After reading “Boeing Commercial Aircraft” case study (attached file). Complete a SWOT analysis on the case.

•Strengths•Weaknesses•Opportunities•Threats

•Personal Observations.

Each section is to be 190-200 words, with reference citations if it is possible.

Case 1

Boeing Commercial

Aircraft: Comeback?

This case was prepared by Charles W. L. Hill, the University of Washington.

t looked as if 2006 would be the year that Boeing

could boast of a comeback in its three-decadeslong

duel with Airbus Industries. Long the dominant

player in the commercial aerospace industry, Boeing

has been steadily losing market share to Airbus from

the mid-1990s onwards (represented in Exhibit 1).

In 1999, for the first time in its history, Airbus garnered

more orders for new commercial jet aircraft

than Boeing. The European upstart repeated this

achievement regularly between 2001 and 2005.

By mid-2006, however, the tide seemed to be

shifting in Boeing's favor. Underlying this were

strong sales of Boeing's newest jet, the super-efficient

wide-bodied 787, along with surging sales of its well-

established 737 and 777 jets. For the first six months

of 2006, Boeing took orders for 487 aircraft; Airbus

took just 117. While Boeing seemed to be leaving a

decade of production problems and ethics scandals

behind it, Airbus was mired in problems of its own.

Its largest jet to date, the A380 super jumbo, had

been delayed from entering service while the company

struggled with production problems. Orders

for the A380 had stalled at 159 for almost a year, and

analysts were beginning to question whether the aircraft

would be a commercial success. Moreover, Airbus's

contender to the Boeing 787, the A350, had to

be scrapped before it even left the drawing board

used as a basis for class discussion rather than as an illustration of either

effective or ineffective handling of the situation. Reprinted by

financial results of the company discussed in this case, go to

http://finance.yahoo.com, input the company's stock symbol, and

download the latest company report from its homepage.

due to negative customer feedback. The challenge

facing Boeing's management was to translate this revival

in fortunes for the company into a sustainable

competitive advantage. It was off to a good start, but

what else needed to be done?

The Competitive Environment

By the 2000s, the market for large commercial jet

aircraft was dominated by just two companies,

Boeing and Airbus. A third player in the industry,

McDonnell Douglas, had been significant historically

but had lost share during the 1980s and 1990s.

In 1997, Boeing acquired McDonnell Douglas, primarily

for its strong military business. Since the mid1990s,

Airbus had been gaining orders at Boeing's

expense. By the mid-2000s, the two companies were

splitting the market.

Both Boeing and Airbus now have a full range of

aircraft. Boeing offers five aircraft "families" that

range in size from 100 to over 500 seats. They are the

narrow-bodied 737 and the wide-bodied 747, 767,

777, and 787 families. Each family comes in various

forms. For example, there are currently four main

variants of the 737 aircraft. They vary in size from

110 to 215 seats and in range capability from 2,000

to over 5,000 miles. List prices vary from $47 million

for the smallest member of the 737 family, the 737600,

to $282 million for the largest Boeing aircraft,

the 747-8. The newest member of the Boeing family,

the 787, lists for between $138 million and $188 million,

depending on the model.1

Similarly, Airbus offers four families: the narrow-

bodied A320 family and the wide-bodied A300/310,

C2 PART 5 Cases in Strategic Management

A330/340, and A380 families. These aircraft vary in

size from 100 to 550 seats. The range of list prices is

similar to Boeing's. The A380 super jumbo lists for

between $282 million and $302 million, while the

smaller A320 lists for between $62 million and $66.5

million.2 Both companies also offer freighter versions

of their wide-bodied aircraft.

Airbus was a relatively recent entrant into the

market. Airbus began its life as a consortium between

a French and a Germany company in 1970.

Later a British and a Spanish company joined the

consortium. Initially, few people gave Airbus much

chance for success, but the consortium gained

ground by innovating. It was the first aircraft maker

to build planes that "flew by wire," made extensive

use of composites, flew with only two flight crew

members (most flew with three), and used a common

cockpit layout across models. It also gained

sales by being the first company to offer a wide-

bodied twin engine jet, the A300, that was positioned

between smaller single-aisle planes like the 737 and

large aircraft such as the Boeing 747.

In 2001, Airbus became a fully integrated company.

The European Defense and Space Company

(EADS), formed by a merger between French, German,

and Spanish interests, acquired 80% of the

shares in Airbus, and BAE Systems, a British company,

took a 20% stake.

Development and Production

The economics of development and production in

the industry are characterized by a number of facts.

First, the R&D and tooling costs associated with developing

a new airliner are very high. Boeing spent

some $5 billion to develop the 777. Its latest aircraft,

the 787, is expected to cost $8 billion to develop. Development

costs for Airbus's latest aircraft, the A380

super jumbo, could run as high as $15 billion.

Second, given the high upfront costs, to break

even a company has to capture a significant share of

projected world demand. The breakeven point for

the Airbus super jumbo, for example, is estimated to

be between 250 and 270 aircraft. Estimates of the total

potential market for this aircraft vary widely.

Boeing suggests that the total world market will be

no more than 320 aircraft over the next twenty years.

Airbus believes that demand for this size aircraft will

be more like 1,250 jets. In any event, it may take five

to ten years of production before Airbus breaks even

on the A380—and that's on top of years of negative

cash flow during development.3

Third, there are significant learning effects in aircraft

production.4 On average, unit costs fall by

about 20% each time cumulative output of a specific

model is doubled. The phenomenon occurs because

managers and shop floor workers learn over time

how to assemble a particular model of plane more

efficiently, reducing assembly time, boosting productivity,

and lowering the marginal costs of producing

subsequent aircraft.

Fourth, the assembly of aircraft is an enormously

complex process. Modern planes have over 1 million

component parts that have to be designed to fit with

each other, and then produced and brought together

at the right time to assemble the engine. At several

times in the history of the industry, problems with

the supply of critical components have held up production

schedules and resulted in losses. In 1997,

Boeing took a charge of $1.6 billion against earnings

when it had to halt the production of its 737 and 747

models due to a lack of component parts.

