structure would be
built by Boeing. The trio of Japanese companies that
worked on the 767 and 777, Mitsubishi Heavy Indus-
tries, Kawasaki Heavy Industries, and Fuji Heavy
Industries, would build another 35%, and some 26%
would be built by Italian companies, particularly
Alenia.29 For the first time, Boeing asked its major
suppliers to bear some of the development costs for
the aircraft.

The plane was to be assembled at Boeing’s wide-
bodied plant in Everett, Washington. Large sub-
assemblies were to be built by major suppliers, and
then shipped to Everett for final assembly. The idea
was to “snap together” the parts in Everett in three
days, cutting down on total assembly time. To speed up
transportation, Boeing would adopt air freight as its
major transportation method for many components.

Airbus’ initial response was to dismiss Boeing’s
claims of cost savings as inconsequential. They pointed

out that even if the 787 used less fuel than the A330,
that was equivalent to just 4% of total operating costs.30
However, even by Airbus’ calculations, as fuel prices
starting to accelerate, the magnitude of the savings
rose. Moreover, Boeing quickly started to snag some
significant orders for the 787. In 2004, Boeing booked
56 orders for the 787 and, in 2005, some 232 orders.
Another 85 orders were booked in the first 9 months
of 2006 for a running total of 373—well beyond the
breakeven point.

In December 2004, Airbus announced that it
would develop a new model, the A350, to compete
directly with the 787. The planes were to be long-haul,
twin-aisle jets, seating 200 to 300 passengers, and con-
structed of composites. The order flow, however, was
slow, with airlines complaining that the A350 did not
match the Boeing 787 on operating efficiency, range,
or passenger comfort. Airbus went back to the draw-
ing board, and in mid-2006 it announced a new ver-
sion of the A350, the A350 XWB (for extra wide
body). Airbus estimated that the A350 XWB would
cost $10 billion to develop and enter service in 2012,
several years behind the 787. The two-engine A350
XWB will carry between 250 and 375 passengers and
fly up to 8,500 miles. The largest versions of the A350
XWB will be competing directly with the Boeing 777,
not the 787. Like the 787, the A350 XWB will be built
primarily of composite materials. The “extra wide
body” is designed to enhance passenger comfort. To
finance the A350 XWB, Airbus stated that it would
seek launch aid from Germany, France, Spain, and
the United Kingdom, all countries where major parts
of Airbus are based.31

TrAde TenSionS

It is impossible to discuss the global aerospace
industry without touching on trade issues. Over the
last 3 decades, both Boeing and Airbus have charged
that their competitor benefited unfairly from gov-
ernment subsidies. Until 2001, Airbus functioned
as a consortium of four European aircraft manu-
facturers: one British (20.0% ownership stake), one
French (37.9% ownership), one German (37.9%
ownership), and one Spanish (4.2% ownership).
In the 1980s and early 1990s, Boeing maintained
that subsidies from these nations allow Airbus to

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C-51Case 11 Boeing Commercial Aircraft

set unrealistically low prices, to offer concessions
and attractive financing terms to airlines, write off
development costs, and use state-owned airlines to
obtain orders. According to a study by the United
States Department of Commerce, Airbus received
more than $13.5 billion in government subsidies
between 1970 and 1990 ($25.9 billion if commer-
cial interest rates are applied). Most of these sub-
sidies were in the form of loans at below-market
interest rates and tax breaks. The subsidies financed
research and development and provided attractive
financing terms for Airbus’s customers. Airbus re-
sponded by pointing out that Boeing had benefited
for years from hidden U.S. government subsidies,
particularly Pentagon R&D grants.

In 1992, the two sides appeared to reach an
agreement that put to rest their longstanding trade
dispute. The 1992 pact, which was negotiated by
the European Union on behalf of the four member
states, limited direct government subsidies to 33% of
the total costs of developing a new aircraft and spec-
ified that and such subsidies had to be repaid with
interest within 17 years. The agreement also limited
indirect subsidies such as government-supported
military research that has applications to commer-
cial aircraft to 3% of a country’s annual total com-
mercial aerospace revenues, or 4% of commercial
aircraft revenues of any single company on that
country. Although Airbus officials stated that the
controversy had now been resolved, Boeing officials
argued that they would still be competing for years
against subsidized products.

