1. *
Jaque Qian
Utkarsh Sahu
Mark Szabo
Anna Zhang

2. The 787 Dreamliner is expected to revitalise Boeing
Visionary Design
Unparalleled Passenger Experience
Media Hype
Environmentally Progressive *
Exceptional Value for Airlines

3. The delivery of the 787 has been plagued with issues
Third delay
First order cancellation
First delays
Final delay to date
First 787 orders
Further delays due to supplier issues
First successful test flight
Boeing drops its "Sonic Cruiser" concept, responding to airlines' calls for better fuel efficiency rather than extra speed.
June Dubs its new, carbon-composite airplane the "Dreamliner"
Dec Approves an initial version of the plane with the temporary name 7E7, the E standing for "efficiency"
April officially launches the plane as Japan's All Nippon Airways (9202.T) (ANA) orders 50
Dec Ends 2004 with 56 orders for the new plane, fewer than it had expected
Jan Gives plane official designation 787
Dec Ends year with 232 orders for 787s, for a running total of 288
July Popularity of 787 design forces Airbus to go back to drawing board on its competing A350, relaunching it as A350 XWB (extra wide body)
Dec Boeing ends year with 160 orders for 787s, for running total of 448
Jan Unconfirmed talk of some 787 suppliers falling behind schedule sends Boeing shares lower. Boeing CEO Jim McNerney says plane on target for first test flight around end of August 2007 and first delivery May 2008
May Starts to put together first 787 in Everett, Washington.
June Reports surface at Paris Air Show that 787 is up to four months late. Boeing says first test flight may slip to September 2007, while still on schedule for first delivery in May 2008
July 8, Gleaming shell of first 787 rolled out in front of 15,000 ecstatic employees and customers at Everett
July 25, Boeing shares hit all-time high of $107.80, boosted by strong 787 orders. Company admits plane running slightly behind in certain areas but holds to schedule
Sept Boeing puts back first test flight by about three months because of a shortage of bolts and problems with flight control software. Shifts flight target to mid-November to mid-December 2007; keeps May 2008 delivery target
Oct Announces longer delay, due to continued production problems, pushing first test flight to end-March 2008 and putting back first delivery by about six months to late November or December 2008
Oct program head Mike Bair replaced by Pat Shanahan from Boeing's defense unit
Dec Boeing says 787 sticking to revised schedule; ends year with 369 orders for the plane in 2007, for running total of 817
Jan After two weeks of rumors, Boeing announces a further three-month delay due to problems with unnamed suppliers and slow assembly progress at Everett plant. Pushes back test flight to end-June 2008 and first delivery to early 2009, making plane about nine months behind original schedule
March Admits it had to redesign center wing box to make it stronger
April Announces third major delay due to continuing problems with unfinished work from suppliers. Sets first test flight for fourth quarter 2008 and first delivery for third quarter 2009, about 15 months behind original schedule
June Boeing completes "power-on" testing on first Dreamliner, bringing the plane's electrical systems to life. It is the first public milestone the company has hit on the program.
August - First cancellation of a 787 order, by Azerbaijan Airlines
Sept 6, Boeing's assembly workers go on strike over contract terms, shutting down Boeing's Seattle-area plants. They return to work in early November after 58 days out. Nov 4, Boeing says first flight delayed by strike, will not happen until 2009
Dec 11, Boeing announces fourth major delay, due to strike and continuing fastener problems. Says first flight now set for second quarter of 2009 and first delivery in first quarter of 2010, making plane about two years late
Dec. 31, Boeing ends year with 93 orders for 787s, making a running total of 910
Jan Russia's S7 becomes first major airline to cancel orders for 787, walking away from deal to buy 15 planes worth $2.4 billion. More cancellations follow
June - Boeing reports 59 total cancellations for 787s, with net orders for 866 planes.
June 23, Announces fifth delay due to side panel issue
Aug 27, Sets new timetable, with first flight by end of 2009 and first delivery in fourth quarter of 2010
Aug 31, Boeing Commercial Airplanes chief Scott Carson announces retirement at end of the year, is replaced immediately by Jim Albaugh, head of Boeing's defense business
Nov 12, Boeing completes installing reinforcements within the side-of-body section on the first 787 Dreamliner.
Dec. 10, Boeing opens flight-test window starting Dec. 15. (Reporting by Bill Rigby and Kyle Peterson, editing by Gerald E. McCormick, Gary Hill)