Historically, airline manufacturers tried to manage

the supply process through vertical integration,

making many of the component parts that went into

an aircraft (engines were long the exception to this).

Over the last two decades, however, there has been a

trend to contract out production of components and

even entire subassemblies to independent suppliers.

On the 777, for example, Boeing outsourced about

65 percent of the aircraft production, by value, excluding

the engines.5 While helping to reduce costs,

contracting out has placed an enormous onus on

airline manufacturers to work closely with their suppliers

to coordinate the entire production process.

Finally, all new aircraft are now designed digitally

and assembled virtually before a single component is

produced. Boeing was the first to do this with its 777

in the early 1990s and its new version of the 737 in

the late 1990s.

Customers

Demand for commercial jet aircraft is very volatile

and tends to reflect the financial health of the commercial

airline industry, which is prone to boom and

bust cycles (see Exhibits 1 and 2). After a moderate

boom during the 1990s, the airline industry went

through a particularly nasty downturn during

2001-2005. The downturn started in early 2001 due

to a slowdown in business travel after the boom of

the 1990s. It was compounded by a dramatic slump

in airline travel after the terrorist attacks on the

United States on September 11, 2001. Between 2001

CASE 1 Boeing Commercial Aircraft: Comeback? C3

Exhibit 1

Commercial Aircraft Orders 1990-2005

1200

1000

1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03 '04 '05

Boeing Airbus

Sources: http://www.boeing.com, accessed September 2006; and http://www.airbus.com/en, accessed

September 2006.

and 2005, the entire global airline industry lost some

$40 billion, more money than it had made since its

inception.6

For 2006, the industry was forecasted to lose $1.7

billion, which represents an incremental improvement

over the $3.2 billion lost in 2005. The industry

would have been profitable in both 2005 and 2006

Exhibit 2

World Airline Industry Revenues

500

450

400

were it not for surging jet fuel prices after January

2004 (prices for jet fuel more than doubled between

2004 and 2006—see Exhibit 3). The International Air

Travel Association estimates that the fuel bill for all

airlines in 2006 was around $115 billion. This would

represent over 25% of the industry's total operating

costs in 2006, compared to less than 10% in 2001.7

2000 2001 2002 2003 2004 2005 2006 2007

Source: IATA data (figures for 2006 and 2007 are forecasts),

http://www.iata.org/whatwedo/economics/fuel_monitor/price_development. htm,

accessed February 12,2007.

C4 PART 5 Cases in Strategic Management

Exhibit 3

Jet Fuel and Crude Oil Prices

120.0

100.0

Jan May Sep Jan May Sep Jan May Sep Jan May Sep

'03 '03 '03 '04 '04 '04 '05 '05 '05 '06 '06 '06

—— Jet fuel — Crude oil price (Brent)

Source: IATA data, http://www.iata.org/whatwedo/economics/fuel monitor/price_

development.htm, accessed February 12, 2007.

Losses were particularly severe among the big six

airlines in the world's largest market, the United

States (American Airlines, United, Delta, Continental,

US Airways, and Northwest). Three of these airlines

(United, Delta, and Northwest) were forced to

seek chapter 11 bankruptcy protections. Even

though demand and profits plummeted at the big six

airlines, some carriers continued to make profits

during 2001-2005, most notably the budget airline

Southwest. In addition, other newer budget airlines,

including AirTran and Jet Blue (which was started in

2000), gained market share during this period. Indeed,

between 2000 and 2003, the budget airlines in

the United States expanded capacity by 44%, even as

the majors slashed their carrying capacities and

parked unused planes in the desert. In 1998, the

budget airlines held a 16% share of the U.S. market;

by mid-2004, their share had risen to 29%.8

The key to the success of the budget airlines is a

strategy that gives them a 30 to 50% cost advantage

over traditional airlines. The budget airlines all follow

the same basic script: They purchase just one

type of aircraft (some standardize on Boeing 737s,

others on Airbus 320s). They hire nonunion labor

and cross-train employees to perform multiple jobs

(to help meet turnaround times, for example, pilots

might help check tickets at the gate). As a result of

flexible work rules, Southwest needs only 80 employ

ees to support and fly an aircraft, compared to 115 at

the big six airlines. The budget airlines also favor flying

"point to point" rather than through hubs, and

often use less costly secondary airports rather than

major ones. They focus on large markets with lots of

traffic (up and down the East Coast, for example).

There are no frills on the flights (passengers receive

no in-flight food or complementary drinks, for example).

And prices are set low to fill the seats.

In contrast, major airlines base their operations

on the network, or "hub and spoke," system. Network

airlines route their flights through major hubs;

one airline often dominates a single hub (United

dominates Chicago's O'Hare airport, for example).

This system was developed for good reason: It efficiently

uses airline capacity when there isn't enough

demand to fill a plane flying point to point. By using

a hub and spoke system, major network airlines are

able to serve some 38,000 city pairs, some of which

generate fewer than fifty passengers per day. By focusing

on a few hundred city pairs, where there is

sufficient demand to fill their planes, and flying directly

between them (point to point), the budget airlines

seem to have found a way around this constraint.

The network carriers also suffer from a

higher cost structure due to their legacy of a unionized

workforce. In addition, their costs are pushed

higher by their superior in-flight service. In good

times, the network carriers can recoup their costs by

charging higher prices than the discount airlines,

particularly for business travelers, who pay more to

book late and to fly business or first class. In the

competitive environment of the early 2000s, however,

this was no longer the case.

Due to the effect of increased competition, the

real yield that U.S. airlines get from passengers has

fallen from 8.70 cents per mile in 1980 to 6.37 cents

per mile in 1990, 5.12 cents per mile in 2000, and

4.00 cents per mile in 2005 (these figures are expressed

in constant 1978 cents).9 Real yields are also

declining elsewhere. With real yields declining, the

only way that airlines can become profitable is to reduce

their operating costs.

