Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So

Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So
Vision 2025: The Premier Global Supply Chain Leader Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So

People working together as a
V I S I O N : People working together as a global enterprise for aerospace leadership Strategies Run healthy core businesses Leverage strengths into new products and services Open new frontiers Core Competencies Detailed customer knowledge and focus Large-scale systems integration Lean enterprise Values Leadership Integrity Quality Customer satisfaction People working together A diverse and involved team Good corporate citizenship Enhancing shareholder value

V I S I O N : A global enterprise that cultivates communication and cooperation with the worldwide network for aerospace leadership Strategies Run healthy core businesses Leverage strengths into new products and services Open new frontiers Core Competencies Detailed customer knowledge and focus Large-scale systems integration Lean enterprise Premier global supply chain leader Values Leadership Integrity Quality Customer satisfaction People working together A diverse and involved team Good corporate citizenship Enhancing shareholder value

Takeaways from the Dreamliner
The Dreamliner has provided valuable lessons in global supply chain management Takeaways from the Dreamliner Oct. 2007 Jan. 2008 Boeing acknowledges a delay of up to six months due to unfinished work by global partners Head the Dreamliner project is replaced First flight: March 2008 First delivery: late 2008 Additional oversight of large component manufacturing A Further three-month delay announced due to problems with suppliers and slow assembly process First flight: Jun. 2008 First delivery: early 2009 Jun. 2007 Jan. 2003 0.3 inch gap is found between the nose-and-cockpit section and fuselage (made by different suppliers) Dec. 2009 Boeing sets up team to design and sell the 7E7 First flight: Aug. 2007 First delivery: May 2008 Dreamliner’s first flight First delivery: 4th qtr. of 2010 Consistent management during new product development B Sept. 2005: all wiring and ducting is expected to be completed by partners After Jan. 2008, 2 more 6-month delays were announced and further changes in mgt. and in Dec. 2009, we had the first test flight with delivery to start in 4th quarter of 2010 Guidance in detailed designs for inexperienced global partners C Source:

The breakdown of Boeing’s systems integrator business model occurs at the detailed design and manufacturing stage Inexperienced global partners cannot handle detailed design work Insufficient oversight of manufacturing General Design Work Final Assembly Global Partners Detailed Design Work Global Partners Large Component Manufacturing Responsible Party Supply Chain Activity in New Product Development Boeing SMaRt Strategically Outsource Boeing Precision Manufacturing Oversight

Precision and SMART will enable Boeing to become the premier global supply chain leader
Activity in New Product Development General Design Work General Design Work General Design Work Detailed Design Work Detailed Design Work Large Component Manufacturing Large Component Manufacturing Final Assembly Final Assembly Boeing 2025 Boeing SMaRt Boeing SMaRt Boeing Precision Boeing Precision Final Assembly

Boeing PRECISION Production of 787-8 & Long-Term Strategy
Supply Chain Activity in New Product Development General Design Work General Design Work Detailed Design Work Detailed Design Work Large Component Manufacturing Final Assembly Final Assembly Boeing SMaRt Boeing SMaRt Boeing Precision Boeing PRECISION Production of & Long-Term Strategy

Project team to divide and conquer 787 supply concernsM
Possible extent of compound delays 5-10 Person Project team will place current 787 into four quadrants depending on: Likelihood of delay occurrence Possible extent of compounded delays High 2 1 4 3 Action for each supplier will be based on it’s sqare Create appendix slide stating what team will look at Low Low High Likelihood of delay occurrence | Boeing Precision | Boeing SMaRt | Boeing |

Alternate suppliers can help limit delays when problems occur for relatively low costsP Square 1: Develop Alternative Suppliers Many recent delays have occurred due to upstream suppliers causing domino effects downstream Can be achieved for low cost of $12-$15 million Example: Airplane Fasteners which caused over 6 months of delays in the They were essential for production and were being produced by a risky supplier. Source: “Develop a supplier contingency plan”: Case Materials | Boeing Precision | Boeing SMaRt | Boeing |

For suppliers that are at risk for delay or who are producing critical parts, Boeing should have on-site representatives Possible extent of compound delays Develop Action Plans Based On Square High Sq. 1: Develop Alternative Suppliers 2 1 Sq. 1, 2, and 3: Place Boeing employees in house 4 3 Low Low High Likelihood of delay occurrence | Boeing Precision | Boeing SMaRt | Boeing |

Close coordination can be kept with suppliers for $25 Million over 6 years Squares 1, 2, and 3: Place Boeing employees in house For suppliers with higher risk of delaying shipments (group 3), place 1-2 Boeing employees onsite for period of six months or longer if necessary – approximately $20 millionN For suppliers with critical components but less risk (groups 1 & 2), have traveling Boeing employees make on-site visits weekly – approximately $5 millionO | Boeing Precision | Boeing SMaRt | Boeing |

On-site representatives will enable early problem mitigation and therefore lessen impact of delays
Squares 1, 2, and 3: Place Boeing employees in house Best Case Scenario Problems Arise Boeing Mitigates Risk Boeing places order Supplier is missing key technology Boeing has time to find another supplier Supplier begins design Supplier’s employees go on strike Alerted to problem Boeing can plan production around delays Secondary supplier fails to deliver Supplier begins production Scaled production fails Boeing can work with supplier to solve problems Supplier sends product for delivery Transport Labor in country go on strike Source: Case Materials | Boeing Precision | Boeing SMaRt | Boeing |

Even suppliers not at risk of delay should be incentivized to perform
Possible extent of compound delays Develop Action Plans Based On Square High Sq. 1: Develop Alternative Suppliers 2 1 Sq. 1, 2, and 3: Place Boeing employees in house Sq. 4: Incentivize continued performance 4 3 Low Low High Likelihood of delay occurrence | Boeing Precision | Boeing SMaRt | Boeing |

Significant incentives can cause spillover improvements in Supply ChainP For 4: Incentivize continued performance Current Rewards Suggested IncentivesE Continued purchasing “Supplier of the Year” complete with press releases and award ceremony Give suppliers a larger number of products where possible Allow greater control over second tier suppliers Continue to allow design flexibility Being further down the supply chain, incentives may cause firms to pressure their second tier suppliers | Boeing Precision | Boeing SMaRt | Boeing |

Implementation can take place immediately and reduce further delaysL
Total Program Cost: $54 mm Assign Quadrants Identify Alternate Suppliers Place Orders Deliveries Occur Select Employees Travelers Start Visits Employees Depart for Sites Choose Award Companies Renegotiate Contracts Apr July Oct Jan ‘11 Apr July Oct Sq. 1: Develop Alternative Suppliers Sq. 1,2,3: Place Employees in field Sq. 4: Incentivize performance | Boeing Precision | Boeing SMaRt | Boeing |

Boeing SMaRt Long-Term Strategy
Supply Chain Activity in New Product Development General Design Work General Design Work Detailed Design Work Large Component Manufacturing Large Component Manufacturing Final Assembly Final Assembly Boeing SMaRt Boeing Precision Boeing Precision Boeing SMaRt Long-Term Strategy

Supplier management may curb risks, but better appraisal & selection of suppliers is needed for prevention Supplier Delay Details Cause Advanced Integration Technology 6 months Bolts were not ready by agreed deadline due to lack of necessary tools Lack of supplier fit, supplier not researched Vought 3 months Struggled to fabricate fuselage with wiring when second tier suppliers omitted parts Second tier supplier fell through Fuji, Mitsubishi, Boeing 1 month A 0.3” gap was created between nose and fuselage sections. Parts were created by multiple suppliers across the globe. Too many suppliers, too little collaboration A system is needed to appraise suppliers’ abilities to procure necessary parts, design parts, and manage partial supply chains Source: | Boeing Precision | Boeing SMaRt | Boeing |

Supplier Manufacturer Rating (SMaRt) will qualify first-tier suppliers based on their capabilities S S upplier Manufacture Rating All potential first-tier suppliers will be given a rating Ratings are based on procurement capabilities & ability to design large components Suppliers must be a low-medium competitive threat | Boeing Precision | Boeing SMaRt | Boeing |

Procurement Capability Ability to Design Large Components
SMaRt determines production roles of first-tier suppliers based on procurement capability and ability to design large componentsX Procurement Capability Ability to Design Large Components S SE SM High Low | Boeing Precision | Boeing SMaRt | Boeing |