4. We have identified two sets of recommendations
Short-term supply chain solutions
Key Recommendations
Ensuring long-term competitive advantage
We have identified 2 sets of recommendations have

5. These recommendations will reduce supply chain problems when the 787 is in production in the short term 1 2
Injecting Expertise
Extend GoldCare
Two recommendations will address short-term issues and risks in the 787 supply chain
The first will focus on the outsourced production part of the supply chain,
The other will address issues in the Boeing Sales function

6. Pioneering an outsourcing strategy to produce the 787
Boeing – in-house functions
Research & Development
Parts Production
Part Assembly
Final Assembly
Sales & Marketing
30%
70%
Partner – outsourced functions
Research & Development
Parts Production
Part Assembly
Final Assembly
Sales & Marketing
Boeing has employed a bold/unique outsourcing strategy to produce the 787
Outsourced 70% of upstream functions, including R&D which was traditionally done in-house
What are the issues and risks in this supply chain?

7. Boeing faces challenges in its own supply chain
Boeing supply chain
Research & Development
Parts Production
Assembly
Final Assembly
Sales & Marketing
Issues
Product does not meet promised specifications
Risks
Customers may cancel further orders
Issues
Discontent labor force due to low job security
Risks Further strikes
- Boeing has experienced a couple of debilitating strikes in the last few years, which resulted in substantial delays for the 787.
So the threat of strike is certainly a risk, but we feel that the latest union agreement has sufficiently mitigated this so we won’t be addressing it directly.
More importantly – given the troubles experienced elsewhere in the supply chain, the Boeing sales function has experienced difficulties as the product did not meet promised specifications, and are therefore at risk of losing further orders.

8. The outsourced supply chain also faces numerous challenges
Partner supply chain
Research & Development
Parts Production
Part Assembly
Issues
Limited R&D and production expertise
Insufficient regulatory knowledge
Risks
Manufactured parts do not meet regulatory or Boeing specifications
Incomplete or unsafe parts manufactured
The key issue in the outsourced component of the value chain is the lack of technical expertise of certain partners
This could result in parts that do not meet specifications

9. Title slide for RECO 1 HERE?
Injecting Expertise

10. This recommendation identifies the underperforming suppliers who are most likely to threaten the 787 production schedule
Use Boeing knowledge and experience pre-emptively as a tool to prevent any further delays.
Boeing should utilize its production expertise to provide technical support to at-risk suppliers and partners to prevent further delays of production process
Identify and target strategic partners most likely to dishonour their obligations using fixed criteria
Our recommendation is to actively monitor and identify partners who are most likely to threaten the 787 production schedule, and deploy our technical expertise to ensure that delays are avoided

11. Parts Production and assembly
These recommendations alleviate the problems plaguing the supply chain in a timely manner
Parts Production and assembly
Key issues and risks
Inadequate expertise
Limited regulatory experience
Risk of parts not meeting specifications
Risk of Low quality products
Sharing of expertise ensures suppliers are not at a disadvantage during production
Ready access to Boeing experts will ensure issues are prevented or quickly resolved
Addresses the key issues and risks in the outsourced production process –
Bolsters the technical and regulatory expertise of those partners that require it
Ensures any issues that come up are quickly resolved
Allows us to oversee the production process, ensuring the quality of the parts and that they meet specifications
Presence of Boeing personnel will prevent low quality or non-compliant goods from being shipped

12. This recommendation makes good financial sense$
Cost savings arising from preventing a one-month delay
$165 million
Upfront investment required
$50 million
Breakeven point: 1 month
Ongoing yearly costs
$18 million p/a

13. Extend GoldCare
Faced with 2 year delays in production and 10% cancellation in orders, Boeing is faced with the challenge of convincing customers that it can provide a quality product without further delay through its Sales & Marketing channel. To address this issue Boeing should extend its GoldCare service to its customers for free for a one year period.

14. This recommendation extends the GoldCare program to allow airlines to outsource plane maintenance to Boeing
Boeing leads and integrates a global team of partners
Performs all maintenance and parts support, as well as track airplane conditions and configurations
Boeing absorbs the risk and complexity of airplane maintenance
Airlines pay an agreedupon per-flight-hour price
Lets first discuss what the GoldCare program is – The program offers airline companies with the opportunity to outsource plane maintenance to Boeing.
We leads an internal service team integrated with out global partnerships to perform all maintenance and parts support as well as track plane conditions.
We essentially, absorbs the risk and complexity of airplane maintenance for an agreed upon per-flight hour price.