Outside of the United States, competition has intensified

as deregulation has allowed low-cost airlines

to enter local markets and capture share from

long-established national airlines that have used the

hub and spoke model. In Europe, for example, Ryan

Air and Easy Jet have adopted the business model of

Southwest and used it to grow aggressively.

By the mid-2000s, large airlines in the United

States were starting to improve their operating efficiency,

helped by growing traffic volumes, higher

load factors, and reductions in operating costs, particularly

labor costs. Load factor refers to the percentage

of a plane that is full on average, which hit a

record 86% in 2006 in the United States and 81% in

international markets. Total losses for the U.S. industry

were projected to be $4.5 billion in 2006, primarily

due to one-time accounting charges. European

airlines were projected to make profits of $1.8 billion

in 2006, and Asian airlines profits of $1.7 billion. For

2007, the U.S. airlines were projected to break even,

and the global industry was projected to earn

around $2 billion.10

Demand Projections

Both Boeing and Airbus issue annual projections of

likely future demand for commercial jet aircraft.

These projections are based on assumptions about

future global economic growth, the resulting growth

in demand for air travel, and the financial health of

the world's airlines.

In its 2006 report, Boeing assumed that the world

economy would grow by 3.1% per annum over the

next twenty years, which should generate growth in

passenger traffic of 4.8% per annum and growth in

cargo traffic of 6.1% per year. On this basis, Boeing

CASE 1 Boeing Commercial Aircraft: Comeback? C5

-,*..-,

forecast demand for some 27,210 new aircraft valued

at $2.6 trillion over the next twenty years (1,360 de

liveries per year). Of this, some 9,580 aircraft will be

replacements for aircraft retired from service, with

the balance being aircraft to satisfy an expanded

market. In 2025, Boeing estimates that the total

global fleet of aircraft will be 35,970, up from 17,330

in 2005. Boeing believes that North America will ac

count for 28% of all new orders, Asia Pacific for

36%, and Europe for 24%. Passenger traffic is pro

jected to grow at 6.4% per annum in Asia versus

3.6% in North America and 3.4% in Europe.11

Regarding the mix of orders, Boeing believes that

the majority will be for aircraft between regional jets

(which have fewer than 100 seats) and the Boeing

747 (see Exhibit 4). Aircraft in the 747 range (in

cluding the Airbus A380) will account for some 3%

of deliveries and 10% of value between 2006 and

2025, according to Boeing.

The latest Airbus forecast covers 2004-2023. Over

that period, Airbus forecasts world passenger traffic

to grow by 5.3% per annum and predicts demand

for 17,328 new aircraft worth $1.9 trillion. (Note

that Airbus excludes regional jets from its forecasts;

Boeing's forecasts include some 3,450 regional jet

deliveries.) Airbus believes that demand for very

large aircraft will be robust, amounting to 1,648

large passenger aircraft and freighters in the 747

range and above, or 22% of the total value of aircraft

delivered.12

The differences in the mix of orders projected by

Boeing and Airbus reflect different views of how fu

ture demand will evolve. Airbus believes that hubs

will continue to play an important role in airline

travel, particularly international travel, and that very

large jets will be required to transport people be

tween hubs. Airbus bases this assumption partly on

an analysis of data over the last twenty years, which

shows that traffic between major airline hubs has

grown faster than traffic between other city pairs.

Airbus also assumes that urban concentrations will

continue to grow, with fifteen cities having popula

tions of more than 20 million by 2023, up from five

in 2004. Airbus states that demand is simply a func

tion of where people want to go, and most people

want to travel between major urban centers. The

company notes, for example, that 90% of travelers

going from the United States to China travel to three

major cities. Fifty other cities make up the remaining

10%, and Airbus believes that very few of these cities

C6 PART 5 Cases in Strategic Management

Exhibit 4

Projected New Airplane Deliveries, 2006-2025

New Airplane Deliveries New Airplane Market Value

2006 to 2025 2006 to 2025

(in year 2005 dollars)

10%

41%

61%

27,210 new airplanes $2.6 trillion

Regional jets Single-aisle Twin-aisle 747 and larger

Source: Boeing, http://www.boeing.com/commercial/cmo/new.html, accessed 2007.

will have demand large enough to justify a nonstop

service from North America or Europe. Based on

this assumption, Airbus sees robust demand for very

large aircraft, particularly its A380 offering.

Boeing has a different view of the future. The

company theorizes that hubs will become increasingly

congested and that many travelers will seek to

avoid them. Boeing thinks that passengers prefer frequent

nonstop service between the cities they wish

to visit. It also sees growth in travel between city

pairs as being large enough to support an increasing

number of direct long-haul flights. The company

notes that continued liberalization of regulations

governing airline routes around the world will allow

for the establishment of more direct flights between

city pairs. As in the United States, the company believes

that long-haul, low-cost airlines will emerge

that serve city pairs worldwide and avoid hubs.

In sum, Boeing believes that airline travelers will

demand more frequent nonstop flights, not larger

aircraft.13 To support this, the company has data

showing that all of the growth in airline travel since

1995 has been met by the introduction of new nonstop

nights between city pairs and by an increased

frequency of flights between city pairs, not by an increase

in airplane size. For example, Boeing notes

that following the introduction of the 767, airlines

introduced more flights between city pairs in North

America and Europe and more frequent departures.

In 1984, 63% of all flights across the North Atlantic

were in the 747. By 2004, the figure had declined to

13%, with smaller wide-bodied aircraft such as the

767 and 777 dominating traffic. Following the introduction

of the 777, which can fly nonstop across the

Pacific and is smaller than the 747, the same process

occurred in the North Pacific. In 2006, there were

seventy-two daily flights serving twenty-six city pairs

in North America and Asia.

Boeing's History14

William Boeing established the Boeing Company in

1916 in Seattle. In the early 1950s, Boeing took an

enormous gamble when it decided to build a large

jet aircraft that could be sold both to the military as

a tanker and to commercial airlines as a passenger

plane. Known as the Dash 80, the plane had swept-

back wings and four jet engines. Boeing invested $16

million to develop the Dash 80, two-thirds of the

company's entire profits during the postwar years.