The trade dispute heated up again in 2004, when
Airbus announced the first version of the A350 to
compete against Boeing’s 787. Signs from Airbus that
it would apply for $1.7 billion in launch aid to help
fund the development of the A350 raised a red flag for
the U.S. government. As far as the United States was
concerned, this was too much. In late 2004, U.S. Trade
Representative Robert Zoellick issued a statement for-
mally renouncing the 1992 agreement and calling for
an end to launch subsidies. According to Zoellick,
“Since its creation 35 years ago, some Europeans have
justified subsidies to Airbus as necessary to support
an infant industry. If that rationalization were ever
valid, its time has long passed. Airbus now sells more
large civil aircraft than Boeing.” Zoellick went on to
claim that Airbus has received some $3.7 billion in
launch aid for the A380, plus another $2.8 billion in

indirect subsidies including $1.7 billion in taxpayer-
funded infrastructure improvements, for a total of
$6.5 billion.

Airbus shot back that Boeing too continued to
enjoy lavish subsidies, and that the company had
received some $12 billion from NASA to develop tech-
nology, much of which has found its way into com-
mercial jet aircraft. The Europeans also contended
that Boeing would receive as much as $3.2  billion in
tax breaks from Washington State, where the 787 is to
be assembled, and more than $1 billion in loans from
the Japanese government to three Japanese suppliers,
who will build over one-third of the 787. Moreover,
Airbus was quick to point out that a trade war would
not benefit either side, and that Airbus purchased
some $6 billion a year in supplies from companies in
the United States.

In January 2005, both the United States and the
European Union (EU) agreed to freeze direct subsi-
dies to the two aircraft makers while talks continued.
However, in May 2005 news reports suggested, and
Airbus confirmed, that the jet maker had applied to
four EU governments for launch aid for the A350,
and that the British government would announce
some $700 million in aid at the Paris Air Show in
mid-2005. Simultaneously, the EU offered to cut
launch aid for the A350 by 30%. Dissatisfied, the
U.S. side decided that the talks were going nowhere,
and on May 31 the United States formally filed a
request with the World Trade Organization (WTO)
for the establishment of a dispute resolution panel
to resolve the issues. The EU quickly responded by
filing a countersuit with the WTO claiming that U.S.
aid to Boeing exceeded the terms set out in the 1992
agreement.32

In early 2011, the WTO ruled on the complaint
by Boeing and on Airbus’s counterclaim. The WTO
stated that Airbus had indeed benefited from some
$15 billion in improper launch aid subsidies over
the prior 40 years, and that this practice must stop.
Boeing, however, had little time to celebrate. In a sep-
arate ruling, the WTO stated that Boeing too had ben-
efited from improper subsidies, including $5.3  billion
from the United States government to develop the
787 (the WTO stated that most of these subsidies
were in the form of payments from NASA to develop
space technology that subsequently had commercial
applications). Both sides in the dispute appealed these
rulings, a process that could drag out for years.33

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C-52 Case 11 Boeing Commercial Aircraft

The nexT ChApTer

Huge financial bets have been placed on somewhat
different visions of the future of airline travel, Airbus
with the A380 and Boeing with the 787. By mid-2011,
Airbus had delivered 51 A380s and had a backlog of
236 or order. The rate of new orders had been slow,
however. Boeing has a backlog of 827 787s on order.
Airbus also hedged its bets by announcing the A350
XWB, and after a slow start the aircraft has amassed
some 567 orders as compared to 827 for the 787.

Both companies have had substantial production
problems and faced significant delays. In mid-2006,
Airbus announced that deliveries for the A380 would
be delayed by 6 months while the company dealt with
“production issues” arising from problems installing
the wiring bundles in the A380. Estimates suggested
that the delay would cost Airbus some $2.6 billion
over the next 4 years.34 Within months, Airbus had re-
vised the expected delay to 18 months and stated that
the number of A380s it now needed to sell in order to
break even had increased from 250 to 420. The com-
pany also stated that, due to production problems, it
would only be able to deliver 84 A380 planes by 2010,
compared to an original estimate of 420 (in fact, it
delivered only half of this amount).35

Boeing ran into a number of production and design
problems with the 787 that resulted in five delay an-
nouncements, pushing out the first deliveries more than
3 years. For the 787, Boeing outsourced an unprecedent-
ed amount of work to suppliers. This was seen at the
time as a risky move, particularly given the amount of
new technology incorporated into the 787. As it turned
out, several suppliers had problems meeting Boeing’s
quality specifications, supplying substandard parts that
had to be reworked or redesigned. The issues included a
shortage of fasteners, a misalignment between the cock-
pit section and the fuselage, and microscopic wrinkles
in the fuselage skin. In addition, Boeing found that it
had to redesign parts of the section where the wing
meets the fuselage. Boeing executives complained that
their engineers were often fixing problems “that should
not have come to us in the first place.”36

Some company sources suggested 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. Boeing tended to throw design

specifications “over the wall” to suppliers, and then
was surprised when they failed to comply fully with the
company’s expectations. In addition, Boeing’s depen-
dency on single suppliers for key components meant
that a problem with any one of those suppliers could
create a bottleneck that would hold up production.

