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BOEING: TOP GUN Boeing is the leading US exporter in terms of sales. Head quartered in Chicago, Illinois, USA,
the company has customers in 145 countries around the world and employs more than 153,000 people. So what makes this innovation-driven
behemoth tick? And what are the challenges it faces from heavily subsidized Airbus in what will be a $2.1 trillion market over the next
20 years for more than 25,000 planes?
William E. Boeing, in 1915, had his first flying lesson. The aircrafts in those days day were rickety and unreliable, lifting little
more than their own weight. This challenge encouraged William to build a better airplane. In the autumn of 1915, after returning to his
home in Seattle, William began working on his first biplane with the help of his friend Conrad Westervelt, a Navy engineer. Westerfelt
was later transferred to fleet duty on the east coast, which left William to incorporate their airplane manufacturing business alone.
On July 15 of 1916, the Pacific Aero Products Company was formed, changing its name to Boeing Airplane Company one year later.
During World War I, orders from Navy helped Boeing grow, but after the armistice in 1918, Boeing struggled to survive in a
drastically reduced market.
The company survived through the post-war years by winning competitive bids to modernize obsolescent war planes and also building
aircraft that were designed by others. But it became clear that in order for the company to prosper, it had to design, mass produce
and sell its own aircraft. Over the next decade, for the US military Boeing produced the PW-9 pursuit plane and NB trainers for the
US Navy. In 1930, the company built its first all-metal plane the "Monomail" was also Boeing’s first single-wing plane as most aviation
companies began moving away from biplanes. The design of the Monomail influenced the Boeing 247, a twin engine passenger plane that
has been called the first modern commercial airliner. Through the rest of the Depression-hit 1930s, Boeing developed both commercial
and military aircraft. Its four-engine Clipper was used to fly passengers over long distances. For the military, Boeing built the
long-range B-17 bomber. A commercial version was the first passenger aircraft to feature a cabin with enough air pressure to let the
plane fly above bad weather. Even before the United States entered World War II in 1941, Boeing was gearing up for wartime
production. Once the war started, its plants built the B-17 and the later B- 29 bombers twenty-four hours a day, seven days a week.
The B-17, known as the Flying Fortress, first saw action with the Royal (British) Air Force in 1941. The B-29 "Superfortress” was
used primarily in Asia and dropped almost all the bombs that landed on Japan– including the two atomic bombs that helped end the
war. The war gave Boeing’s business great impetus – indeed the 1939-45 world conflict dragged the US decisively out of the 1930s
Depression. Thus the powerful institutional force of world demand engendered by an unprecedented world war was a major factor in
Boeing’s revival, growth and success.
SPREADING ITS WINGS
At the end of World War II, Boeing began to move beyond aviation into aerospace and other
fields. The company designed an anti-aircraft missile system and rockets used to carry nuclear weapons. When the US government
began its space program to land astronauts on the moon, Boeing won many important contracts to build spacecraft. Its rockets
also helped boost satellites into orbit around earth. Other new products included huge windmills for producing electricity, a
plant to remove salt from seawater, and several hydrofoils built for the US Navy, like the high-speed boats that could ride
just above the surface of the water. The company also expanded its product line by making careful acquisitions. In 1960,
it bought the Vertol Aircraft Company of Philadelphia, Pennsylvania. Vertol manufactured large, twin-rotor helicopters.
Many of the “choppers” manufactured by the company were used during the Vietnam War. In 1961, Boeing Aircraft made another
move when it officially changed its name to the Boeing Company. In 1954 Boeing became a global brand with the development of
a new long-range jet, the 707. Although it was intended as a military tanker, the 707 revolutionized commercial aviation.
It cut intercontinental travel time almost in half and brought airfares within the financial reach of more people. The
707 gave Boeing a competitive advantage it has since never lost in global civil aviation. A few years later, Boeing added
improved versions of this aircraft, the B720 and the B727. The aircrafts were well accepted as comfortable and reliable
by passengers, crews, and airlines.