The Dash 80 was the basis for two aircraft, the KC135

Air Force tanker and the Boeing 707. Introduced

into service in 1957, the 707 was the world's first

commercially successful passenger jet aircraft. Boeing

went on to sell some 856 Boeing 707s, along with

820 KC-135s. The final 707, a freighter, rolled off the

production line in 1994 (production of passenger

planes ended in 1978). The closest rival to the 707

was the Douglas DC 8, of which some 556 were ultimately

sold.

The 707 was followed by a number of other successful

jet liners, including the 727, which entered

service in 1962; the 737, which entered service in

1967; and the 747, which entered service in 1970.

The single-aisle 737 went on to become the workhorse

of many airlines. In the 2000s, a completely redesigned

version of the 737 that could seat between

110 and 180 passengers was still selling strong. Cumulative

sales of the 737 totaled 6,500 by mid-2006,

making it by far the most popular commercial jet

aircraft ever sold.

It was the 747 "jumbo jet," however, that probably

best denned Boeing. In 1966, when Boeing's

board decided to develop the 747, they were widely

viewed as betting the company on the jet. The 747

was born out of the desire of Pan Am, then America's

largest airline, for a 400-seat passenger aircraft

that could fly 5,000 miles. Pan Am believed that the

aircraft would be ideal for the growing volume of

transcontinental traffic. However, beyond Pan Am,

which committed to purchasing 25 aircraft, demand

was very uncertain. Moreover, the estimated $400

million in development and tooling costs placed a

heavy burden on Boeing's financial resources. To

make a return on its investment, the company estimated

it would have to sell close to 400 aircraft. To

complicate matters further, Boeing's principal competitors,

Lockheed and McDonnell Douglas, were

each developing 250-seat jumbo jets.

Boeing's big bet turned out to be auspicious. Pan

Am's competitors feared being left behind, and by

the end of 1970, almost 200 orders for the aircraft

had been placed. Successive models of the 747 extended

the range of the aircraft. The 747-400, introduced

in 1989, had a range of 8,000 miles and a

maximum seating capacity of 550 (although most

configurations seated around 400 passengers). By

this time, both Douglas and Lockheed had exited the

market, giving Boeing a lucrative monopoly in the

very large commercial jet category. By 2005, the

company had sold some 1,430 747s and was actively

selling its latest version of the 747 family, the 747-8,

which was scheduled to enter service in 2008.

By the mid-1970s, Boeing was past the breakeven

point on all of its models (707, 727, 737, and 747).

The positive cash flow helped to fund investment in

two new aircraft, the narrow-bodied 757 and the

wide-bodied 767. The 757 was designed as a replacement

to the aging 727, while the 767 was a response

to a similar aircraft from Airbus. These were the first

Boeing aircraft to be designed with two-person

cockpits, rather than three. Indeed, the cockpit lay-

CASE 1 Boeing Commercial Aircraft: Comeback?

out was identical, allowing the crew to shift from one

aircraft to the other. The 767 was also the first air

craft for which Boeing subcontracted a significant

amount of work to a trio of Japanese manufactur

ers—Mitsubishi, Kawasaki, and Fuji—which sup

plied about 15% of the airframe. Introduced in 1981,

both aircraft were successful. Some 1,049 757s were

sold during the life of the program, which ended in

2003. Over 950 767s had been sold by 2006, and the

program is still going.

The next Boeing plane was the 777. A two-

engine, wide-bodied aircraft with seating capacity

of up to 400 and a range of almost 8,000 miles, the

777 program was initiated in 1990. The 777 was seen

as a response to Airbus's successful A330 and A340

wide-bodied aircraft. Development costs were esti

mated at some $5 billion. The 777 was the first wide-

bodied, long-haul jet to have only two engines. It

was also the first to be designed entirely on com

puter. To develop the 777, for the first time Boeing

used cross-functional teams composed of engineer

ing and production employees. It also brought major

suppliers and customers into the development

process. As with the 767, a significant amount of

work was outsourced to foreign manufacturers, in

cluding the Japanese trio of Mitsubishi, Kawasaki,

and Fuji, which supplied 20% of the 777 airframe. In

total, some 60% of parts for the 777 were out

sourced. The 777 proved to be another successful

venture. By mid-2006, 850 777s had been ordered,

far more than the 200 or so required to break even.

In December 1996, Boeing stunned the aerospace

industry by announcing it would merge with long

time rival McDonnell Douglas in a deal estimated to

be worth $13.3 billion. The merger was driven by

Boeing's desire to strengthen its presence in the de

fense and space side of the aerospace business, where

McDonnell Douglas was traditionally strong. On the

commercial side of the aerospace business, Douglas

had been losing market share since the 1970s. By

1996, Douglas accounted for less than 10% of pro

duction in the large commercial jet aircraft market

and only 3% of new orders placed that year. The

dearth of new orders meant the long-term outlook

for Douglas's commercial business was increasingly

murky. With or without the merger, many analysts

felt that it was only a matter of time before McDon

nell Douglas would be forced to exit from the com

mercial jet aircraft business. In their view, the merger

with Boeing merely accelerated that process.

C8 PART 5 Cases in Strategic Management

The merger transformed Boeing into a broad-

based aerospace business within which commercial

aerospace accounted for 40 to 60% of total revenue,

depending on the stage of the commercial production

cycle. In 2001, for example, the commercial aircraft

group accounted for $35 billion in revenues out

of a corporate total of $58 billion, or 60%. In 2005,

with the delivery cycle at a low point (but the order

cycle rebounding), the commercial airplane group

accounted for $22.7 billion out of a total of $54.8

billion, or 41%. The balance of revenue was made up

by a wide range of military aircraft, weapons and defense

systems, and space systems.

In the early 2000s, in a highly symbolic act,

Boeing moved its corporate headquarters from

Seattle to Chicago. The move was an attempt to put

some distance between top corporate officers and

the commercial aerospace business, the headquarters

of which remained in Seattle. The move was

also intended to signal to the investment community

that Boeing was far more than its commercial

businesses.