15. The new incentive provides airlines the opportunity to reduce non-core overhead costs
Focus on core competencies
Simplifies aircraft ownership
Reliable maintenance and monitoring
The benefits to our customers – the airlines is significant.
Airlines are able to focus on core competencies, simplify aircraft ownership and are ensured reliable maintenance and monitoring of its planes.

16. Emphasize quality to customers
This initiative will convince customers that Boeing will deliver a quality product without further delays
Confidence in planes
Aligns Boeings long term interests
Breakdown and maintenance
costs transferred to Boeing
Instills belief that Boeing
guarantees performance
Provides customers with
security that Boeing is
willing to sustain
involvement in plane
performance even after sale.
But how does offering GoldCare to our customers for free for a one year period convince them of the quality in the 787 aircraft?
Well firstly it instills confidence in the planes through the belief that Boeing guarantees performance as it is bearing the cost of breakdown if that were to occur.
Secondly, it aligns our long term interests with aircraft long after the sale of the plane has occurred. This provides security to customers that Boeing is a sustained partner rather than simply a salesman.
Several key customers have delayed/cancelled purchasing 787s because they do not want to be the first to fly them commercially.
Alleviating the customers concern with
Emphasize quality to customers

17. This recommendation makes good financial sense
Cost of providing discount is 141.2m per 30 planes
Breakeven points 6/3 cancellations for 100/50% discounts
**MARK WHAT ARE THE AXIS? & FACTS, GRAPH DOES NOT TELL US ENOUGH!

18. We have identified two sets of recommendations
Short-term supply chain solutions
Key Recommendations
Ensuring long-term competitive advantage

19. From the 787 experience, Boeing has developed core competencies which can be leveraged to gain competitive cost advantages
CORE COMPETENCIES:
Global Supply Chain 1
Economies of scale
Reduced risk of R&D investment
Collaborative innovation
Lean enterprise
Technical, design and assembly expertise 2
Large Scale System Integration & High end Design are our supply side competitive advantages => 787 Experience the key threats to our capabilities are delays and Knowledge loss => we need to work closely with our suppliers/select them carefully to ensure we deliver innovation rather than dream it or lose it to competitors => but be careful of creating competition from this (don’t out source certain things, think about IP) => thus negotiate contracts that mitigate these two risks
Which suppliers should we pick?
Composite materials innovation
Designing fuel efficient aircrafts
Rapid 3 day ‘snap’ assembly process 19

20. The 787 process caused much delay and sparked concern regarding the choice of supply partners
Two key issues emerge for consideration: Delay and Tacit Knowledge Transfer

21. Problems were caused by insufficient criteria for partner selection
LESSONS LEARNT:
Reasons for the delay
Lack of communication and monitoring
Overestimation of supplier’s capacity
Suppliers were in need of managerial and regulatory expertise
Incentives were insufficient to ensure timely delivery
Reasons for leak of IP to potential competitors
Suppliers have long term objectives to enter the production market
IP rights traded to gain shared R&D investments to decrease overall costs 21

22. Two recommendations to minimize delays and mitigate the risk of aiding potential competitors
Effective Partner Selection
Selective Outsourcing
Trend of the industry to outsource
Knowledge sharing inevitable but we don’t want to facilitate potential competitors too much 22

23. Boeing needs to reassess its partner selection criteria and work closely with partners to prevent future delays
Choose partners with:
A high level of managerial expertise
Regulatory insight
Adequately resourced to fund R&D
A high level of logistics experience
Avoid partners who are:
Short term goal oriented
Unskilled with production and delivery
Eager to extract IP from collaboration 23

24. Two recommendations to minimize delays and mitigate the risk of aiding potential competitors
Effective Partner Selection
Selective Outsourcing
Trend of the industry to outsource
Knowledge sharing inevitable but we don’t want to facilitate potential competitors too much 24

25. Implement rigorous self assessment Strategic placement of orders
Boeing needs to strategically decide what can be outsourced to maintain their competitive design and IP advantage
Implement rigorous self assessment
Keep core components in-house
Outsource as much non-essential parts as possible
Invest in in-house design capabilities
Monitor wing component manufacturers
Strategic placement of orders
Rank components by IP sensitivity
Rank partners according to competition risk 25