Boeing 2025

Boeing’s Traditional Role
Opportunity cost of manufacturing and micro-design has prevented Boeing from being able to focus intelligently on it’s supplier network Boeing’s Traditional Role Plane Design Part Engineering Supplier Manufacturing Final Assembly Delivery With aircraft becoming more and more complex, Boeing started to outsource the production of certain elements and parts. Boeing pursued this vertical disintegration strategy in order to reduce cost and to focus on its core competence; designing and assembling aircraft and as such acts like an integrator of the supplier network. In light of the low profit margins and high risks involved in the aviation industry, vertical disintegration is also a means to reduce/spread the investment risk. The co-operation and interdependence, or tie-in effect, has resulted in inter-organisational relationships that are highly dependent of information exchange Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace” | Boeing Precision | Boeing SMaRt | Boeing |

Reducing the costs and inefficiencies of the entire network, Boeing will derive Competitive Advantage from organizing the value chain Boeing’s Traditional Role Plane Design Part Engineering Supplier Manufacturing Final Assembly Delivery Boeing’s New Role Design Supplier Network Final Assembly Delivery With aircraft becoming more and more complex, Boeing started to outsource the production of certain elements and parts. Boeing pursued this vertical disintegration strategy in order to reduce cost and to focus on its core competence; designing and assembling aircraft and as such acts like an integrator of the supplier network. In light of the low profit margins and high risks involved in the aviation industry, vertical disintegration is also a means to reduce/spread the investment risk. The co-operation and interdependence, or tie-in effect, has resulted in inter-organisational relationships that are highly dependent of information exchange Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace” | Boeing Precision | Boeing SMaRt | Boeing |

Efficiency leads to lower costs and higher revenues, widening the entire value chain Boeing’s Traditional Role Plane Design Part Engineering Supplier Manufacturing Final Assembly Delivery Boeing’s New Role Design Supplier Network Final Assembly Delivery Lower Costs No delay penalties Efficient supply network Higher Revenues Shorter cash-to-cash cycle for airplane development Provide value to customers With aircraft becoming more and more complex, Boeing started to outsource the production of certain elements and parts. Boeing pursued this vertical disintegration strategy in order to reduce cost and to focus on its core competence; designing and assembling aircraft and as such acts like an integrator of the supplier network. In light of the low profit margins and high risks involved in the aviation industry, vertical disintegration is also a means to reduce/spread the investment risk. The co-operation and interdependence, or tie-in effect, has resulted in inter-organisational relationships that are highly dependent of information exchange Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace” | Boeing Precision | Boeing SMaRt | Boeing |

Inability to produce on schedule results in both an increase in costs and a decrease in revenues 787 sales have leveled off in comparison with the 737 which saw few delays Delays lead to cancelled agreements, cancelled options and lower sales. For 787, this has meant approximately 1,200 fewer 787 sales First delays  *This does not include losses due to option cancellations **Losses in the chart to the left reflect cancelled agreements Source: Boeing order and delivery records for the 737 and 787 ( | Boeing Precision | Boeing SMaRt | Boeing |

New projects managed right will produce results like optimum case for the Dreamliner NPV of Dreamliner Project Original ExpectationsQ Current EventsU Expectations with SMaRtAD (millions) Significantly higher earnings result after a total implementation cost of approximately $300 million Source: Case Materials | Boeing Precision | Boeing SMaRt | Boeing |

Precision and SMART will enable Boeing to become the premier global supply chain leader
Activity in New Product Development General Design Work Detailed Design Work Large Component Manufacturing Final Assembly Boeing 2025 Boeing SMaRt Inexperienced global partners cannot handle detailed design work Boeing Precision Insufficient oversight of manufacturing

Core Presentation Slide Deck Map
Core Slides # Section Title 3 Introduction 2025 Vision 4 The Dreamliner timeline 5 Boeing supply chain breakdown 6 Precision and SMaRT initiatives 8 Precision Precision Introduction and Project Team 9 Develop Alternative Suppliers 11 Place Boeing Employees In-House 14 Continue to incentivize suppliers 16 Precision Timeline 19 SMaRT SMaRT Introduction

Appendix Slide Deck Map
# Section Title A Background Dreamliner Lessons – oversight and control of global supply chain B Dreamliner Lessons – consistent management of new product development C Dreamliner Lessons – guidance in detailed designs for inexperienced global partners D Outsourcing the manufacturing of the Dreamliner E Vision Delay results: Cancelled Orders F Delay results: Loss of profitability G 737 versus 787 Sales H Results of Cessna and Collaboration I Impact of Collaboration on Operational Costs J Financials Boeing Income Statement 2009 K Production Delay Schedule L Production Delay Schedule Assumptions M Project Team Cost Assumptions N Permanent Team Cost Assumptions O Traveling Team Cost Assumptions P Alternate Supplier and Performance Incentive Cost Assumptions Q Original 787 Net Present Value R 787 Original Income Inputs # Section Title S Financials Example of each year’s free cash flows broken down by Quarter T COGs and General & Administrative Assumptions U 787 Income Delay V 787 Income Delay Assumptions X SMaRt SMaRt Scorecard Y Situation Boeings Current Situation Methodology Z Framing 5 Forces Analysis AA 2010 Market Share of Boeing’s Competitors AB Airbus Competitor Profile AC Boeing SWOT Analysis AD Airbus SWOT Analysis AE Environmental Concerns AF Project Risk Project Risks AG Lean Value Chain A Addendum 787 Income Realistic B 787 Income Realistic Inputs

Appendix A: Dreamliner Lessons – oversight and control of global supply chain
Sept. 2005 Boeing says main features of the 787 airplane design are complete and sends detailed design work to the company's global partners on the plane: Mitsubishi, Fuji and Kawasaki, of Japan; Alenia, of Italy; Spirit Aerosystems, of Wichita, Kan.; and Vought, of Dallas. The Puget Sound region will manufacture only the vertical tail fin, built by Boeing near Tacoma. The 787 manufacturing plan calls for Boeing's partners to pre-install all wiring and ducting, so that seven large, all-but-completed structural sections of the jet arrive in Everett for snap-together assembly. Jan. 2007 A Wall Street analyst says the 787 program is running into delays and cost increases. CEO Jim McNerney says the plane is on target for its first test flight around the end of August 2007 and first delivery in May 2008. Oct. 2007 Boeing acknowledges a delay of up to six months — the worst delay to a jet program in the company's history — due to problems in unfinished work passed along by its global partners and delays in finalizing the flight-control software. The new schedule puts the first flight in March 2008 and the first deliveries late that year. Jan. 2008 A further three-month delay is announced due to problems with unnamed 787 suppliers and slow assembly progress at the Everett plant. First flight is moved to June 2008 and first delivery to early 2009, putting the plane about nine months behind its original schedule. Apr. 2008 Boeing confirms yet another six-month delay due to continuing problems with unfinished work from suppliers. The first delivery is pushed to the third quarter of 2009 — about 15 months behind the original schedule. Some of the largest 787 customers' planes will be at least two years late. Dec. 2008 Boeing acknowledges another six-month delay for the 787 and reorganizes management again. Shanahan is put in charge of all commercial-airplane programs and brings in Scott Fancher from Boeing's military side to take the day-to-day lead on the 787. The first Dreamliner is now scheduled to fly sometime between April and June of 2009, with first delivery to ANA sometime in the first three months of 2010. Jun. 2009 Boeing says it will acquire the 787 rear fuselage assembly plant in Charleston, S.C., buying out its partner Vought for about $1 billion. Source: [Core Slide] [Deck Map]

Appendix B: Dreamliner Lessons – consistent management of new product development
Jan. 2003 Boeing sets up a team of executives to design and sell a new plane now officially dubbed the 7E7 (E for efficiency). First test flight is scheduled for August 2007, first deliveries for May 2008. Headed by Mike Blair Oct. 2007 Mike Bair, 787 program head, is replaced by Pat Shanahan from Boeing's defense unit. Aug. 2009 Scott Carson steps down as chief executive, replaced by Jim Albaugh, previously chief executive of Boeing's defense and space division. Source: [Core Slide] [Deck Map]