To some extent, the move to Chicago may have

been driven by a number of production missteps in

the late 1990s that hit the company at a time when it

should have been enjoying financial success. During

the mid-1990s, orders boomed as Boeing cut prices

in an aggressive move to gain share from Airbus.

However, delivering these aircraft meant that Boeing

had to more than double its production schedule between

1996 and 1997. As it attempted to do this, the

company ran into some severe production bottlenecks.

15 The company scrambled to hire and train

some 41,000 workers, recruiting many from suppliers,

a move it came to regret when many of the suppliers

could not meet Boeing's demands and shipments

of parts were delayed. In the fall of 1997,

things got so bad that Boeing shut down its 747 and

737 production lines so that workers could catch up

with out-of-sequence work and wait for back-

ordered parts to arrive. Ultimately, the company had

to take a $1.6 billion charge against earnings to account

for higher costs and penalties paid to airlines

for the late delivery of jets. As a result, Boeing made

very little money out of its mid-1990s' order boom.

The head of Boeing's commercial aerospace business

was fired, and the company committed itself to a

major acceleration of its attempt to overhaul its production

system, elements of which dated back half

a century.

Boeing in the 2000s

In the 2000s, three things dominated the development

of Boeing Commercial Aerospace. First, the

company accelerated a decade-long project aimed at

improving the company's production methods by

adopting the lean production systems initially developed

by Toyota and applying them to the manufacture

of large jet aircraft. Second, the company considered

and then rejected the idea of building a

successor to the 747. Third, Boeing decided to develop

a new wide-bodied, long-haul jetliner, the 787.

Lean Production at Boeing

Boeing's attempt to revolutionize the way planes are

built dates back to the early 1990s. Beginning in

1990, the company started to send teams of executives

to Japan to study the production systems of

Japan's leading manufacturers, particularly Toyota.

Toyota had pioneered a new way of assembling automobiles

known as lean production (in contrast to

conventional mass production).

Toyota's lean production system was developed

by one of the company's engineers, Ohno Taiichi.16

After working at Toyota for five years and visiting

Ford's U.S. plants, Ohno became convinced that the

mass-production philosophy for making cars was

flawed. He saw numerous problems, including three

major drawbacks. First, long production runs created

massive inventories, which had to be stored in

large warehouses. This was expensive because of the

cost of warehousing and because inventories tied up

capital in unproductive uses. Second, if the initial

machine settings were wrong, long production runs

resulted in the production of a large number of defects

(that is, waste). And third, the mass-production

system was unable to accommodate consumer preferences

for product diversity.

In looking for ways to make shorter production

runs economical, Ohno developed a number of techniques

designed to reduce setup times for production

equipment, a major source of fixed costs. By using

a system of levers and pulleys, he was able to

reduce the time required to change dies on stamping

equipment from a full day in 1950 to three minutes

by 1971. This advance made small production runs

economical, which allowed Toyota to respond more

efficiently to consumer demands for product diversity.

Small production runs also eliminated the need

to hold large inventories, thereby reducing ware

_ -

Ei.

housing costs. Furthermore, small product runs and

the lack of inventory meant that defective parts were

produced only in small numbers and entered the assembly

process immediately. This reduced waste

made it easier to trace defects to their source and fix

the problem. In sum, Ohno's innovations enabled

Toyota to produce a more diverse range of products

at a lower unit cost than was possible with conventional

mass production.

Impressed with what Toyota had done, in the

mid-1990s Boeing started to experiment with applying

Toyota-like lean production methods to the production

of aircraft. Production at Boeing used to be

all about producing parts in high volumes and then

storing them in warehouses until they were ready to

be used in the assembly process. After visiting Toyota,

engineers realized that Boeing was drowning in inventory.

A huge amount of space and capital was tied

up in things that didn't add value. Moreover, expensive

specialized machines often took up a lot of space

and were frequently idle for long stretches of time.

Like Ohno at Toyota, company engineers started

to think about how they could modify equipment

and processes at Boeing to reduce waste. Boeing set

aside space and time for teams of creative plant

employees—design engineers, maintenance technicians,

electricians, machinists, and operators—to start

experimenting with machinery. They called these

teams moonshiners. The term moonshine was coined

by Japanese executives who visited the United States

after World War II. They were impressed by two

things in the United States—supermarkets and the

stills built by people in the Appalachian hills. They

noticed that people built these stills with no money.

They would use salvaged parts to make small stills

that produced alcohol that they sold for money. The

Japanese took this philosophy back home with them

and applied it to industrial machinery, which is where

Boeing executives saw the concept in operation in the

1990s. With the help of Japanese consultants, they decided

to apply the moonshine creative philosophy at

Boeing to produce new low-cost, "right-sized" machines

that could be used to increase profits.

The moonshine teams were trained in lean production

techniques, given a small budget, and then

set loose. Initially, many of the moonshine teams focused

on redesigning equipment to produce parts.