26. Efficient integrated network COMPETITIVE ADVANTAGE
Boeing will be relatively better placed in the market than competitors once it capitalizes on supply chain efficiencies
Efficient integrated network
IP risk mitigation
Low Cost + =
COMPETITIVE ADVANTAGE
Innovation
Production

27. Boeing will be relatively better placed in the market than Airbus once it capitalizes on supply chain efficiencies
Boeing
Partners absorbs non-recurring costs and risks of R&D
Outsourced the entire wing design and manufacturing
to external suppliers (75%)
Long unparalleled dominance in Japanese market & strong
presence in China
Airbus
Workshare arrangements
Increased outsourcing but kept core technologies in house (50%)
Relative newcomer to Japan & China
• Boeing -- long unparalleled dominance in Japanese market & strong
presence in China
• In Japan -- 80% of orders from Japanese airlines from Boeing during last
decade; Japanese suppliers (“heavies”) account for 35% of 787 workshare
(with subsidy from Japanese gov’t -- $3 billion)
• In China -- activities range from subcontracting, joint ventures, technical
training and assistance for cooperative programs; visible support from
Chinese suppliers (valued at $1.6 billion), supplying essential composite
parts and structures for 787 program
• Airbus -- relative newcomer to Japan & China
• In Japan -- facing difficulties in winning orders from Japanese airlines, but
has contracted work with Japanese suppliers
• In China -- sales in China jumped to 219 aircraft in 2005 from 56, overtaking
Boeing by delivering 6 more aircraft; committed to doubling procurement from
Chinese suppliers to $120 million/yr by 2010; announced Tianjin will be site
for Airbus’ first final assembly plant outside Europe
Relative advantages are sufficient given the nature of the market

28. Aviation First is a joint industry research partnership with airlines to give Boeing first access to upcoming industry changes
Extension of research and development focusing on gauging industry demand
Partnership with core customers who are the airlines
Shared research to identify future needs and demand in industry
Boeing develop aircraft and services catering to needs
“having learnt these i
Issues slide link to the core competencies& CA
“First mover advantage is important in an industry with low turnover and few substitutes”

29. To innovate Boeing needs to have first access to important market information in order to produce aircrafts ahead of competitors
Assemble team research with key airline customers
Research commercial air travel with a broader scope using our combined expertise
Boeing keeps an internal database of findings
Researchers collaborate with internal engineers and designers to create the next aircraft or service
Why do this
Manufacture and produce aircraft or service according to future market needs and demands

30. Aviation First gives Boeing first access to information on industry trends and changing customer needs to develop innovate accordingly
Key benefits
Aviation First
More intimate learning and understanding of our customers’ needs
Information ahead of competitors
Accuracy in design specification to meet needs
Innovate and produce ahead of competitors
First in the industry to innovate and engineer the aircraft or service
Predetermined customers with needs for new aircraft or service

31. Aviation First
Collaborative market research with our key customers
First access to valuable industry projections
Boeing has can be proactive in meeting future market needs ahead of competitors

32. Recommended a set of solutions for the short term
Short-term supply chain solutions
Injecting Expertise
Enhance GoldCare

33. Recommended a set of solutions for the longer term
Ensuring long-term competitive advantage
Leveraging core competencies for competitive advantages
Aviation First
Also the issue is how can we learn and leverage our experience – how can we prevent this from the future?

34. Thank you!

35. Presentation 1
Revitalize Boeing 18
Future Competitive Advantage 2
Delivery of 787 plagued 19
What is Aviation First? 3
Pioneering outsourcing strategy 20
How is Aviation First implemented? 4
Challenges in Boeings Supply Chain 21
What are the benefits of Aviation First 5
Challenges in Boeings Partners Supply Chain 22
Supplementary Slides 6
What is the Injecting Expertise recommendation? 23
851 airplanes sold to over 56 customers 7
Benefits of IE Strategy 24
Condensed SWOT analysis 8
Financial Analysis: IE 25
Boeing’s core competencies for Injecting Expertise 9
What is the GoldCare recommendation? 26
Supply chain strategy 1 - Implementation details 10
Value proposition to Airlines 27
Supply chain strategy 1 - At-risk identification criteria 11
How GoldCare assures quality product? 28
Outsourcing in the future has many benefits 12
Financial Analysis: GoldCare 29
Supply chain strategy 1 – Financials 1 13
Core Competencies 30
Supply chain strategy 1 – Financials 2 14
Delays have sparked question over choice of partners 31
Union strategy – Financials 1 15
Lessons Learnt from 787 fiasco 32
Union strategy – Financials 2 16
Future Partner selection criteria 33
Justification for Q1 key issues and risks 17
Selective Outsourcing 34
Alternative recommendations considered for Q1