Appendix C: Dreamliner Lessons – guidance in detailed designs for inexperienced global partners
May 2006 Boeing says parts of its global supplier network won't be ready when the first 787s come together in just over two years, so mechanics in Everett will have to install some of the planes' electrical wiring and other systems. Jun. 2007 Boeing engineers assembling the forward section of Dreamliner No. 1 find a 0.3-inch gap at the joint between the nose-and-cockpit section and the fuselage section behind it, made by different suppliers. Engineers fix the distortion by disconnecting and reconnecting internal parts that brace the frame. Jun. 2009 Engineers begin work on a fix for the wing-body joint flaw. Source: [Core Slide] [Deck Map]

Appendix D: Outsourcing the manufacturing of the Dreamliner
Source: [Core Slide] [Deck Map]

Appendix E: Customers respond negatively to delays and need assurance their orders will be delivered in a timely manner 81% of 787 orders were placed before the first delay was announced 96% of 787 cancellations occurred after delay announcements Announcement of the first 787 delay Lost demand Announcement of more 787 delays Lost demand Source: Boeing order fulfillment records (

Appendix F: Customer worry over delivery timeline comes at a high cost for Boeing
Boeing’s 787 is easily compared to the sales of the 737; however, the 737 saw few delays As a result, 737 sales continued at a constant rate while 787 sales have leveled off. This has meant approximately 1,200 fewer 787 salesG *This does not include losses due to option cancellations **Losses in the chart to the left reflect cancelled agreements 787 sales have leveled off in comparison with the 737 which saw few delays First delays  Source: Boeing order and delivery records for the 737 and 787 (

Appendix G: 737 versus the 787 sales
737 Orders 787 Orders Year 1 63 24 Year 2 28 94 Year 3 122 369 Year 4 283 160 Year 5 235 Year 6 340 55 Year 7 232 -70 Year 8 374 15 Year 9 188 Year 10 162 Cumulative 737 Sales Cumulative 787 Sales 737 to 787 multiple Without delays (*multiple) Difference ( ) Year 1 63 24 0.38 Year 2 91 118 1. 30 Year 3 213 487 2.29 Year 4 496 647 1.30 Year 5 731 882 1.21 Year 6 1071 937 1387 Year 7 1303 867 1687 Year 8 1677 2172 1290 Average Multiple: [Core Slide] [Deck Map]

Appendix H: Collaborating with suppliers results in higher delivery performance and parts availability In past situations where an aircraft manufacturer (Cessna) implemented supplier relationship management processes, it saw improved supplier performance and materials it sought from its suppliers were increasingly available. To achieve these results, they focused on: Example above Collaboration with suppliers used by this company Allows Boeing to anticipate failure, plan around anticipated failure, and work with companies to resolve problems Building relationships Partnering with Suppliers Incentivizing Timeliness Source: Purchasing.com, “Supplier Management Fuels Growth fro Cesna”,

Cost of Production Downtime
Appendix I: Collaborating with suppliers reduces various operational costs to the suppliers 20% 25% 50% 85% Administrative Costs Cost of Delayed Orders Cost of Inventory Cost of Production Downtime Collaboration allows Boeing and suppliers to share information, improving efficiency and responsiveness Manufacturing: Up to 50% of schedule changes forced by lack of materials High cost of safety stocks Movement toward just-in-time production Buying: Allows suppliers to plan for upstream demand by having increased access to upstream information Engineering: Working through frequent delays in new product development process Inability to signifciantly reduce NPD timescales Growing importance of new products/innovation in Boeing’s growth Cost of disputes, backtracking, etc. Cost of delays upstream, costs of not planning for expected delays, cost of delays due to customer demand variability Cost of safety stock and excess inventory Cost to supplier of variable downstream demand Source: SAP “Improving supplier perfromance through collaboration” [Core Slide] [Deck Map]

Appendix J: Boeing Income Statement
In Millions of the reported currency, except per share items. For the Fiscal Period Ending 12 months Dec 12 months Dec Currency USD Revenue 60,909.0 68,281.0 Other Revenue - Total Revenue Cost Of Goods Sold 50,129.0 56,365.0 Interest Expense - Finance Division 223.0 175.0 Gross Profit 10,557.0 11,741.0 Selling General & Admin Exp. 3,084.0 3,364.0 R & D Exp. 3,768.0 6,506.0 Depreciation & Amort. Other Operating Expense/(Income) Other Operating Exp., Total 6,852.0 9,870.0 Operating Income 3,705.0 1,871.0 Interest Expense (202.0) (339.0) Interest and Invest. Income 470.0 574.0 Net Interest Exp. 268.0 235.0 Other Non-Operating Inc. (Exp.) 18.0 (351.0) EBT Excl. Unusual Items 3,991.0 1,755.0 Impairment of Goodwill Gain (Loss) On Sale Of Invest. Gain (Loss) On Sale Of Assets 4.0 (24.0) Legal Settlements Other Unusual Items EBT Incl. Unusual Items 3,995.0 1,731.0 Income Tax Expense 1,341.0 396.0 Earnings from Cont. Ops. 2,654.0 1,335.0 Earnings of Discontinued Ops. (23.0) Extraord. Item & Account. Change Net Income 2,672.0 1,312.0 Pref. Dividends and Other Adj. NI to Common Incl Extra Items NI to Common Excl. Extra Items Income Statement (continued) In Millions of the reported currency, except per share items. For the Fiscal Period Ending 12 months Dec 12 months Dec Currency USD Per Share Items Basic EPS $3.697 $1.849 Basic EPS Excl. Extra Items 3.672 1.881 Weighted Avg. Basic Shares Out. 722.8 709.6 Diluted EPS $3.665 $1.839 Diluted EPS Excl. Extra Items 3.641 1.871 Weighted Avg. Diluted Shares Out. 729.0 713.4 Normalized Basic EPS $3.451 $1.546 Normalized Diluted EPS 3.422 1.538 Dividends per Share $1.62 $1.68 Payout Ratio % 44.6% 93.0% Supplemental Items EBITDA 5,196.0 3,537.0 EBITA 3,871.0 2,078.0 EBIT 3,705.0 1,871.0 EBITDAR 5,622.0 3,810.0 As Reported Total Revenue* 60,909.0 68,281.0 Effective Tax Rate % 33.6% 22.9% Current Domestic Taxes 64.0 13.0 Current Foreign Taxes 29.0 69.0 Total Current Taxes 93.0 82.0 Deferred Domestic Taxes 1,222.0 369.0 Deferred Foreign Taxes 26.0 (55.0) Total Deferred Taxes 1,248.0 314.0 Normalized Net Income 2,494.4 1,096.9 Interest Capitalized 99.0 90.0 Non-Cash Pension Expense (390.0) 131.0 Filing Date Feb Restatement Type NC O Calculation Type REP Supplemental Operating Expense Items General and Administrative Exp. 3,084.0 3,364.0 R&D Exp. 3,818.0 6,506.0 Net Rental Exp. 426.0 273.0 Imputed Oper. Lease Interest Exp. 264.7 147.4 Imputed Oper. Lease Depreciation 161.3 125.6 Stock-Based Comp., G&A Exp. 209.0 238.0 Stock-Based Comp., Total Source: Boeing 10-K Report 2009

Appendix K: Production Delay ScheduleL
2009 2010 2011 2012 2013 2014 2015 2016 Current Production Planning7 Everett 8 38 88 84 96 N. Charleston 36 57 60 Total Total Produced 120 153 156 1514 Delivery 46 Possible Delays8 30 80 87 93 27 54 Total 114 147 140 Cost of Delays Delayed Deliveries -6 6 12 % of 787-8 75% 74% 70% Price of 787-8 $162 % 0f 787-9 25% 24% 20% Price of 787-9 $194 % of 787-3 10% Price of 787-3 $148 Delay Costs (1.5)/Q $69.0 $228.0 $(36.0) $- $36.0 $72.0 $810 7 source: 8 delays include quarter delay from testing, slower ramp-up of production, and 1 quarter delay from SC plant opening late

Appendix L: Production Delay Schedule Assumptions
Delay Costs / Quarter1 $1.5 Month Delay (Yes or No) Yes Slower Prod. Ramp-up (Yes or No) No Delay Costs Current Expected Delay Costs $4,000 Additional Backup Costs $810 Prevention Costs Project Team2 $(0.404) Traveling Team3 $(4.152) Permanent Team4 $(20.246) Alternate Parts Costs5 $(13.790) Performance Incentive Costs6 $(14.493) Total Cost of Program $(53.086) Total $4,810 Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 See Project Team Cost Assumptions 3 See Traveling Team Cost Assumptions 4 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 5 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 6 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month