Underlying this choice was a Boeing study that

showed that more than 80% of the parts manufactured

for aircraft were less than 12 inches long, and

CASE 1 Boeing Commercial Aircraft: Comeback? C9

yet the metal-working machinery was huge and in

flexible and could economically produce parts only

in large lots.17

Soon, empowered moonshine teams were de

signing their own equipment—small-scale machines

that took up little space and used wheels to allow the

machines to move around the plant. One team, for

example, replaced a large stamping machine that

cost six figures and was used to produce L-shaped

metal parts in batches of 1,000 with a miniature

stamping machine powered by a small hydraulic

motor that could be wheeled around the plant. With

the small machine, which cost a couple of thousand

dollars, parts could be produced very quickly in

small lots, eliminating the need for inventory. They

also made a sanding machine and a parts cleaner of

equal size. Now the entire process—from stamping

the raw material to the finished part—was com

pleted in minutes (instead of hours or days) just by

configuring these machines into a small cell and hav

ing them serviced by a single person. The small scale

and quick turnaround now made it possible to pro

duce these parts just in time, eliminating the need to

produce and store inventory.18

Another example of a moonshine innovation

concerned the process for loading seats onto a plane

during assembly. Historically, this was a cumber

some process. After the seats arrived at Boeing from

a supplier, wheels were attached to each seat, and

then the seats were delivered to the factory floor in a

large container. An overhead crane lifted the con

tainer up to the level of the aircraft door. Then the

seats were unloaded and rolled into the aircraft, be

fore being installed. The process was repeated until

all of the seats had been loaded. For a single-aisle

plane, this could take twelve hours. For a wide-

bodied jet, it would take much longer. A moonshine

team adapted a hay elevator to perform the same job

(see Exhibit 5). It cost a lot less, delivered seats

quickly through the passenger door, and took just

two hours, while eliminating the need for cranes.19

Multiply the examples given here, and soon you

have a very significant impact on production costs: A

drill machine was built for 5% of the cost of a full-

scale machine from Ingersoll-Rand. Portable routers

were built for 0.2% of the cost of a large fixed router.

One process that took 2,000 minutes for a 100-part

order (20 minutes per part because of setup, ma

chining, and transit) now takes 100 minutes (1

minute per part). Employees building 737 floor

CIO PART 5 Cases in Strategic Management

Exhibit 5

The Converted Hay Loader at Work

beams reduced labor hours by 74%, increased inventory

turns from two to eighteen per year, and reduced

manufacturing space by 50%. Employees

building the 777 tail cut lead time by 70% and reduced

space and work in progress by 50%. Production

of parts for landing gear support used to take

thirty-two moves from machine to machine and required

ten months; production now takes three

moves and twenty-five days.20

In general, Boeing found that it was able to produce

smaller lots of parts economically, often from

machines that it built itself, which were smaller and

cost less than the machines available from outside

vendors. In turn, these innovations enabled Boeing

to switch to just-in-time inventory systems and

reduce waste. Boeing was also able to save on space.

By eliminating large production machinery at its

Auburn facility, replacing much of it with smaller,

more flexible machines, Boeing was able to free up

1.3 million square feet of space and sold seven

buildings.21

In addition to moonshine teams, Boeing adopted

other process improvement methodologies, using

them when deemed appropriate. Six Sigma quality

improvement processes are widely used within Boeing.

The most wide-reaching process change, however,

was the decision to switch from a static assembly

line to a moving line. In traditional aircraft

manufacture, planes are docked in angled stalls.

Ramps surround each plane, and workers go in and

out to find parts and install them. Moving a plane to

the next workstation is a complex process. The aircraft

has to be down-jacked from its workstation, a

powered cart brought in, and the aircraft towed to

the next station, where it is then jacked up. This can

take two shifts. A lot of time is wasted bringing parts

to a stall and moving a plane from one stall to the

next.

In 2001, Boeing introduced a moving assembly

line into its Renton plant near Seattle, which manufactures

the 737 (see Exhibit 6). With a moving line,

each aircraft is attached to a "sled" that rides a magnetic

strip embedded in the factory floor, pulling the

aircraft at a rate of 2 inches per minute, moving past

a series of stations where tools and parts arrive at the

moment needed, allowing workers to install the

proper assemblies. The setup eliminates wandering

for tools and parts, as well as expensive tug pulls or

crane lifts (just having tools delivered to workstations,

rather than having workers fetch them, was

found to save twenty to forty-five minutes on every

shift). Preassembly tasks are performed on feeder

lines. For example, inboard and outboard flaps are

assembled on the wing before it arrives for joining to

the fuselage.22

Like a Toyota assembly line, the moving line can

be stopped if a problem arises. Lights are used to indicate

the state of the line. A green light indicates a

normal work flow; the first sign of a stoppage brings

a yellow warning light; and, if the problem isn't

solved within fifteen minutes, a purple light indicates

that the line has stopped. Each work area and

feeder line has its own lights, so there is no doubt

where the problem is.23

The cumulative effects of these process innovations

have been significant. By 2005, assembly time

for the 737 had been cut from twenty-two days to

just eleven days. In addition, work-in-progress in-

Exhibit 6

The Moving Line

CASE 1 Boeing Commercial Aircraft: Comeback? C11

ventory had been reduced by 55 percent and stored

inventory by 59 percent.24 By 2006, all of Boeing's

production lines except that for the 747 had shifted

from static bays to moving lines. The 747 was expected

to shift to moving line when Boeing started

production of the 747-8.

The Super-Jumbo Decisions

In the early 1990s, Boeing and Airbus started to con

template new aircraft to replace Boeing's aging 747.

The success of the 747 had given Boeing a monopoly

in the market for very large jet aircraft, making the

plane one of the most profitable in the jet age. But

the basic design dated back to the 1960s, and some

believed there might be sufficient demand for a

super-jumbo aircraft with as many as 900 seats.

Initially, the two companies considered establish

ing a joint venture to share the costs and risks associ

ated with developing a super-jumbo aircraft, but

Boeing withdrew in 1995, citing costs and uncertain

demand prospects. Airbus subsequently concluded

that Boeing was never serious about the joint venture,

C12 PARTS Cases in Strategic Management

and the discussions were nothing more than a ploy to

keep Airbus from developing its own plane.25

After Boeing withdrew, Airbus started to talk

about offering a competitor to the 747 in 1995. The

plane, then dubbed the A3XX, was to be a super

jumbo with capacity for over 500 passengers. Indeed,

Airbus stated that some versions of the plane might

carry as many as 900 passengers. Airbus initially estimated

that there would be demand for some 1,400

planes of this size over twenty years, and that development

costs would total around $9 billion (estimates

ultimately increased to some $15 billion).

Boeing's latest 747 offering—the 747-400—could

carry around 416 passengers in three classes.

Boeing responded by drafting plans to develop

new versions of the 747 family—the 747-500X and

the 747-600X. The 747-600X was to have a new

(larger) wing and a fuselage almost 50 feet longer

than that of the 747-400, carry 550 passengers in

three classes, and have a range of 7,700 miles. The

smaller 747-500X would carry 460 passengers in

three classes and have a range of 8,700 miles.