36. 851 airplanes sold to over 56 customers
DELETE
56 customers placed orders for 851 airplanes valued at $148 billion, making this the most successful launch of a new commercial airplane in Boeing's history.
‘over 90’ amount of planes sold, record breaking. However, the delivery has not been on schedule. It is widely publisized and known that difficulties have been met during the production SUPPLY and process.
Expectation are what Boeing makes them - we need to deliver to that.
In spite of the
Cancellations of over 90 aircrafts up to Dec 2009
Global coverage of delays have negatively affected our stakeholders

37. Condensed SWOT analysis
Strengths
Fexible engine types *differentiation
World first of composite materials
Everett: 20-year tax break for aerospace companies
- Greater economies
Greater market potential than airbus
Weaknesses
Reputation damage for delays
Managing partners’ responsibilities
Ability to completely defend IP
Testing revealed discrepancy between projected specs and actual
No transparency of competitor knowledge and plans
- Trial and error: testing uncovers new probs
Overlap of new costs to design wingbox (should have been partners job)  
Threats
- exposing our competitive advantage: IP etc
- Degree of outsourcing (35% now vs 30% industry)
- IP lose and future competitor at Wichita
- Partners today become competitors tomorrow
Kawaski aerospace unit and Japan
China foray into industry: cheaper costs, govt funding
Airbus: govt funding, design, future retaliation aircraft
-industry questions Boe’s commitment to commercial aircraft
Increase variable costs in airline industry
further delay from partners
contractors with no industry experience
Press: industry reviews
Opportunities
- Entire world’s eyes on 787
- Success of 787 makes Boeing market leader
- Marketable benefits: PR
Alternative sized 787 model: small, or big
Boeing trying to cater to smaller size to fit comp pricing industry

38. Boeing’s core competencies for Injecting Expertise
Experience
Benefit
-Vought example experience, proven
- Global business competency
- Experienced pool of Boeing staff
- Human interface personal
- Overcome certain communication barriers
- Reduce intermediate communication delays

39. Supply chain strategy 1 - Implementation details
Identify at risk companies
Identify key risks at partner company
On-site improvements and improving processes
Deploy Boeing staff with relevant skills or experience
Ongoing feedback with Boeing for resources and skills
On-time progress monitoring and updates with Boeing HQ
HQ decision making for further assistance for high risk partners
Reflect on progress and additional assistance if needed
Production to specifics with onsite reviews
Future relationships maintained

40. Supply chain strategy 1 - At-risk identification criteria
Firm selection criteria
Aeronautical production expertise
Level of completion
Boeing skills required
Supplier track record
Strategic importance
Date of completion
*logo of as many suppliers as possible
*fade logos
*criteria appears over faded logos
Say: these 44 are all our tier one suppliers, this criteria will help us identify the underperforming or at risk companies

41. Outsourcing in the future has many benefits
Outsourcing to specialised companies allow economies of scale
Shared R&D reduces risk of investment
Allows for more collaborative innovation
Lean enterprise allow effective distribution of asset
Established partners
Experience in collaborative problem solving
Global partner portfolio
Learning experience from partners
Boeing

42. Supply chain strategy 1 – Financials 1
Estimation period (years) 3
Cost of delay penalty per month per plane
0.5
(Exhibit 2)
Number of planes affected by delay 90
(Initial rate, 30 per year - first 3 years)
Plane orders cancelled due to delays per month 2
(Cancellations: 93, Delays: 24 months = per month)
Value of each plane order
175
(Range between 150 and 200m)
Profit margin on each plane 35
Assumes 20% contribution margin
Wacc 7%
See WACC assumptions slide
Estimated set-up costs 50
Initial investment:
Includes labour to set up programme, developing communication systems and channels, clearing legal details of arrangement with supplier.
Technical assistance costs
Number of suppliers identified 20
Number of technicians redeployed 10
(Jayco testing - 5)
Average length of stay (years)
0.6
Opportunity cost of redeployment (salary) m
0.1
Travel expenses
6.0
Total cost of technical assistance per year 18