Appendix M: Project Team Cost Assumptions
Employee Tax Cont. 40% Misc. Costs 10% Research Budget ($k) $50 Number of Employees 7 Project Length (Months) 6 Employee Costs Salary Taxes (0.4) Total Project Team Manager $82 $32.80 $8.20 $123 Employees 2-5 $70 $28.00 $7.00 $105 Employees 6-10 $55 $22.00 $5.50 $83 4 5 8 5 Employee $181 $226 $272 $317 $362 6 Employee $209 $261 $313 $365 $417 7 Employee $236 $295 $354 $413 $472 8 Employee $264 $329 $395 $461 $527 9 Employee $291 $364 $437 $509 $582 10 Employee $319 $398 $478 $557 $637 Total Project Cost ($k) $404.0 Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source:

Appendix N: Permanent Team Cost Assumptions
Employee Tax Cont. 30% Misc. Costs 40% Travel Costs ($k/yr) $150 Insurance Costs 10% Number of Employees 12 Project Length (Years) 6 Employee Costs Salary Taxes (0.3) Misc. Travel Insurance Total Project Team Manager $82 $32.8 $8.20 $150.0 $8.2 $281 1 2 3 4 5 1 Employee $2,812 $5,624 $8,436 $11,248 $14,060 $16,872 2 Employee $3,093 $6,186 $9,280 $12,373 $15,466 $18,559 3 Employee $3,374 $6,749 $10,123 $13,498 $20,246 4 Employee $3,656 $7,311 $10,967 $14,622 $18,278 $21,934 $3,937 $7,874 $11,810 $15,747 $19,684 $23,621 $4,218 $12,654 $21,090 $25,308 Total Team Cost ($k) Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source:

Appendix O: Traveling Team Cost Assumptions
Employee Tax Cont. 40% Misc. Costs 10% Travel Costs ($k/yr) $50 Number of Employees 4 Project Length (Years) 6 Employee Costs Salary Taxes (0.4) Travel Costs Total Project Team Manager $82 $32.8 $8.20 $50.0 $173 1 2 3 5 1 Employee $346 $519 $692 $865 $1,038 2 Employee $1,384 $1,730 $2,076 3 Employee $1,557 $2,595 $3,114 4 Employee $2,768 $3,460 $4,152 Total Team Cost ($k) Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source:

Appendix P: Alternate Supplier and Performance Incentive Cost Assumptions
Alternate Supplier Cost Assumptions Plane Price2 $171.6 COGS(% of Sales)3 82% Relavant Parts 5% 2010 2011 2012 2013 2014 2015 2016 Plane Sales 46 88 120 153 156 Total Revenues $7,894 $15,101 $20,592 $26,255 $26,770 COGs $(6,473) $(12,383) $(16,885) $(21,529) $(21,951) Relevant Parts $(323.64) $(619.13) $(844.27) $(1,076.45) $(1,097.55) Cost Differences (%) 2% 1% 0% -1% Excess Costs/Savings $(6.47) $(12.38) $(8.44) $- $10.98 Total Costs/Savings $(13.79) Performance Incentive Cost Assumptions 3% -2% $(9.71) $(16.89) $21.95 $(14.49)

Appendix Q: Original 787 Net Present ValueR
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Ideal Production Schedule Delivery 37 75 132 164 Earned Revenues5 $- $6,349 $12,870 $22,651 $28,142 COGS $5,206 $10,553 $18,574 $23,077 Gross Profit $1,143 $2,317 $4,077 $5,066 Overhead Expenses R&D6 $(500) $(1,000) $(1,500) $(800) $(250) $(200) General & Admin7 $(231.00) $(385.01) $(445.12) $(439.12) $(371.74) $(324.68) $(354.16) $(372.58) $(391.95) $(412.33) $(433.77) $(456.33) $(480.06) $(505.02) Total Overhead $(731) $(1,385) $(1,445) $(1,439) $(1,372) $(1,825) $(1,154) $(1,173) $(642) $(612) $(634) $(656) $(680) $(705) EBITDA $(682) $1,162 $2,905 $4,424 $4,453 $4,432 $4,409 $4,386 $4,361 Depreciation8 $(13) $(15) $(14) $(33) $(36) $(34) EBIT $(1,398) $(1,460) $(1,454) $(1,387) $(696) $1,149 $2,872 $4,388 $4,418 $4,396 $4,375 $4,351 $4,326 Tax/Tax Shelter $292 $559 $584 $582 $555 $278 $(459) $(1,149) $(1,755) $(1,767) $(1,758) $(1,750) $(1,740) $(1,730) Net Income $(439) $(839) $(876) $(872) $(832) $(417) $689 $1,723 $2,633 $2,651 $2,638 $2,625 $2,611 $2,596 PPE (CapEx)9 $(250.00) $(50.00) $25.00 $(387.50) Free Cash Flows $(601) $(841) $(887) $(847) $(456) $675 $2,077 $2,647 $2,615 $2,602 $2,566 $2,576 $2,561 Discounted FCF's $(546) $(695) $(667) $(579) $(283) $381 $1,066 $1,235 $1,109 $1,003 $899 $821 $742 Net Present Value $4,048 5 Earned Revenues = weighted average plane price * planes delivered for the quarter 6 Based on estimate of $8-10 billion development costs listed in case, $6 bn of which covered by Boeing 7 See General & Administration Assumptions (First year costs based on half basis as R&D budget) 8 Assumung Depreciation term = 20 years 9 Based on note in 10-K which states reason for higher PPE investment due to factory growth

Appendix R: 787 Original Income Inputs
Assumptions: Delay Costs / Q1 $1.5 Plane Price2 $171.6 COGS3 82% Future Growth4 5.20% Tax Rate 40% Discount Rate 10% Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million = .7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See Cost of Goods Sold Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using rf: .16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance,

Appendix S: Example of each year’s free cash flows broken down by Quarter
2007 Q1 Q2 Q3 Q4 17 10 $- $2,917 $1,716 $2,392 $1,407 $525 $309 $(1,000) $(500) $(300) $(200) $(371.74) $(81.17) $(1,372) $(581) $(381) $(281) $(56) $(72) $28 $(15) $(3) $(1,387) $(585) $(60) $(76) $24 $555 $234 $30 $(10) $(832) $(351) $(36) $(45) $15 $(12.50) $(847) $(354) $(39) $(579) $(220) $(24) $(23) Ideal Production Schedule Delivery Earned Revenues5 COGS Gross Profit Overhead Expenses R&D6 General & Admin7 Total Overhead EBITDA Depreciation8 EBIT Tax/Tax Shelter Net Income PPE (CapEx)9 Free Cash Flows Discounted FCF's 5 Earned Revenues = weighted average plane price * planes delivered for the quarter 6 Based on estimate of $8-10 billion development costs listed in case, $6 bn of which covered by Boeing 7 See General & Administration Assumptions (First year costs based on half basis as R&D budget) 8 Assumung Depreciation term = 20 years 9 Based on note in 10-K which states reason for higher PPE investment due to factory growth

Appendix T: COGs and General & Administrative Cost Assumptions
% Cost of Goods Solds (COGS) Assumptions1 Boeing COGS 2009 2008 2007 Sales of Products $57,032 $50,180 $57,049 Costs of Products $(47,639) $(41,662) $(45,375) Average COGS (%) % COGS $0.84 $0.83 $0.80 $0.82 General & Administrative Cost Assumptions2 2004 2005 2006 Orders Per Plane Boeing 717 8 Boeing 737 152 574 733 850 488 197 Boeing 747 10 48 72 25 4 5 Boeing 767 9 19 36 29 7 Boeing 777 42 153 77 143 54 30 Boeing 787 56 235 160 369 94 24 % of Orders 20% 23% 15% 26% 14% 9% Average % of Orders (exc. 2008, 2009)3…………………………………………… 21% Total General & Administrative Costs4 G&A $3,657 $4,228 $4,171 $3,531 $3,084 $3,364 Commercial Shares (50%) $1,829 $2,114 $2,086 $1,766 $1,542 $1,682 787 Shares (21% of CA) $385 $445 $439 $372 $325 $354 1 Source: Boeing 10-K 2 Sources: Boeing 10-K filings & company website 3 Exclusion of 2008, 2009 data due to lower numbers after announced delays & economic crisis 4 Source: Boeing 10-K