After taking a close look at the market for a

super-jumbo replacement to the 747, in early 1997

Boeing announced that it would not proceed with

the program. The reasons given for this decision included

the limited market and high development

costs, which at the time were estimated to be $7 billion.

There were also fears that the wider wing span

of the new planes would mean that airports would

have to redesign some of their gates to take the aircraft.

Boeing, McDonnell Douglas (prior to the

merger with Boeing), and the major manufacturers

of jet engines all forecast demand for about 500 to

750 such aircraft over the next twenty years. Airbus

alone forecast demand as high as 1,400 aircraft. Boeing

stated that the fragmentation of the market due

to the rise of "point-to-point" flights across oceans

would limit demand for a super jumbo. Instead of

focusing on the super-jumbo category, Boeing stated

that it would develop new versions of the 767 and

777 aircraft that could fly up to 9,000 miles and

carry as many as 400 passengers.

Airbus, however, continued to push forward with

plans to develop the A3XX. In December 2000, with

more than fifty orders in hand, the board of EADS,

Airbus's parent company, approved development of

the plane, which was now dubbed the A380. Development

costs at this point were pegged at $12 billion,

and the plane was forecast to enter service in

2006 with Singapore Airlines. The A380 was to have

two passenger decks, more space per seat, and wider

aisles. It would carry 555 passengers in great comfort,

something that passengers would appreciate on

long transoceanic flights. According to Airbus, the

plane would carry up to 35% more passengers than

the most popular 747-400 configuration, yet cost per

seat would be 15 to 20% lower due to operating efficiencies.

Concerns were raised about turnaround

time at airport gates for such a large plane, but Airbus

stated that dual-boarding bridges and wider

aisles meant that turnaround times would be no

more than those for the 747-400.

Airbus also stated that the A3 80 was designed to

operate on existing runways and within existing

gates. However, London's Heathrow airport found

that it had to spend some $450 million to accommodate

the A380, widening taxiways and building a

baggage reclaim area for the plane. Similarly, eighteen

U.S. airports had reportedly spent some $1 billion

just to accommodate the A380.26

The 787

While Airbus pushed forward with the A380, in

March 2001 Boeing announced the development of

a radically new aircraft. Dubbed the Sonic Cruiser,

the plane would carry 250 passengers 9,000 miles

and fly just below the speed of sound, cutting one

hour off transatlantic flights and three hours off

transpacific flights. To keep down operating costs,

the sonic cruiser would be built out of low-weight

carbon fiber "composites." Although the announcement

created considerable interest in the aviation

community, in the wake of the recession that hit the

airline industry after September 11, 2001, both Boeing

and the airlines became considerably less enthusiastic.

In March 2002, the program was canceled.

Instead, Boeing said that it would develop a more

conventional aircraft using composite technology.

The plane was initially known as the 7E7, with the E

standing for efficient (the plane was renamed the 787

in early 2005).

In April 2004, the 7E7 program was formally

launched with an order for fifty aircraft worth $6 billion

from All Nippon Airlines of Japan. It was the

largest launch order in Boeing's history. The 7E7 was

a twin-aisle, wide-bodied, two-engine plane designed

to carry 200 to 300 passengers up to 8,500

miles, making the 7E7 well suited for long-haul,

point-to-point flights. The range exceeded that of all

but the longest range plane in the 777 family, and the

7E7 could fly 750 miles more than Airbus's closest

competitor, the mid-sized A330-200. With a fuselage

built entirely out of composites, the aircraft was

lighter and would use 20% less fuel than existing aircraft

of comparable size.

The plane was also designed with passenger comfort

in mind. The seats would be wider, as would the

aisles, and the windows were larger than in existing

aircraft. The plane would be pressurized at an altitude

of 6,000 feet, as opposed to 8,000 feet, which is

standard industry practice. Airline cabin humidity

was typically kept at 10% to avoid moisture buildup

and corrosion, but composites don't corrode, so humidity

would be closer to 20 to 30%.27

Initial estimates suggested that the jet would cost

some $7 to $8 billion to develop and enter service in

2008. Boeing decided to outsource more work for

the 787 than on any other aircraft to date. Some 35%

of the plane's fuselage and wing structure would be

built by Boeing. The trio of Japanese companies that

worked on the 767 and 777—Mitsubishi Heavy Industries,

Kawasaki Heavy Industries, and Fuji Heavy

Industries—would build another 35%, and some

26% would be built by Italian companies, particularly

Alenia.28 For the first time, Boeing asked its major

suppliers to bear some of the development costs

for the aircraft.

The plane was to be assembled at Boeing's wide-

bodied plant in Everett, Washington. Large subassemblies

were to be built by major suppliers and then

shipped to Everett for final assembly. The idea was to

"snap together" the parts in Everett in three days, cutting

down on total assembly time. To speed up transportation,

Boeing would adopt air freight as its major

transportation method for many components.

Airbus's initial response was to dismiss Boeing's

claims of cost savings as inconsequential. They

pointed out that even if the 787 used less fuel than

the A330, that was equivalent to just 4% of total operating

costs.29 However, even by Airbus's calculations,

as fuel prices started to accelerate, the magnitude

of the savings rose. Moreover, Boeing quickly

started to snag some significant orders for the 787.

In 2004, Boeing booked 56 orders for the 787, and in

2005, some 232 orders. Another 85 orders were

booked in the first nine months of 2006 for a running

total of 373—well beyond the breakeven point.