TURBULENCE TIME
By the 1980s, Boeing faced new pressure on its commercial aviation business. Airbus, an
aircraft company formed by several European nations, was offering planes that matched Boeing’s technologically. Airbus
also had one major advantage over Boeing: it received government funds, which meant Boeing could afford to lose money
and still stay in business. As a private company, Boeing did not have that luxury. New technology – especially CAD
and CAM – enabled Boeing to refurbish its design and engineering capabilities. Indeed without the growth of computer
technology, many of Boeing’s innovations would have been difficult to execute. In a bid meanwhile to strengthen its position in military aircraft and aerospace, Boeing struck a number of deals. In 1996, it bought the defense and space division of Rockwell International for $3.2 billion. The next year, Boeing merged with a former competitor, McDonnell Douglas. The new Boeing had 220,000 employees and annual sales of $46 billion. At the same time, Boeing was struggling with production and financial problems. The company had always been driven by creative engineering, but its assembly methods and business practices were out-of-date. Boeing briefly shut down its production line in 1997 and the same year the company suffered its first loss in more than 50 years. The bad omens continued to follow Boeing. In 2000, the company endured a strike by its engineers. The next year, Boeing (till then based in Seattle), had barely settled into its new corporate headquarters in Chicago when the September 11 terrorist attacks on New York City and Washington, D.C. sent the commercial aviation industry into a tailspin. Facing a cutback in new
plane orders, Boeing laid off thirty thousand workers.
It was too much for Boeing; both Chief Executive Officer (CEO) Philip Condit and President Harry Stonecipher took
steps to overhaul the company. One key piece of the puzzle was to start using more computer technology to design
planes. They also put more emphasis on cutting costs and raising profits.
TECHNOLOGY IS THE KEY
Boeing’s development of its breakthrough 777 jet marked a profound transformation of both the company’s culture and its design
technologies. New design-build teams replaced Boeing’s traditional practice of dividing the work among disparate engineering
departments. Plans, drafts, and drawings that were once sketched on Mylar sheets were now being digitized and managed by CATIA
(computer-aided three-dimensional interactive application, a super-sophisticated computer-aided design program. “Integration is what
we were interested in,” recalls Henry A. Shomber, a 39-year Boeing veteran and the 777’s chief engineer for digital preassembly. "We
had a saying: ‘If it isn’t in CATIA, it isn’t in the airplane.’"  That mantra along with the goal of integrating various design
functions represented a radically new discipline for the world’s largest aircraft company. Boeing’s plan for the 777, explains
Shomber, was to prebuild the entire airplane– including such subsystems as avionics and hydraulics – in CATIA. The goal was to
resolve all design conflicts prior to physically assembling the aircraft. Boeing took a step further to devise an add-on system
called EPIC (electronic preassembly integration on CATIA), so that the designers and engineers could test and see how well their
components would fit together. In preparation for this new approach to creating aircraft, Boeing distributed about 2,000 terminals
to the 777 design team. All were connected to what was then the world’s largest grouping of IBM mainframes. Moreover, key suppliers
from around the world had instant access to the data and were almost immediately notified of any changes and modifications.
Boeing’s new digital-design infrastructure also alerted engineers when design conflicts created "interferences".
In June 1995, the Boeing 777 Division was recognized for its innovative application of computing technology to the 777.
It won the first spot in the manufacturing category of the annual Computer world Smithsonian Awards. By earning top honors in the
category, the Boeing Computing and Design Application earned a place in history in the Smithsonian Institution’s permanent
research collection. Competition among big aviation players also pushed Boeing to outsource innovations to foreign competitors.
As David J. Pritchard, research associate with the Canada- US Trade Center in the Department of Geography, put it: "America’s
global leadership in aerospace isn’t being attacked, it’s being given away. Boeing was trading away its technical know-how in
return for financial support from overseas governments, some of whom are developing their own aerospace industries." That
makes financial sense for Boeing, says Pritchard, since it spreads risk among the various partners, but it has longterm
consequences for the aerospace industry and its competitiveness. That’s why, since the late-1970s, Pritchard says, the foreign
content of Boeing’s planes has been increasing steadily, and foreign content of Boeing’s new 787 “Dreamliner” could run as
high as 70 percent. The entire wing assembly of this aircraft will be built by Japanese firms - a first for a US commercial
plane.
 There will probably be more Japanese working on the 787 than Americans. Says one company insider: “Boeing is not designing planes
anymore and we’re not building them anymore. At present, the central focus of Boeing product development efforts is the study of new
technologies that can be applied to the full line of Boeing jetliners, as well as the 787.” Says Randy Tinseth, director of Product and
Services Marketing, Boeing Commercial Airplanes: “Our investments in the future must not be limited to just new airplanes, we also must
continue the enhancement of our current product line, incorporating appropriate new technology and more capability. This means more
value for our customers, as we work with them in leading the industry with exciting new airplane developments in every size category”.