Appendix U: 787 Income DelayV
Ideal Production Schedule 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Actual Delivery 37 75 132 164 Earned Revenues5 $ $ $ $ ,349 $ ,870 $ ,651 $ ,142 COGS $ ,206 $ ,553 $ ,574 $ ,077 Gross Profit $ ,143 $ ,317 $ ,077 $ ,066 Overhead Expenses Planned R&D6 $ (500) $ (1,000) $ (1,500) $ (800) $ (250) $ (200) $ (100) Additions to R&D $ (20) $ (50) Reconciled R&D $ (1,520) $ (850) General & Admin7 $ (231.00) $ (385.01) $ (445.12) $ (439.12) $ (371.74) $ (324.68) $ (354.16) $ (372.58) $ (391.95) $ (412.33) $ (433.77) $ (456.33) $ (480.06) $ (505.02) Total Overhead $ (731) $ (1,385) $ (1,445) $ (1,439) $ (1,372) $ (1,845) $ (1,204) $ (1,223) $ (642) $ (612) $ (634) $ (656) $ (680) $ (605) EBITDA $ $ ,704 $ ,443 $ ,409 $ ,386 $ ,461 Depreciation8 $ (13) $ (15) $ (14) $ (28) $ (31) $ (29) EBIT $ (1,398) $ (1,460) $ (1,454) $ (1,387) $ (1,858) $ (1,218) $ (1,251) $ $ ,674 $ ,413 $ ,380 $ ,356 $ ,431 Tax/Tax Shelter $ $ $ $ $ $ $ $ $ (188) $ (669) $ (1,365) $ (1,752) $ (1,742) $ (1,772) Net Income $ (439) $ (839) $ (876) $ (872) $ (832) $ (1,115) $ (731) $ (750) $ $ ,004 $ ,048 $ ,628 $ ,614 $ ,659 PPE (CapEx)9 $ $ (250.00) $ (50.00) $ $ $ (287.50) $ (50.00) Delay Penalties Free Cash Flows $ (1,101) $ (941) $ (887) $ (847) $ (1,854) $ (1,494) $ (1,816) $ (548) $ $ ,017 $ ,624 $ ,584 $ ,629 Discounted FCF's $ (997) $ (772) $ (660) $ (570) $ (1,130) $ (825) $ (909) $ (249) $ $ $ $ $ Net Present Value $ (1,209)

Appendix V: 787 Income Delay Assumptions
R&D Addition Assumptions: Delay Costs / Q1 $(1.5) 2007 $(50) Plane Price2 $171.6 2008 $(100) COGS3 82% 2009 $(200) Future Growth4 5.20% 2010 Tax Rate 40% Discount Rate 10% Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million = .7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See COGs Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using rf: .16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance,

Appendix X: SMaRt Scorecard
Source: [Core Slide] [Deck Map]

Appendix Y: Methodology employed for assessing Boeing’s current situation
Margin Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Firm Infrastructure Human Resource Management Technology Development Procurement Strengths Weaknesses Threats Opportunities Value Chain Analysis SWOT Analysis I/S B/S Financials & Supplemental Information & Competitive Advantage Analysis Boeing Airbus CRITICAL RESOURCES & CAPABILITIES THAT GENERATE COMPETITIVE ADVANTAGE X Xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx x TOTAL + = Porter’s 5 Forces Industry Analysis & Other External Analyses

Appendix Z: Porter’s Five Forces Analysis - Commercial Aviation Industry
Threat of New Entrants Very Low. Developing airplanes is costly. Also due to a long lead time before a company will reach the break-even point ( aircraft) However, the Chinese government has approved the launch of an aircraft manufacturer. Supplier Power Low Suppliers are less in this industry so Boeing has high control Now that Boeing is serving the market differently with a diverse supply chain, supplier power may increase since Boeing is so reliant on these parties. Buyer Power There are few choices available to buyers if they are unhappy with current aircraft manufacturer. “Family Concept” of multiple aircraft maintenance creates sticky features and increases switching costs. Threat of Substitutes Moderately Low Several substitutes are available such as cruises, buses, no traveling…etc. but often don’t solve customers problems in the way a plane would. Surface transportation such as rail sometimes serves as a substitute. Intensity of Rivalry High Commercial aircraft composes over 65% of revenue. Losing market share can have a large impact on profitability Therefore the threat of new entry is very low against airplane manufacturing industry because of high capital requirement and government barrier. It is not surprising that only Boeing and Airbus are d in the airplane industry. However Boeing now has been faced the threat of new entrance by China. The Chinese government has officially approved the launch of China Commercial Aircrafts, which will manufacture large passenger planes. The plan is to have jets designed and built in China rolling off an assembly line by Asian Airlines are expected to buy nearly 10,000 new planes by 2025, with more than 2,200 of those going to Chinese airlines. The emergence of a strong Chinese player could loosen Boeing’s lock on the commercial –jet market.Boeing |16 How can they overcome the barriers of technology and capital requirements described in the threat of new entrance? The people leading China’s push into the commercial-jet business has gained much of the technical and engineering know-how they need by cooperating with Boeing and Airbus. In fact, A consortium of Chinese companies known as China Aviation Industries Corporation produces components for Boeing’s 747 and 787 wide bodies and operates a final assembly line for the Airbus A320.However there was no indication in the media report about when the company would build its first plane, although analysts said China would need at least 15 years of development. Despite its goal of eventually challenging Boeing, the global giants of commercial aviation, fulfilling the ambition will take time, said Jin Zhuanglong, president of the new aerospace group. “China’s jumbo jet program will not pose a threat to Boeing, at least in the coming 20 years," Jin said in Monday's China Daily, an English-language paper whose readership is aimed at the foreign community. "Even when China has the capacity to produce large jets it would be able to meet only a small part of domestic demand. Boeing will continue to claim a big chunk of the Chinese market.“ Source: Datamonitor – Boeing Co. Company Profile (2009)

Appendix AA: 2010 Market Share of Boeing’s Competitors
Source: IBIS Global Civil Aerospace Products Manufacturing Report 2010

Appendix AB: Airbus Competitor Profile
Boeing’s Declining Profits AEDS (Airbus division) Year Million Dollars Revenue % Change Growth Million Dollars Operating Profit 2004 24.9 2386.3 2005 9.8 2872 2006 14.6 -718.6 2007 9.2 2008 16.5 1790 2009 38360 -4.5 17000 Boeing (Commercial Aircraft Segment) Year Million Dollars Revenue % Change Growth Million Dollars Operating Profit 2004 19925 N/C 745 2005 21365 7.2 1431 2006 28465 33.2 2733 2007 33388 17.3 3584 2008 28263 15.3 1186 2009 29400 4 -1800 Airbus – Financial Performance Company sales increased at an estimated annualized rate of 6.2% over the five years to This is a slightly faster rate of growth compared to the industry as a whole, which is estimated to have increased at 5.8% per annum (current prices). The company segment which contributed to this industry is the production of Airbus aircraft; revenue within this division experienced 6.3% annual growth. As a result, this division has remained a consistent part of total EADS operations at approximately 64%. Given that Airbus sales were solid over the past five years, EADS is estimated to have increased market share in the industry. IBISWorld estimates that Airbus will contribute 34.4% of global industry revenue in 2010, up from 30.8% in The main reason for solid growth is the development and the production of the world's largest commercial jet, namely the A380.Airbus division has experienced volatile profitability over the past four years, with losses during the development and testing of the A380, and improvement thereafter. The A380 projected hasn't broken even yet, and funds have been distributed to it from earnings in other parts of the business. Boeing – Financial Performance Sales within the commercial aircraft division increased at an estimated annualized rate of 4.1% over the five years to Rapid growth in revenue from the commercial division is mainly due to the first three years of the period when demand was booming. Demand for commercial aircraft has been strong on a global scale, before the economic downturn in During 2008, sales of commercial airplanes were negatively affected by a workers strike in September 2008 which resulted in delayed production and cancellations of orders. The company delivered 104 aircrafts less than planned during the years. During 2009, revenue is preformed well due to the scheduled delivery of 737s. Boeing is projected to lose market share despite a drop in production during 2008, from 21.5% of industry revenue in 2005 to 23.5% in 2010.Operating profit with the commercial aircraft manufacturing division has been volatile. Earnings peaked in 2007 when they represented 10.7% of segment revenue and have fallen since a result of high commodity prices and delays on the 787 production. Source: Airbus and Boeing Annual Reports for year ended December 31, 2009