In an attempt to fix some of the supply-chain is-
sues, in 2009 Boeing purchased a Vought Industries
Aircraft plant for $580 million. Vought had been in a
joint venture with the Italian company, Alenia Aero-
nautical, to make fuselage parts for the 787. Vought
had not been able to keep up with the demands of the
program, and Boeing’s acquisition has seen as a move
to exert more control over the production process,
and inject capital into Vought.

In another development, Boeing quietly launched
the 747-8 program in November 2005. This plane is a
completely redesigned version of the 747 and incorpo-
rates many of the technological advances developed
for the 787, including significant use of composites.
It is offered in both a freighter and intercontinental
passenger configuration that carries 467 passengers in
a three-seat configuration and has a range of 8,000
miles (the 747-400 can carry 416 passengers). The
747-8 uses the fuel-efficient engines developed for
the 787, and has the same cockpit configuration as the
737, 777, and 787. Development costs were estimated
to be around $4 billion. By July 2011, Boeing had or-
ders for 78 747-8 freighters and 36 passenger planes.
The first deliveries of the freighter version were made
in 2011, and the passenger version in 2012. Demand
for the aircraft has been slow to build, however, with
the passenger version in particular failing to garner
sales due to the 787. At the end of 2014, Boring only
had 36 orders for the 747-8 on its books, most of
which were freighters.

By 2010, the main issue confronting both Airbus
and Boeing is what to do about their aging narrow-
bodied planes, the A320 and the 737. These aircraft
are the workhorses of many airlines, comprising some
70% of all units produced by the two manufacturers.
Strong demand is expected for this category going for-
ward. Both Boeing and Airbus would probably prefer
to wait for a few more years before bearing the R&D
costs associated with new product development. The
argument often made is that this will give time for new
technologies to mature, and make for a better aircraft
at the end of the day. However, events have conspired
to force their hands.

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C-53Case 11 Boeing Commercial Aircraft

First, new engine technologies developed by Pratt
& Whitney reportedly increase fuel efficiency by 10 to
15%. Airlines want the new engines on their aircraft,
but this requires some redesign of the A320 and 737.
The wings of the 737, in particular, are too low slung
to take the new engines, so Boeing would have to do
some major redesign work.

Second, there are several potential new entrants
into the narrow-bodied segment of the market. The
Canadian regional jet manufacturer, Bombardier, is
developing a 110- to 150-seat aircraft that makes ex-
tensive use of composites to reduce weight. This will
reduce operating costs by about 15% compared to the
older 737 and A320 models. Known as the CSeries, as
of early 2015 Bombardier had 243 firm orders for this
aircraft plus options for another 162. The first CSeries
aircraft are expected to enter service in 2015.

In addition, the Commercial Aircraft Corpora-
tion of China (Comac) has announced that it will
build a 170- to 190-seat narrow-bodied jet. Scheduled
for introduction in 2016, this will compete with the
larger 737 and A320 models. The European low-cost
airline, Ryanair, has entered into a codevelopment
agreement with Comac and has talked about a 200+
plane order that could go as high as 400. Up until this
point Ryanair has been a Boeing customer. Boeing
must decide how to confront these growing threats.

Responding to these threats, Airbus in late
2010 announced that it would introduce a rede-
signed version of the A320 that utilizes the Pratt &
Whitney engine. Known as the A320neo (“new engine
option”), the offering has garnered strong interest from
airlines, racking up over 1,000 orders by August 2011.

These developments 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 devel-
oped for the 787. Alternatively, should they jump
into the fray immediately and offer a redesigned
version of the 737 that can utilize new engine tech-
nology? Ultimately, Boeing’s hand was forced by de-
mands from longstanding customers such as South-
west Airlines for an updated version of the 737 that
would match the A320neo (reportedly, Southwest
threatened to start ordering Airbus planes if Boeing
did not move forward with the 737MAX program).

The 737MAX is now in development at Boeing, with
the first planes expected to enter service at the end
of 2017.37

NOTEs

1. www.boeing.com
2. www.airbus.com
3. J. Palmer, “Big Bird,” Barron’s, December 19,

2005, pp. 25-29; www.yeald.com/Yeald/a/33941
/both_a380_and_787_have_bright_futures.html.

4. G. J. Steven. “The Learning Curve: From Aircraft
to Spacecraft,” Management Accounting, May
1999, pp. 64–66.

5. D. Gates, “Boeing 7E7 Watch: Familiar Suppliers
Make Short List,” Seattle Times.

6. The figures are from the International Airline
Travelers Association (IATA).

7. IATA press release, “2006 Loss Forecast Drops to
US$1.7 Billion,” August 31, 2006.

8. Air Transport Association, Industry Review and
Outlook, April 29, 2015.

9. Anonymous, “Turbulent Skies: Low Cost Air-
lines,” The Economist, July 10, 2004, pp. 68–72;
Anonymous, “Silver Linings, Darkening Clouds,”
The Economist, March 27, 2004, pp. 90–92.