43. Supply chain strategy 1 – Financials 2
Delay prevented (Months)
Penalty cost
Periods to pay penalty
Lost orders
Value of lost orders
Period to lost orders
PV of loss due to delay
PV of costs
NPV
1.50
1.5
0.00
97.24
-97.24 1 45
1.58 2 70
103.67
6.44 90
1.67 4
140
206.89
109.65 3
135
1.75 6
210
309.66
212.42
180
1.83 8
280
411.98
314.74 5
225
1.92 10
350
513.86
416.62
270
2.00 12
420
615.30
518.06 7
315
2.08 14
490
716.30
619.06
360
2.17 16
560
816.87
719.63 9
405
2.25 18
630
917.01
819.77

44. Union strategy – Financials 1
Strike cost per day
100
From case
Net strike cost per day 10
Assuming profit margin of 10%
Average union wage (m)
0.07
(Case: 65,000, correcting for inflation)
Number of protected jobs
10000
Latest union agreement protected 5100 jobs -
Estimation period (years) 5

45. Union strategy – Financials 2
Planned workforce reduction
Total strike days avoided 1% 2% 5%
10%
15%
20%
30%
50%
100%
-2.96
-5.91
-14.78
-29.55
-44.33
-59.11
-88.66 1
5.49
2.53
-6.33
-21.11
-35.89
-50.66
-80.22 2
13.93
10.98
2.11
-12.67
-27.44
-42.22
-71.77 3
22.38
19.42
10.55
-4.22
-19.00
-33.78
-63.33 4
30.82
27.86
19.00
4.22
-10.55
-25.33
-54.89 5
39.26
36.31
27.44
12.67
-2.11
-16.89
-46.44 6
47.71
44.75
35.89
21.11
6.33
-8.44
-38.00
-97.10 7
56.15
53.20
44.33
29.55
14.78
0.00 8
64.60
61.64
52.77
38.00
23.22
8.44 9
73.04
70.08
61.22
46.44
31.66
16.89 10
81.48
78.53
69.66
54.89
40.11
25.33 11
89.93
86.97
78.11
63.33
48.55
33.78 12
98.37
95.42
86.55
71.77
57.00
42.22 13
106.81
103.86
94.99
80.22
65.44
50.66 14
115.26
112.30
103.44
88.66
73.88
59.11 15
123.70
120.75
111.88
97.10
82.33
67.55 16
132.15
129.19
120.32
105.55
90.77
75.99 17
140.59
137.63
128.77
113.99
99.22
84.44 18
149.03
146.08
137.21
122.44
107.66
92.88 19
157.48
154.52
145.66
130.88
116.10
101.33 20
165.92
162.97
154.10
139.32
124.55
109.77

46. Justification for Q1 key issues and risks
Labour force strikes
Machinist strikes 2005
Machinist strikes in 2008
Cancelled orders
93 orders cancelled to date
Quality concerns
Partners – lack of technical expertise
Incomplete parts manufactured

47. Alternative recommendations considered for Q1
Cross-shareholdings
Too long to implement, too long before results would be seen
Contract renegotiation
Long timeframe to implement, costly, many suppliers are not due for renewal.
Discharge suppliers who cause delays
Solution is Ex-post – Reliance on supplier for patented part design.

48. What is GoldCare? A system of tools Airplane Health Management
Monitors the health of an airplane in flight and relays that information to airline personnel on the ground
Maintenance Performance Toolbox
Serves as a single location for operator maintenance and repair data.
Electronic Flight Bag
Digitally stores all documentation and forms, including paper log books that pilots typically carry onto airplanes
Maintenance & Engineering Management
Allows dynamic planning and re-planning of maintenance tasks to optimize efficiency and keep airplanes in the air
Uses existing network of employees as well as partnerships with other support providing functions.
Boeings attempt to capitalize on the attractive $60 billion commercial aviation service industry

49. Enhance GoldCare: Focus on core competencies
Simplified Operations
Customers have a single provider – the GoldCare team – with extensive capabilities for managing and planning maintenance, material and information
Maintenances is a non-core cost for airlines
Additional personnel costs
Time spent on plane maintenance schedule by management.
Allows management to focus attention to more critical areas
Source: Bickers. C., “Good as GoldCare”

50. Enhance GoldCare: Simplifies aircraft ownership
Source: “GoldCare Enhances 787 Lifecycle Value”,
Traditional costs of maintenance can be unpredictable, though the GoldCare program these costs can be made predictable for airlines. Thus the costs involved with ownership of planes are reduced.