Appendix AC: SWOT analysis reveals that Boeing must balance large payoff of the ‘systems integrator’ approach with the equally large potential risks Strengths Tier 1 supplier recognition in aerospace sector. Outsourcing is giving Boeing more flexibility and control in the design process Designs products according to customer desires Can implement large-scale implementation systems Unique contracts with NASA Seemingly more operationally efficient than competitors Weaknesses Tendency of Board of Directors to blame poor results on external factors. Many employees are angered over recent outsourcing and present a risk for strike Supplier structure presents significant risk in production schemes Opportunities Gaining insight and combining experience from current businesses in other industries - Inventory. Consolidation of suppliers allows Boeing to spend more time focusing on each supplier and work with those that provide the best value The Asia-Pacific markets for air transportation have allowed Boeing to capitalize on their growth Airbus has had many product delays including the A350 Threats Complex proprietary spare parts market (lack of consistent d/s data, commodity-type products) Airbus has passed Boeing in sales in the early 2000’s and Boeing has yet to regain its ground Outsourcing is being viewed negatively by many because of job loss Third parties who Boeing has worked with has some of their proprietary knowledge and may decide to produce aircraft Strengths and weaknesses do not exist in the vacuum of the firm’s internal environment, but are to be considered relative to competitors

Appendix AD: Airbus S.A.S SWOT Analysis
Strengths Leading market position Strong support from strong parent company (EADS) Focus on technological innovation Economies of Scale Brand Equity & Reputation Weaknesses Delays in A380, and A350 launch High delay penalty burden High production costs Slow learning curve Operational Inefficiencies Lower volumes and financial resources than rivals Opportunities Power8 restructuring plan New projects in international markets Growing demand for commercial airplanes especially in Asia-Pacific region. Threats Complex proprietary spare parts market (lack of consistent d/s data, commodity-type products) Tight credit markets and possibility of ‘double dip’ recession. Threatens ability of customers to pay, risks cancellations. Strengths and weaknesses do not exist in the vacuum of the firm’s internal environment, but are to be considered relative to competitors. Opportunities/Threats: Weaknesses in competitors or in other parts of the external environment represent opportunities for the firm, while strengths of competitors or other external players represent threats. Strengths/Opportunities: Use internal strengths to exploit external opportunities OR Opportunities motivate the organization to develop certain strengths. Strengths/Threats: Use internal strengths to neutralize external threats OR Threats motivate the firm to develop certain strengths. Weaknesses/Opportunities: Avoid reliance on areas of internal weakness when deciding on opportunities to exploit OR Opportunities motivate the organization to fix/eliminate internal weaknesses. Weaknesses/Threats: Use internal strengths to neutralize external threats OR Threats motivate the organization to fix internal weaknesses. External Analysis Boeing is in a duopoly when it comes to being in the large commercial aircraft industry, which means that there is one other major company that is competing with them directly in the same market and that would be Airbus Industries. Nevertheless, Boeing was the first to be in the large commercial aircrafts industry until Airbus came along. McDonnell Douglas used to be another competitor to Boeing until the two companies merged. Airbus entered the market with the help of “launch aid”, a form of government subsidies that helps a company compete and survive in industries that already have giants with established distribution networks and economies of scale (Hit, Ireland and Hockessin: 52). Airbus capitalized the market by making planes that addressed the needs of their buyers, which were midsize cost efficient planes. This plane was the A-320, which competed with the Boeing 737; both are the best selling planes for each company in the same category.  Airplanes are grouped into families based on size, range, and technology (Hit, Ireland and Hoskisson: 50). Both companies have competed neck to neck on building the most effective planes to meet their customer’s supply and demand. In order to advance their position, Boeing needs to rethink their strategy and work with their suppliers. Boeing’s strategy in 2004 was to move up the value chain, meaning that they are going to focus less on details and more on their core competence, integration, and assembly. By doing so, Boeing has consolidated their list of suppliers to a select few and to those that provide quality products with the best value. Instead of assembling the aircraft in-house, Boeing began to outsource some of their operations in assembly.  Boeing |10Outsourcing the assembly of parts of the airplane was a major step Boeing has taken to reduce cost and control capacity at its main plant. They have outsourced to countries such as China and India, where labor is much cheaper. In return, they have obtained aircraft sales from these countries, which is also two of the largest and fastest growing airplane markets in the world. Boeing has called this an “offset agreement”. Japan also helped with building the newest Boeing 787 Dreamliner. One of the key reasons for establishing strategic partnerships is the ability to distribute some of the risk associated with large investments required in building an aircraft. Outsourcing has given Boeing more flexibility, control, and a better flow of cash. Outsourcing may be better for the company, but in return angers some of their engineers at home, which feel that their jobs are at stake. Eventually, hopefully they will understand that outsourcing is more about competing efficiently in a global industry and is required for success in the future.One risk Boeing is taking by outsourcing is giving away technology to third parties such as foreign aerospace companies. Japanese suppliers may use the knowledge acquired from their work to begin creating a company of their own. If this occurs, it would be a huge threat to Boeing and Airbus because they are in a position to capitalize on the flourishing Asia-Pacific markets. Therefore, Boeing must rethink their value chain logistics in order to prevent this from happening. Another external factor that has an effect on Boeing is their customers. Boeing has two types of customers for their two separate divisions. For Boeing’s commercial division, the airlines of the world are their customers and for the defense division, the government would be their major buyer. Boeing has been focusing on capitalizing on the flourishing Asia-Pacific markets because of their rapid growth in air traffic as the economy there is growing at a steady pace. Most U.S. airlines are flying Boeing airplanes except for a few noticeable ones such as JetBoeing |11Blue and Virgin America, which has decided to use Airbus models in order to offer something different to their customers in America (Hit, Ireland and Hoskisson: 53). Airbus models have offered wider seats, extra legroom, and more overhead storage space for their customers. Airbus was the manufacture in 2004 when they consistently priced their products below Boeing prices. This had allowed Airbus to sign contracts previously held by Boeing’s customers. But due to the product delays from Airbus, Boeing has regained their position as the airline leader the past few years. The delays have frustrated Airbus’s customers and have caused them to cancel their orders and switch over to Boeing product line. Government has played a huge part in success for both Boeing and Airbus. Without the government’s assistance, both companies wouldn’t have existed today. Airbus was born because of a so-called “launch aid”, which their parent company EADS established. This was collaboration from several European Union to aid the creation of Airbus to compete directly with Boeing. Boeing’s aid from the government is in the form of federal research and development contracts from NASA and the Pentagon. Until recently, Boeing even received a tax break from their own state, which also help supported them financially. Both companies have filed suits behalf of each other with the WTO, but the outcome is yet to be determined since both company’s practices are deemed illegal in terms of receiving extraterritorial income from government subsidies (Hit, Ireland and Hoskisson: 54). Internal Analysis BoeingBoeing has many strong competitive advantages, and internal resources that help define its core value. The main source of Boeing’s competitive advantages is its core competencies, which help develop Boeing’s resources into strong competitive advantages in the airline manufacturing industry. Boeing also has operational strength internally, which allow them toBoeing |12better manage and sustain their competitive advantage in the market. Boeing has a strong set of competitive advantages at which it uses to market share and the airline industry, as we will analyze Boeing’s unique competitive advantages in the airline industry. Core CompetenciesCore competencies are unique, in that they retain value, are rare, expensive to imitate, and cannot be substituted. One core competency Boeing contains is its repeated effort to meet the customer demands and needs (Core competencies-Boeing.com). Boeing commits to understanding and responding to what its customers would like in an aircraft; and designing and implementing specific needs or demands. One of Boeing’s unique business structures is to design the product according to customer wants, and have it waiting for them to buy. This builds a strong competitive advantage, as it notifies the customers that Boeing will design aircrafts according to their needs, and allows them to build stronger relationships with their customers.Another core competency Boeing has is their ability to implement large-scale implementation systems (Core competencies-Boeing.com). Boeings extensive research and development is a strong core competency, with its unique knowledge of wing technology and new lightweight composites being one of its stronger manufacturing core competencies. Boeing has begun to build stronger bonds with its suppliers, as they are beginning to research with their suppliers to integrate and design better aircrafts. With some of their research and development being done outside the company, they are able to design and build better aircrafts.The last core competency Boeing has, is its unique contracts and agreements with both NASA, and The United States Air Force. The strategic partnership with both of these two organizations allowed Boeing to become the world’s largest space and communicationsBoeing |13company, as well as helped it become a large leader in the aircraft manufacturing market. These two partnerships allow for Boeing to grow into the aerospace industry, and allow Boeing to have a wider range of products for a wider range of customers.Operational StrengthsBoeings operational strengths include its unique level of management, as the managers are able to allow the company to run smoothly. Boeing is able to implement a strong management force with its unique and strong culture (Core competencies- Boeing.com). Boeing is seemingly more efficient than its competitor, Airbus, as it has found ways to be more productive, without spending large sums of money. Already, Airbus has been known for going over budget when designing and creating new designs for aircrafts (Hit, Ireland, Hoskission: 54). Boeing has thus attained a lower cost in building and designing aircrafts than Airbus, and found a lower cost structure so they can hopefully sell aircrafts cheaper than Airbus.Boeing’s management has also provided and given the company a strong sense of central leadership, and has focused the company toward meeting the needs of the company’s various customers. Boeing has implemented a central strategy well, and has set well-defined goals, and identified their potential challenges and possible struggles in the future well. Boeings strong knowledge of the market driven approach, and allowing suppliers and customers work together to help meet the demands of the market, allows Boeing to better serve both its suppliers and customers, making them a very powerful company in the industry. Source: Data Monitor – Airbus S.A.S Company Profile