Technology has always been the fulcrum of innovation at Boeing. And to fight the Airbus threat (the European consortium now claims just
over 50 per cent of the civil aviation market), Boeing is relying heavily on the 787 “Dreamliner”. When it debuts in 2008, the 787
will be the world’s first “hybrid-fuel” passenger jet. It will use electrical components in place of some pneumatic and hydraulic
systems. “This will improve performance and durability, and may also reduce weight,” says Bill Glover, an environmental guru at
Boeing. “At the moment, electricity on board aircraft is provided by an auxiliary power unit (APU) – a small gas turbine engine
that handles lighting, air-conditioning and pressurization of the cabin, and even helps to start the main engine. (The APU accounts
for the constant whirring noise that airliners make when sitting on the tarmac, even when their main engines are switched off.)
The current designs for hybrid aircraft involve replacing the APU with a far more efficient system based on a fuel cell – a device
that combines a fuel with oxygen to produce electricity. This approach has strong advantages over combustion: fuel cells are quiet,
efficient, and produce far fewer emissions. Boeing estimates that the efficiency of the APU in converting energy from fuel into
electricity could go from 15% today to as much as 70% with fuel cells.” In addition, as the plane gets built from mostly state-of
the- art composites. These materials make it lighter and even more fuel efficient.
SUCCESS GAME PLAN
Success Game Plan Apart from design innovation using technological advances, one of Boeing’s stated goals and marketing cornerstones
has been the idea of service readiness from day one. Previously, it took weeks getting the “bugs” worked out before the aircraft was
ready to carry passengers. In addition, many Boeing engineers were assigned the sole task of making design modifications after final
assembly. For instance, after the first 747-400 went into service, there were still over 300 engineers “re-designing” the plane. The
idea of day one service readiness is obviously an important selling point to the airlines who would rather not see their $150
million investment sitting in a hanger depreciating instead of earning its keep by flying passengers.
 Perhaps the strongest selling
point of Boeing’s marketing approaches is the idea of customer involvement and giving the customer configuration flexibility. The
initial mandate from the Boeing board of directors was to make the 767-X a “market-driven” aircraft. Teams from four customers,
United Airlines, British Airways, All Nippon and Japan Airlines, were deeply involved in the 777 program right from inception.
Cathay Pacific and Thai Airlines have also been involved but to a lesser degree. Boeing gives airlines great flexibility in
configuring the cabin by making the galleys and lavatories completely modular. Boeing has also worked to reduce costs by 25
percent, defects by 50 percent and order-to-delivery time by half, from twelve months to six. A large step toward achieving
the goal of reducing the cost is implementing just-in-time management of the nearly $8 billion inventory Boeing keeps on hand
"just in-case."
 As a Boeing manager points out “the idea was not
to delay a $100 million plane for lack of a 2,000 part.” As former Chairman and CEO Phil Condit says: “Nobody designs a car or
a refrigerator with the idea it’s going to be in service for 50 years or more. Yet look at the 737, which first flew in 1967.
Today we’re still building new and technologically far more advanced 737s at a healthy rate on a modern, moving assembly line.
These new airplanes will remain in service for more than 30 years. So here’s an evolving product line that will last at least
66 years with no indication we’re anywhere near ending production.” Boeing’s market approaches, too, have the same long-term
focus. Based on network-centric operations, at Boeing, approaches are formulated after much research and discussion.
It’s in long-term commercial strategies where the questions start: What are the enduring needs? What is the world going to look like 20,
30, even 50 years out? How might markets change? Are there disruptive technologies? What are the big, driving, fundamental factors? And
the most critical question: What are the economics? After finding answers to these questions, long-term decisions are made keeping in
focus the company’s core competency of detailed customer knowledge and focus. The leadership at Boeing work together with business
unit experts to form strong, robust strategies. It is everybody’s job at Boeing to execute. In the face of immense competition from
Airbus it is only if things are done absolutely right can Boeing continue to build future generations of “magical” products and
services.