51. Enhance GoldCare: Reliable maintenance and monitoring
Minimize Risk
GoldCare is provided at an agreed cost per flight hour, with guarantees for schedule-reliability and parts-availability service levels
Boeing knows 787 planes and its part suppliers well
GoldCare’s ability to monitor the airplane closely means its asset value may be better preserved over its life cycle.
Boeing’s team has the tacit knowledge to solve complex problems efficiently given there are the manufacturer.
Source: Bickers. C., “Good as GoldCare”

52. Why is the threat of strikes no longer an issue in the short term?
Job security was the central reason why unions are protesting. They believed that payroll benefits were no good if they themselves were not on the payroll.
This sense of loss in job security came from dispersion in Boeing’s supply chain globally in the production of the 787 airplane.
After 58 days of protesting Boeing renegotiated a 4 year agreement that allowed for wage increases as well as:
1. Expanding job protection for 5100 people.
2. Restriction on vendor delivery locations, except for 787 (legality)
3. Workers gain expanded subcontracting review, including the ability to compete for work that moves from one Boeing facility to another.
Source: (2/11/2008 )

53. What if the risk of strikes develops in the short term?
If strike action is taken once again in the short run with regard to job security, literature suggests that it will be with the unhappiness of 787 “global supply chain” production method.
Our recommendation is to construct a opportunity cost vs. flexibility lost analysis that determines the level of assembly we maybe able to bring in house i.e. we will have to concede part of our global supply chain functionality.
Ultimately, the argument boils down to the sustained losses Boeing can sustain if production is stopped at its final assembly plant in Washington State.
Low risk given litigious nature of 787 agreement that already exists
Source: International Association of Machinists and Aerospace Workers

54. Will everyone get the Gold Care package?
First 30 planes in the first year of production
Further details in financial calculation

55. Boeing needs to reassess its partner selection criteria and work closely with partners to prevent delays for future projects
Production Expertise
Efficiencies in production that achieve economies of scale
Reliability
History of minimal delay
Available Capital
Financial history and standing
Cooperation
Willingness to work consultatively
Negotiation Attitudes
Flexible & open with long term horizons 55

56. Boeing needs to strategically decide what can be outsourced to maintain their competitive design and IP advantage
Strategic analysis
Identify key designs
Expertise
Retrain design and technological experts
Production
Retain production facilities
Advantages to keep some design capabilities inhouse
Future criteria for outsourcing
What more we can outsource?
Added NPV, slight editing
Outsource
Reduce supply chain by outsourcing non-key components
Logistics
Improve logistics design and cost 56

57. Market Analysis Airplane Production Market Outsourcing Supplier Market
Competitive advantage based on low costs and high innovation
Industry trend towards outsourcing and Boeing focusing on ‘Snap’ assembly
Suppliers are developing into long term partners for ‘system integration’
Outsourcing Supplier Market
Trend towards greater specialization
Continued consolidation of suppliers
Stronger financial backbone to make the necessary investments to enhance core capabilities
The main reason is that the market is just too small. The current point in the market is not stable, so this leads to speculation that in the future, there will be change. Airbus cannot effectively compete against Boeing, so it may have to expand or find a partner to merge with. Alternatively, other companies such as Bombardier and Embraer, which are already starting to compete at the small aircraft level with Boeing and Airbus may enter the market.

58. ‘Partners’ participating in R&D innovation
TRADE OFF
Lower costs and risks
Reduced IP rights
Production at lower costs
Ability to innovate new products
Opens new markets at lower risk
Identify and preserve strategic IP
Identify ‘low risk’ market leaders
Leverage negotiations
Added NPV, slight editing
Market Leader
Risk Mitigation 58

59. Supply chain efficiency goals
Literature shows lean supply chain management practices represent critical source of sustained competitive advantage
Supply chain efficiency goals
Early integration into design and development
• Knowledge-sharing and fostering supplier-based innovation
• Synchronized flow throughout the network
• Transparency through open communications
• Long-term, trust-based, mutually-beneficial relationships
• Continuous supplier development & process improvement
Room for Improvement
Capability
Responsibility
Management
Communicaton
Iteration