Implications to Airparts (specifically spare parts)
Appendix AE: General Environmental Analysis (STEEP) – Boeing Issues and Implications Issue Implications to Airparts (specifically spare parts) Importance Social Airlines are keeping their fleet in service for longer periods of time. At the same time, Airlines are increasingly conscious of their AOG (airline on ground) costs. Being an efficient and effective supplier is of increasing importance High Technological Changes in technology aren’t of immediate concern to Airparts. The process of fabrication and OEM won’t be changing in the immediate future. Low Economic As commodity prices, specifically aluminum and steel. fluctuate Airparts needs to be aware of the potential costs and hedging options available. Environmental With a new generation of aircrafts and emissions standards becoming increasingly important Airparts needs to be aware of changes affecting the business and what demands airlines will impose. Medium Political The FAA has consistently required higher standards for the airline industry. These stringent safety standards must be accounted for by the airlines, who, in turn will demand that their suppliers are compliant.

Feasibility of Mitigation
Appendix AF: Outsourcing of the type Boeing has engaged in has several risk factors that need to be taken into consideration. LOW HI HI Level of Impact LOW Risk Area Affected Rating Mitigation Strategy Strategic Risks Intellectual Property Long-Run Competitive Advantage In order to mitigate the risk of losing vital proprietary knowledge that might spawn future competitors and erode Boeing’s unique knowledge base Boeing should bring manufacturing that involves critical proprietary parts, processes, and knowledge. Operational Risk Manufacturing Outsourcing activities in which outsourcing to strategic partners have more focused core competencies will result in a decrease in operational risks for Boeing. Human Capital Risk R&D Design In order to mitigate the employee backlash that will come as a consequence of outsourcing Boeing should bring critical in-house jobs back. Also create education programs to re-train employees such that they can be relocated to another division. Financial Risk Entire Company By outsourcing under a strategic partnership framework where suppliers have a direct financial stake, Boeing is lowering its risk. Suppliers now have an incentive to be more cost efficient and perform better. Reputation al Risk To mitigate the degradation in customer relations and credibility Boeing should engage in an aggressive and active reassurance PR and Marketing campaign aimed towards its customers, investors, and the general public by highlighting the corrective measures taken in our Vision 2025 plan. X X X X X

Appendix AG: Boeing Commercial Airplanes ‘Lean’ Value Chain
Margin Operations Supply Network Management Technology Development Firm Infrastructure Human Resource Management Inbound/Outbound Logistics • Market Research • Advertising • Fleet Enhancement • Promotions • Engineering • Sales Force Support • Customer • Flight Relations Operations • Material Mgmt • Service Manual • Maintenance & Procedures Services • Supply Chain Integration • Strategic Procurement • Strategic Supplier Management • Balance Scorecard • Supplier Relationship Mgmt • Quality, Cost, and Delivery (QCD) • Phantom Works • Electronic Data Interchange (EDI) • Enterprise Supplier Tool • Supplier Portal • Encrypted • Supplier Data Exchange Network • Final Assembly • Fine Tuning & Testing • Facilities Operations Value Chain Analysis All g/s are produced through chain of activities (upstream to downstream). Each activity requires resources and capabilities. Key is to examine wether the firm has the necessary r/c to perform a PARTICULAR activity better than competitors. Identifying value activities requires the isolation of activities that are technologically and strategically distinct (Porter, 1985). Activities that have strategic implications for a company are classified as primary activities in the value chain. Due to the nature of Boeing’s highly competitive environment, the company’s ability and understanding of their value chain model is crucial to the company’s profitability. For Boeing, the focus on adding value-creating activities to their core competencies is a vital part of their corporate-level strategy. In addition to providing the basic primary activities and support activities in their value chain model, Boeing continuously tries to establish new value-creating activities for their customers. One of those value chain activities is Boeing’s establishment of Boeing Capital Corporation (BCC), a financing subsidiary, which provides financing to its customers for commercial airplanes as well as its Integrated Defense Systems purchases. This business unit is a value-creating service since customers would not have to go through otherBoeing |21financial institutions to secure a loan for their purchase. Thus, Boeing’s ability to provide a one- stop shop to its customers and hence capitalizing the financial segment of the market adds value and thus allows them to add to their core competencies. The BCC division at the 2007 financial year-end has a portfolio holding of approximately $6.5 billion (2007 Annual Report).Another value chain activity is Boeing’s after-sales services called, Advancing Aviation Performance Program, in which Boeing established a system to provide to its customers is their 24x7 global customer support. Boeing’s commitment to customer service provides assurances and resources availability to their customers in the aviation and transportation industry so they can enhance their profitability. With this type of dedicated service, customers can be assured if anything goes wrong, they will be supported long after their purchase. In addition, Boeing's goal is to provide worldwide service infrastructure and a network operations center to resolve technical issues and deliver vital spare parts to their customers when it is needed. In doing so Boeing implemented the AOG Incident Recovery and Repair Services System, which provides engineering, logistics, maintenance assistance, and technical support to its customers for repair or after any incident so their customers can get back to operability as soon as possible. Another value added service is Boeing’s Alteon Aviation Training system, which is designed to enhance customer training of the Boeing’s aircrafts. The Alteon system offers advanced computer-based training facilities and full-flight simulators to its customer’s crew training. Again, this is a valuable resource Boeing provides to its customers (Commercial Aviation Services- Boeing.com).Another value added system is Boeing’s online information system, MyBoeingFleet Web Portal, which provides technical information, applications, and services to its customers to maintain and operate their fleets. Still, the most important software that Boeing designed to assistBoeing |22their customers in operational efficiency is the Global Airline Inventory Network System, which is designed to track and management costly inventory inefficiencies for the airline industry. According to Boeing, it is estimated that the airline industry consumes $7 billion a year in spare parts for Boeing’s airplane maintenance (Commercial Aviation Services-Boeing.com). With the implementation of this system, Boeing and its customers can improve its supply chain management and they will see significant cost savings and inventory efficiency. Under Global Airline Inventory Network System, the highlights are (Commercial Aviation Services- Boeing.com):  A supply-chain management system will be established by Boeing to serve as the "command center“  Inventory holding costs will be greatly reduced and savings will be passed on to both Boeing and its customers  Boeing will take the responsibility of monitoring airline inventory use, allowing suppliers to better forecast demand and plan production  Boeing will be responsible for the purchasing, inventory management, and logistics for an airline's airframe parts  All airframe parts will be distributed by Boeing’s regional distribution center near the airline's point of use Marketing, Sales, & Logistics Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE”.

