1. Risk Management in New Aircraft Design and Development: Boeing 787 and Airbus A380 by Harold Kerzner

2. Airline History (International Routes)
Boeing 747: 1553 have been built since 1970; initial expectation was for only 400 to be built.
McDonnell Douglas (DC-10 and MD-11) and Lockheed (L-1011) drop out.
Airbus could compete with the 737 (also 757 and 767), but not with the 747.

3. Airline Industry Projections
4 billion travelers per year by 2030
29,000 new planes needed over the next 20 years
20,000 planes will be single aisle (i.e. Cleveland to La Guardia)
More than 1,700 medium and long range planes needed

4. Boeing’s Aging Aircraft
Need to replace the aging 747, 757 and 767 aircraft

5. The Design Issue: How Important are Amenities to You When You Fly
The Design Issue: How Important are Amenities to You When You Fly? Boeing and Airbus Have Different Opinions about Comfort for the Next Generation of Planes.

6. Boeing 787 Dreamliner Aircraft
List price of $225 million per plane

7. Airbus A380 Aircraft
List price of $433 million per plane

9. Differing Strategies (Hatfields vs. McCoys)
Airbus A380: hub-and-spoke concept
Boeing 787 “Dreamliner”: point-to-point concept

10. Seating Capacity Airbus A380 One class of service: 853 people
Three classes of service: 525 people
Boeing 787
One class of service: 420 people
Three classes of service: people

11. Total Operating Cost Analysis
Aircraft
Total Cost/Seat/Hour
Boeing 747
$90/seat/hour
Airbus A380
$50/seat/hour
Boeing 777
$44/seat/hour
Boeing 787
$38/seat/hour

12. Airbus A380 Strategy
To focus on the long-range, heavily travelled international market
Promote amenities; clients will pay for amenities

13. B787/A380 Seating on International Routes The “Chess Game” Begins

14. The 10 Most Luxurious Airlines (From a Report on the Internet)

15. Airline Rankings by Class
Economy Class
Business Class
First Class 10
Eva Air
Lufthansa
Thai Airlines 9
Air France
All Nippon Airlines 8
Turkish Airlines
Korean Air 7
Emirates Airlines
Swiss Air 6
Qantas 5
Cathay Pacific Airlines
Singapore Airlines 4
Garuda Indonesia Airlines 3
Qatar
Etihad Airlines
Japan Airlines 2 1
Asiana Airlines

16. A380 Options for Amenities
First class cabins (enclosed pods) and three-room suites
Communal lounges or central social zones
TVs, internet and gadgetry
A cocktail lounge
A restaurant and snack bar
A gym
A casino
A duty-free gift shop
Beauty salon and spa
Two showers in first class (and three-room suite showers)

17. Factoids on Seats High cost of the seats are because of:
Ductwork changes
Extensive wiring
Reinforced cabin floor

18. Factoids on Seats
First class long haul premium seats cost $250,000 to $500,000 per seat. Twelve first class seats may cost the airline $3 million.
Business class seats are $30,000 - $80,000. Higher cost on international routes.
Economy seats are $2300

19. Your Choice
How much are you willing to pay for a round trip ticket with these amenities on the Airbus A380?

20. Round Trip Cost Per Person (US$)
Typical International Round Trip Airline Passenger Cost on Airbus A380 Routes
Luxury Airline
Rating
Airline 6
Qantas 5
Singapore Airlines 4
Lufthansa Airlines 3
Japan Airlines 2
Etihad Airlines 1
Emirates Airlines
Round Trip Cost Per Person (US$)
$15,000
$27,000
$16,000
$28,000
$30,000

21. The Four Primary Risks and Mitigation Strategies (Boeing 727 – Boeing 767)
MITIGATION STRATEGY
Financial
Share design and development costs with partners and suppliers
Marketing
Offer a family of planes for different markets (i.e. distances and number of passengers) and different amenities
Technical
Include the latest cost-effective technologies into each new design
Production
Must have a minimum number of units sold for continuous production

22. Boeing 787 Financial Risks
Increase outsourcing to 70% of the work rather than the usual 35-50% (More than 50 Tier 1 strategic partners)
Have Tier 1 suppliers assume responsibility for managing assembly work of the Tier 2 and Tier 3 suppliers

23. Boeing 787 Marketing Risks
The 787 will replace the aging 757 and 767 aircraft.
The 787 will be 10% lower cost/seat/mile than any other aircraft.
The 787 was designed to be 20% more fuel efficient than the 767.
Variants of the 787 have a range of 8000 – nautical miles.

24. Boeing 787 Production Risks
The 787 production schedule will be 10 aircraft each month.
This production schedule allows Boeing to get greater benefits from learning curves.