10. Air Transport Association, “The Economic Climb
Out for U.S. Airlines,” ATA Economics, August 3,
2011. Accessed on www.airlines.org

11. Data from the Air Transport Association, www.
airlines.org.

12. Boeing, Current Market Outlook, 2014. Archived
on www.boeing.com

13. www.airbus.com/en/myairbus/global_market_for-
cast.html.

14. Presentation by Randy Baseler, vice president of
Boeing Commercial Airplanes, Farnborough Air
Show, July 2006. Archived at www.boeing.com/
nosearch/exec_pres/CMO .

15. This material is drawn from an earlier version of
the Boeing case written by Charles W. L. Hill. See
C. W. L. Hill, “The Boeing Corporation: Com-
mercial Aircraft Operations,” in C. W. L. Hill and
G. R. Jones (eds.), Strategic Management, 3rd ed.
(Boston: Houghton Mifflin, 1995). Much of Boe-
ing’s history is described in R. J. Sterling, Legend
and Legacy (St Martin’s Press, New York, 1992).

02277_Case11_rev02.indd 53 01/10/15 5:30 PM

C-54 Case 11 Boeing Commercial Aircraft

16. S. Browder, “A Fierce Downdraft at Boeing,”
Businessweek, January 26, 1988, p. 34.

17. M. A. Cusumano, The Japanese Automobile Indus-
try (Cambridge, Mass.: Harvard University Press,
1989); Ohno Taiichi, Toyota Production System
(Cambridge, Mass.: Productivity Press, 1990); J. P.
Womack, D. T. Jones, and D. Roos, The Machine
That Changed the World (New York: Rawson Asso-
ciates, 1990).

18. J. Gillie, “Lean Manufacturing Could Save Boe-
ing’s Auburn Washington Plant,” Knight Ridder
Tribune Business News, May 6, 2002, p. 1.

19. P. V. Arnold, “Boeing Knows Lean,” MRO Today,
February 2002.

20. Boeing press release, “Converted Farm Machine
Improves Production Process,” July 1, 2003.

21. P. V. Arnold, “Boeing Knows Lean”; “Build in Lean:
Manufacturing for the Future,” www.boeing.com
/aboutus/environment/create_build.htm; J. Gillie,
“Lean Manufacturing Could Save Boeing’s
Auburn Washington Plant.”

22. J. Gillie, “Lean Manufacturing Could Save Boeing’s
Auburn Washington Plant.”

23. P. V. Arnold, “Boeing Knows Lean.”
24. M. Mecham, “The Lean, Green Line,” Aviation

Week, July 19, 2004, pp. 144–148.
25. Boeing press release, “Boeing Reduces 737

Airplane’s Final Assembly Time by 50 Percent,”
January 27, 2005.

26. Anonymous, “A Phony War,” The Economist,
May 5, 2001, pp. 56–57.

27. J. D. Boyd, “Building Room for Growth,” Traffic
World, August 7, 2006, p. 1.

28. W. Sweetman, “Boeing, Boeing, Gone,” Popular
Science, June 2004, p. 97.

29. Anonymous, “Who Will Supply the Parts?,” Seattle
Times, June 15, 2003.

30. W. Sweetman, “Boeing, Boeing, Gone.”
31. D. Michaels and J. L. Lunsford, “Airbus Chief

Reveals Plans for New Family of Jetliners,” The
Wall Street Journal, July 18, 2006, p. A3.

32. J. Reppert-Bismarck, and W. Echikson, “EU
Countersues Over U.S. Aid to Boeing,” The Wall
Street Journal, June 1, 2005, p. A2; United States
Trade Representative Press Release, “United
States Takes Next Steps in Airbus WTO Litiga-
tion,” May 30, 2005.

33. N. Clark, “WTO Rules U.S. Subsidies for Boeing
Unfair,” New York Times, March 31, 2011.

34. Anonymous, “Airbus Agonistes,” The Wall Street
Journal, September 6, 2006, p. A20.

35. Anonymous, “Forecast Dimmer for Profit on Air-
bus’ A380,” Seattle Times, October 20, 2006, Web
Edition.

36. J. Weber, “Boeing to Rein in Dreamliner Outsourc-
ing,” Bloomberg Businessweek, January 16, 2009.

37. Staff reporter, “American Airlines Orders 200
Boeing 737s, 260 More From Airbus,” Associated
Press, July 19, 2011.

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