Appendix AH: Through innovation, co-innovation and co-investment improve the classic value chain and lead to a sustainable position in the market. 3 aspects drive the innovation process: •Continuation: Demand where a company can add value. •Conception: Unique technology or smart and original processes, supported by Intellectual Property(IP) in cooperation with co-innovation parties, based on the customer demand. •Configuration: Formation of a chain, system or network of stakeholders that have interest in bringing the new product to market. Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE”

Appendix AK: Lean Value Chain Concept
The ultimate lean value chain consists of 3 innovation drivers: continuation, conception, & configuration. As such one could argue that a sustainable position in the market can be obtained and maintained by continuous innovation. Innovation is a fundamental job for BCA. Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE”

Appendix AL: Boeing Commercial Airplanes’ (BCA) Classic Value Chain
Six primary value activities have been identified. In addition to the traditional primary activities of Porter. Strategic procurement has become an activity that affects the company’s bottom line to such an high extent that it should be considered as a primary activity. Six primary value activities have been identified. In addition to the traditional primary activities of Porter, the authors argue that strategic procurement has become an activity that effects the company’s bottom line to such an high extend that it should be considered as a primary activity as well. Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE”

Appendix: AM: The links among resources, capabilities, and competitive advantage
resources are the productive assets owned by the ﬁrm; capabilities are what the ﬁrm can do. Individual resources do not confer competitive advantage, they must work together to create organizational capability. It is capability that is the essence of superior performance. Robert M. Grant - Contemporary Strategy Analysis 7th Edition (Chapter 5 – Analyzing Resources and Capabilities)

Appendix AN: VRIO Framework
Question of Value: Do firm resources or capabilities add value? Only value-adding r/c can possible lead to competitive advantage. Non value adding activities may lead to a competitive disadvantage, may become obsolete over time too. If firms are uncapable of getting rid of these they will experience below avg. performance or extinct. Also does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] Much easier to imitate tangible resources than intangible capabilities (tacit knowledge, motivation, talent, culture) Costs of imitation increase due to some combination of the following: 1) Unique Historical Conditions (path dependence; first mover advantages), 2) Causal Ambiguity (links between resources and advantage foggy), 3) Social Complexity (social relationships not replicable), 4) Patents (double-edged sword since period of protection eventually runs out). The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?” Organized properly deals with the firm’s structure and control (governance mechanisms—compensation, reporting structures, management controls, relationships, etc so as to give people ability and incentive to exploit the firm’s resources). Sources: J. Barney - Gaining and Sustaining Competitive Advantage (2002).

Appendix AO: Assessing value chain partnerships in the Aerospace Industry
Source: A.T. Kearney - Integrated Value Chains In Aerospace and Defense: Managing relationships and complexity up and down the value chain

Appendix AP: Aerospace Suppliers “Bullwhip Effect”
Source: A.T. Kearney - Integrated Value Chains In Aerospace and Defense: Managing relationships and complexity up and down the value chain

“Critical Activities”
Appendix AQ: Boeing currently has 13 significant issues it must address to improve profitability. Management should focus on addressing the most urgent and important ones immediately, while keeping the other issues in perspective “Important Goals” “Critical Activities” Supplier Problems Urgency High Low Importance Proprietary Knowledge Loss New Long-Run Competitors Delays and Cancellations Loss of Credibility & CR Loss of Industry Leadership Traditional Customer Problems “Distractions” “Distractions” “Interruptions” “Interruptions” New Product Development Overhang Supplier Power & Dependence High Jet Fuel Costs Overly -Optimistic Forecasts Concentration Risk for Customers CEO Turnover & Transformation Source: HBS – Boeing 787: The Dreamliner (June 21, 1005); Foster Business School – Boeing 787: The Dreamliner (B) (October 14, 2008)

Appendix AR: Business Evolution Matrix
Volume Efficiency Differentiation Network economy Mass individualized Product/Market Companies Industrial economy with the lean philosophy where a company has a strong customer focus and moves more toward the end of the whole value chain in order to meet the (end) customer demand. From what has been observed in the analysis of BCA it is possible to identify what type of company Boeing is (see figure 2). Mass-individualized companies identify themselves by the fact that they are focused on variety of products completely in line of personal preferences and requirements of customers; an example of such a company could be Dell. For Boeing this might be too far fetched, because the market it serves is not characterised by mass-products due to their complexity and relatively low numbers of deliveries (app. 1200, >100 pax A/C per year). In addition the products Boeing produces are in a great deal customized to the requirements of the airlines or other customers and are designed for a segment of the market; however, they are not designed for specific routes or to fulfil specific customer requirements for 100%.Secondly, Boeing can also not be depicted as a Capacity company, because it is not focused on delivering bulk products. Boeing produces assembled products and functions as an integrator. Boeing can preferably be described as a Product/Market company, because it manufactures assembled products for a specific segment of the market. This might be the long haul, short haul, low-cost or freighter market for example, and within these examples also different range/payload capability relations.The second variable that determines the position of Boeing in the business evolution matrix is the specific value driver. Boeing can best be placed in the Efficiency and Differentiation region. This is because its focus is still to optimize efficiency driven by lean principles. Since this is improving, Boeing shifts more to the differentiation side, where customers are treated by their specific wishes. The focus will be to answer more to customer requirements and in an earlier stage. It can be concluded that BCA is moving up in the business evolution matrix (see figure 1). BCA could be placed on the intersection of the upper right quadrant between efficiency and differentiation on one hand and mass individualised and product/market companies on the other hand. Capacity Companies Capacity Economy Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE”

Addendum A: 787 Income RealisticAE
Ideal Production Schedule 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Delivery 37 75 132 164 Earned Revenues6 $ $ $ $ ,349 $ ,870 $ ,651 $ ,142 COGS $ ,206 $ ,553 $ ,574 $ ,077 Gross Profit $ ,143 $ ,317 $ ,077 $ ,066 Overhead Expenses R&D7 $ (500) $ (1,000) $ (1,500) $ (800) $ (250) $ (200) Additions To R&D $ (200) $ (350.00) Reconciled R&D $ (1,200) $ (1,850) General & Admin8 $ (231.00) $ (385.01) $ (445.12) $ (439.12) $ (371.74) $ (324.68) $ (354.16) $ (372.58) $ (391.95) $ (412.33) $ (433.77) $ (456.33) $ (480.06) $ (505.02) Additions to G&A $ (50) $ (60) $ (20) Reconciled G&A $ (495.12) $ (489.12) $ (421.74) $ (384.68) $ (374.16) Total Overhead $ (731) $ (1,385) $ (1,695) $ (1,689) $ (1,422) $ (2,235) $ (1,174) $ (1,173) $ (642) $ (612) $ (634) $ (656) $ (680) $ (705) EBITDA $ (31) $ ,144 $ ,435 $ ,453 $ ,432 $ ,409 $ ,386 $ ,361 Depreciation9 $ (13) $ (15) $ (14) $ (33) $ (36) $ (34) EBIT $ (1,398) $ (1,710) $ (1,704) $ (1,437) $ (2,248) $ (45) $ ,111 $ ,400 $ ,418 $ ,396 $ ,375 $ ,351 $ ,326 Tax/Tax Shelter $ $ $ $ $ $ $ $ (444) $ (1,360) $ (1,767) $ (1,758) $ (1,750) $ (1,740) $ (1,730) Net Income $ (439) $ (839) $ (1,026) $ (1,022) $ (862) $ (1,349) $ (27) $ $ ,040 $ ,651 $ ,638 $ ,625 $ ,611 $ ,596 PPE (CapEx)10 $ $ (250.00) $ (50.00) $ $ $ (387.50) $ (50.00) Free Cash Flows $ (601) $ (991) $ (1,037) $ (877) $ (1,388) $ (41) $ ,021 $ ,054 $ ,615 $ ,602 $ ,566 $ ,576 $ ,561 Discounted FCF's $ (544) $ (813) $ (771) $ (590) $ (846) $ (23) $ $ $ ,073 $ $ $ $ Net Present Value $ ,036

Addendum B: 787 Income Realistic Assumptions
Delay Costs / Q1 $ Plane Price2 $ COGS3 82% Future Growth4 5.20% Tax Rate 40% Discount Rate5 10.4% Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million = .7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See Cost of Goods Sold Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using rf: .16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance,

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