25. Boeing 787 Technical Risks
The 787 will have fuel efficient engines.
The 787 will use lightweight composite materials (carbon fiber, aluminum and titanium) as the primary material in the airframe.
The 787 electrical system will use lithium-ion batteries.
Result will be a reduction in airline maintenance and replacement costs.

26. 787 Innovation Problems
November 1, 2011: Landing gear failed to deploy
July 23, 2012: Corrosion risk identified in an engine component
December 4, 2012: Leakage in fuel line connectors
December 4, 2012: A power generator failed
January 7, 2013: Smoke in the cockpit during an inspection
January 8, 2013: Faulty left wing surge tank vent
January 9, 2013: Indicator falsely reported brake problems
January 11, 2013: Engine oil leak
January 11, 2013: Crack developed on the cockpit wide screen

27. 787 Battery Problems January 7, 2013: Battery fire in empty 787
January 9, 2013: Battery wiring problems and fire
January 16, 2013: Computer warning of smoke in battery area
January 16, 2013: FAA grounds all US-based 787 aircraft
January 17, 2013: Boeing halts all deliveries of the 787 aircraft
April 19, 2013: FAA approves Boeing’s battery redesign
Boeing’s cost of repairs is $465,000 per plane

28. The Existence of New Risks On The 787 Program

29. Innovation Risks
Not fully understanding the risks when dealing with new and unproven technologies
Not fully understanding the complexities of how to put out fires due to over-heating of the lithium-ion batteries

30. Outsourcing Risks
Choosing subcontractors based upon manufacturing and development time and cost rather than quality
Expecting suppliers and partners to take on design and development risks
Not recognizing the significant amount of upfront planning needed prior to the additional outsourcing
Failing to supply onsite support for contractors
Outsourcing mission-critical components
Failing to understand the risks of product redesign

31. Tiered Outsourcing Risks
Asking the higher tiered suppliers and partners to manage, coordinate and integrate the work and quality of lower tiered suppliers
Allowing detailed engineering and procurement risks to be delegated to subcontractors

32. Offshore Risks
Having critical components manufactured far away from the final assembly plant
Not fully aware of the transportation costs to the final assembly plants
Not realizing that more than 60% of the offshore decisions are often based upon miscalculations and use of the wrong metrics

33. Communication By Computer Risks
Expecting communication by computer to replace face- to-face communication
Not aware of critical problems in a timely manner

34. Disengaged C-Suite Risks
Having company executives that do not want to be involved in the day-to-day activities of designing a new plane

35. Labor Relations Risks
Having critical decisions related to outsourcing made by executives without any input from the people doing the work

36. Project Management Skills Risks
Having a project team that lacks critical skills such as in supply chain management
Having a project team that may not recognize the need for subcontractor quality control measures
Not realizing that the quality of the end result is only as good as the quality of the weakest supplier

37. 787 Lessons Learned
Proper testing campaign for new technology is needed.
There must be strict quality control on the products provided by the suppliers. Choice of the supplier should be based only on quality.
Careful control and the right attitude by the Federal Aviation Administration (FAA) is essential.
The ultimate goal of designing a new aircraft should be to increase shareholder value rather than maximize it.

38. Boeing’s 787 Design & Development Cost and Schedule
Initial cost expected to be $6 billion
Cost now at $40 billion
There were seven delays and the first group of planes were delivered three years late

39. Airbus Risk Issues (Marketing)
Higher oil prices forced airlines to cut back on the Airbus A380 orders because of the cost of fuel consumption in four engines
No Airbus A380 aircraft sold to airlines in the United States, South America, India or Africa

40. Airbus Risk Issues (Production)
Airbus has 16 sites in France, Britain, Germany and Spain
Mechanical issues with cracks in supporting ribs
Germany and France were using different versions of the CATIA software for producing hundreds of miles of wiring cables in pre- assembled harnesses
CATIA problem resulted in a two year delay at an additional cost of $6.1 billion

41. Airbus Risk Issues (Management)
Decision-making problems at the top
Slow decision-making processes
Squabbling
Non-cooperative cultures

42. Airbus’ A380 Design & Development Cost
Initial cost expected to be $15 billion
Cost now at $25 billion

43. Airbus A380 Breakeven
Airbus cannot recover the $25 billion spent on the A380 design
Airbus needs to build at least one plane per month to break even on operating costs and keep people employed
Need future orders
Airbus misjudged the market

44. Who is Winning The Chess Game?
Aircraft
Date
Ordered
Delivered
Boeing 777
Dec 2017
1962
1534
Boeing 787
1294
636
Airbus A380
337
222
Airbus A350
854
142

45. If you still have questions, now would be a good time to ask them.
Course Name
IIL-XXX
Course Name
Module Name
If you still have questions, now would be a good time to ask them.
Module Name