CRITICAL PEROID
The A380’s impending release is meant to compete with the venerable Boeing 747 and further chip away at Boeing’s dominance in the
airline industry. Business analysts have shown that Airbus has already surpassed Boeing with more than 50 per cent of the global
civilian aviation market. The $200 million A380 can seat about 550 passengers and fly 15,000 km. Not only can it seat more people and
fly farther than the 747, Airbus claims that it is cheaper to operate while providing passengers cheaper seats. The Boeing 747 can
only hold 416 passengers with a range of 13,444 km. The first of the A380s will come into service sometime in 2006. It took 10 years
of development and went $1.2 billion over budget but Airbus is confident that it will recoup the money with its new orders. Airbus
has confirmed orders from Singapore Airlines and China Airlines. Boeing’s big fightback hope is the 787 Dreamliner (it will be
christened the 787 once it’s adopted). The 787 will come in three different models and will carry as much as 259 people and
will have a maximum range of 8,500 nautical miles (15,700 km). The main attraction of the 787 is that it will use 20 per cent less
fuel than any other jetliner of the same class. Boeing believes that there is no market for large jetliners in today’s market.
The 787 will hold less passengers but its advantages are that it can fly farther than the A380 and is more fuel-efficient.
The 787 will go into production by 2006. It will have its first test flight by 2007 and will be put in service in 2008. Another
major benefit of the 787 is that it doesn’t need airports to upgrade their facilities to accommodate it. Airports will need to
upgrade their current airports to be able to take the A380. This in turn would decrease the A380’s operational range. You can’t
make a direct flight with it to a major city if its airport can’t accommodate the jet. Recently Atlanta, one of the biggest
airports in the world has already ruled out investing the necessary hundreds of millions to accommodate the A380. So too have
Seattle, Denver and Las Vegas. 
The American market has always been hard for Airbus to penetrate and this could imply that the American airline companies would
buy Boeing jetliners instead. The two companies are also battling it out legally. The US is taking the European Union to the
World Trade Organization because Airbus relies heavily on Government Launch Aid and subsidies from countries of the EU to help
the company financially. Since a large percentage Airbus profit is actually government subsidies, the investors are wary of
the company. Boeing on the other hand is vulnerable to capital markets. The company values profit and shareholder returns
and doesn’t rely on any government assistance. This is also part of the reason why Boeing is still very trusted in the
industry. Boeing claims government subsidies give Airbus too much of an unfair advantage. Since 1992, subsidies have
covered up to one-third of the development cost of new planes, which included the A380. Moreover,
Airbus can avoid paying loans in full if sales of the aircraft being financed fall short of forecasts.
 Many of those were for the fuel-efficient 787 that
is scheduled to enter service in 2008. Most of the orders have come from Asia and experts believe that, over the next 20 years, Asian
airlines will buy 3,800 jets – two-thirds of them additional aircraft and the rest replacements. The first three months of 2006 have
been equally robust with good sales across the world for the 787. Besides a recovery in jet sales, Boeing said in its last earnings
report that it had posted higher sales for its Future Combat Systems, maritime aircraft and other defense programs that compensated
for reduced deliveries of F/A-18 and F-15 fighter jets. The narrow-body 737 continues to be Boeing’s top-selling commercial jet.
But industry analysts say the twin-engine 787, which will be built mostly from composite materials (high-tech, sturdy plastics that
are lighter and don’t require as much maintenance as aluminum) is the right product hitting the market at the right time.
“Clearly, interest in the 787 has been unparalleled, and it’s addressing an industry concern, which is higher fuel costs and lower
maintenance costs,” says J. B. Groh, an analyst with D. A. Davidson, a financial consulting firm based in Lake Oswego, Orlando.
When it is configured in three classes, the 787 will carry about 260 passengers up to 9,700 miles, allowing
nonstop flights, for instance, between Houston and Beijing. In December 2005, after losing several high-profile sales battles to
Airbus, Boeing replaced its top sales executive, Toby Bright, with Scott Carson who had been head of Boeing’s in-flight Internet venture,
Connexion by Boeing. Steven UdvarHazy, chief executive of International Lease Finance Corp., a major customer of both Boeing and Airbus,
said Boeing’s sales force seemed to be re-energized under Carson’s leadership and excited about the first new plane the company has
offered in years. With these changes in the top leadership backed by a more aggressive sales force and a technologically advanced and
market-driven new plane, Boeing is harking back to the homespun philosophy of pioneering founder William Boeing: keep it simple, keep
it right, keep it going.
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