60. How Boeing competes with industry players in the global aviation production market
Competitor
Description
Basis of Competition
Airbus
Bombardier Aerospace
China and Japan (Kawasaki)
EADS Consortium
Smaller Canadian Manufacturer
Potential Entrants
Cost and innovation (Time to Market)
Brand, scale and networking
Brand and Strategic IP Protection

61. Focusing on core competencies will allow Boeing to compete effectively despite transfer of IP knowledge
China
China has successfully built a 105-seat regional commercial jet, the ARJ-21. The first passenger jet to be developed and manufactured in China.
The ARJ-21 is about 15% cheaper than comparable Western airplanes and has an additional cost advantage- Chinese carriers that purchase it don't have to pay the 23% tax levied on foreign planes.
They already build advanced military fighter planes and are aggressively investing in its space programs, which continue to be a source of important innovations for commercial airplanes.
Brazil (Embraer)
They already make airplane in the seat category.
Third largest manufacturer of planes after Boeing and airbus
Canada (Bombardier):
More of a threat because they compete with Embraer and have the technological know-how as well.
United Airlines has invited them to compete against the 737/A320 replacement programs when it gets launched.
However, the CSeries remains below the 15% to 20% low-end 737 market

62. Contract Specifications
Boeing can renegotiate contract terms to minimize delay and mitigate risk of strategic knowledge transfer
Contract Specifications
Delay penalties
Incentives to meet deadlines and work consultatively
Relationship
Enter into long term contracts
Exclusivity clauses
Mitigates direct competition for duration of partnership
Restraint of trade clauses
Prevents direct competition after partnership concludes

63. There will be a concurrent implementation of the strategies
Timeline for Implementation
2010
2012
2014
2016
2018
2020
2022
Assign personnel to monitor Partners (PLM)
Short Term
Strategy 1
Deploy Boeing engineers to suppliers
Align interests and build LT relationships
GoldCare Discount
Long Term
Evaluation 2
Re-evaluate Partner Criteria
Renegotiate with suppliers
Innovate
Assign personnel to monitor Partners (PLM)
Launch next Boeing commercial plane 63

64. Analysis of airlines and relative to 787 offerings
Benefits afforded by 787 to Airlines can reduce costs:
less stopovers => reduced taxing costs
less chance of delays (fines)
less fuel use – world first. Innovation will increase current 15% saving, or potentially launch into alternative fuel sources
increased cargo capacity – revenue source
Format this into left feeds into right. 787 attributes  benefits/issues for airline

65. 787 value to Airlines
Airlines face fiercer price competition from increase competitors in the market
Strong growth air travel particularly in the economy sector
Reduced scope for competitive advantage in traditional airline markets
Cost structure vital to survival offer new ways for them to reduce costs
Differentiation in the economy airline industry better travel experience
Rapid changes in global demand and supply for air travel places mounting pressure for airlines to economize

66. Current competitive advantages arising from 787 experience
Competitive advantage arising from 787
First mover advantages
Outsourcing expertise
Innovation leader
Management of partners
Dominate medium-craft long haul market
Established network
Logistic and communication
Customer loyalty
Proven benefits of 787 create loyalty and leadership position
Intimate lessons from outsourcing processes and partner selection

67. Reasons for having first access to market information
Increasing competition from companies globally
Decreased life span of tacit knowledge in industry
First mover advantage crucial to secure first airline orders
Exclusive and/or first access to industry projection and insights is first needed even before innovation can occur

68. Further to markets for leveraging 787 competitive advantages1 2 3 4 5 6 7 8 9
Passengers
Range, 1,000 nmi
747-8 ER ER LR
100
200
300
400
500
600 ER
Three-class
787-8 ER ER
737 Business Jet
Two-class
787-3
787-9
The demand and research from the customer ie virgin wants to offer new flight routes, this is something Boeing can cater for but do so with the competencies and the qualities for the 787 – to then offer it in a larger sized craft
Boeing could leverage 787 core competencies to create smaller or larger planes depending on market developments

69. Massachusetts Institute of Technology Bozdogan 04/18/07 -
References
Reference
URL
Tim Optiz, Director of Production and Support Systems, Boeing Commercial Airplanes (March 2007)
Lockheed Martin revealed after the cessation of production for its L1011
COE Newsnet - September 2002, issue 6 “Design Integration Across a Global Enterprise” by Jim D. Green
Boeing Frontiers, “Helping shape markets of tomorrow”, November 2002, volume 1, issue 7
Massachusetts Institute of Technology Bozdogan 04/18/07 -