In December 2004, Airbus announced that it

would develop a new model, the A350, to compete

CASE 1 Boeing Commercial Aircraft: Comeback? C13

directly with the 787. The planes were to be long-

haul, twin-aisle jets, seating 200 to 300 passengers,

and constructed of composites. The order flow, however,

was slow, with airlines complaining that the

A350 did not match the Boeing 787 on operating efficiency,

range, or passenger comfort. Airbus went back

to the drawing board and, in mid-2006, announced a

new version of the A350, the A350 XWB (for "extrawide

body"). Airbus estimates that the A350 XWB

will cost $10 billion to develop and enter service in

2012, several years behind the 787. The two-engine

A350 XWB will carry between 250 and 375 passengers

and fly up to 8,500 miles. The largest versions of

the A350 XWB will be competing directly with the

Boeing 777, not the 787. Like the 787, the A350 XWB

will be built primarily of composite materials. The

extra-wide body is designed to enhance passenger

comfort. To finance the A350 XWB, Airbus stated

that it would probably seek launch aid from Germany,

France, Spain, and the United Kingdom, all

countries where major parts of Airbus are based.30

Trade Tensions

It is impossible to discuss the global aerospace industry

without touching on trade issues. Over the

last three decades, both Boeing and Airbus have

charged that their competitor benefited unfairly

from government subsidies. Until 2001, Airbus functioned

as a consortium of four European aircraft

manufacturers: one British (20.0% ownership stake),

one French (37.9% ownership), one German (37.9%

ownership), and one Spanish (4.2% ownership). In

the 1980s and early 1990s, Boeing maintained that

subsidies from these nations allowed Airbus to set

unrealistically low prices, to offer concessions and

attractive financing terms to airlines, to write off development

costs, and to use state-owned airlines to

obtain orders. According to a study by the U.S. Department

of Commerce, Airbus received more than

$13.5 billion in government subsidies between 1970

and 1990 ($25.9 billion if commercial interest rates

are applied). Most of these subsidies were in the

form of loans at below-market interest rates and tax

breaks. The subsidies financed research and development

and provided attractive financing terms for

Airbus's customers. Airbus responded by pointing

out that Boeing had benefited for years from hidden

U.S. government subsidies, particularly Pentagon

R&D grants.

C14 PART 5 Cases in Strategic Management

In 1992, the two sides appeared to reach an

agreement that put to rest their long-standing trade

dispute. The 1992 pact, which was negotiated by the

European Union (EU) on behalf of the four member

states, limited direct government subsidies to 33% of

the total costs of developing a new aircraft and specified

that such subsidies had to be repaid with interest

within seventeen years. The agreement also limited

indirect subsidies, such as government-supported

military research that has applications to commercial

aircraft, to 3% of a country's annual total commercial

aerospace revenues or 4% of commercial aircraft

revenues of any single company in that country. Although

Airbus officials stated that the controversy

had now been resolved, Boeing officials argued that

they would still be competing for years against subsidized

products.

The trade dispute heated up again in 2004 when

Airbus announced the first version of the A350 to

compete against Boeing's 787. What raised a red flag

for the U.S. government was a sign from Airbus that

it would apply for $1.7 billion in launch aid to help

fund the development of the A350. As far as the

United States was concerned, this was too much. In

late 2004, U.S. Trade Representative Robert Zoellick

issued a statement formally renouncing the 1992

agreement and calling for an end to launch subsidies.

According to Zoellick,

Since its creation 35 years ago, some Europeans

have justified subsidies to Airbus as necessary

to support an infant industry. If that rationalization

were ever valid, its time has long

passed. Airbus now sells more large civil aircraft

than Boeing.

Zoellick went on to claim that Airbus has received

some $3.7 billion in launch aid for the A380 plus another

$2.8 billion in indirect subsidies, including

$1.7 billion in taxpayer-funded infrastructure improvements,

for a total of $6.5 billion.

Airbus shot back that Boeing too continued to

enjoy lavish subsidies and that the company had received

some $12 billion from NASA to develop technology,

much of which had found its way into commercial

jet aircraft. The Europeans also contended

that Boeing would receive as much as $3.2 billion in

tax breaks from Washington State, where the 787 is

to be assembled, and more than $1 billion in loans

from the Japanese government to three Japanese

suppliers, who will build over one-third of the 787.

Moreover, Airbus was quick to point out that a trade

war would not benefit either side and that Airbus

purchased some $6 billion a year in supplies from

companies in the United States.

In January 2005, both the United States and the

EU agreed to freeze direct subsidies to the two aircraft

makers while talks continued. However, in May

2005 news reports suggested, and Airbus confirmed,

that the jet maker had applied to four EU governments

for launch aid for the A3 50 and that the

British government would announce some $700 million

in aid at the Paris Air Show in mid-2005. Simultaneously,

the EU offered to cut launch aid for the

A350 by 30%. Dissatisfied, the U.S. side decided that

the talks were going nowhere, and on May 31 the

United States formally filed a request with the World

Trade Organization (WTO) for the establishment of

a dispute resolution panel to resolve the issues. The

EU quickly responded, filing a countersuit with the

WTO claiming that U.S. aid to Boeing exceeded

the terms set out in the 1992 agreement. The dispute

is currently before the WTO.31

Although the decision to scrap the original design

of the A350 took some of the heat out of the

dispute, Airbus is expected to ask for launch aid for

the redesigned A350 XWB.

The Next Chapter

Huge financial bets have been placed on very different

visions of the future of airline travel: Airbus with

the A380 and Boeing with the 787. Airbus has

hedged its bets by announcing the A350 XWB, but

will this be too little too late? Moreover, there are

signs of production turmoil at Airbus. Orders for the

A380 have stalled. In mid-2006, the company announced

that deliveries for the aircraft would be delayed

by six months while the company dealt with

"production issues" arising from problems installing

the wiring bundles in the A380. Estimates suggest

that the delay would cost Airbus some $2.6 billion

over the next four years.32 Within months, Airbus

had revised the expected delay to eighteen months

and stated that the number of A380s it now needed

to sell to break even had increased from 250 to 420

aircraft. The company also stated that due to production

problems, it would be able to deliver only 84

A380 planes by 2010, compared to an original estimate

of 420.33 In response, several significant launch

customers for the A380 were said to be reconsidering

their purchase decisions. United Parcel Service,

which has 10 A380 cargo planes on order, was reportedly

considering switching to the Boeing 747-8,

Boeing's latest offering in the venerable 747 family.

Boeing quietly launched the 747-8 program in

November 2005. This plane will be a completely redesigned

version of the 747 and will incorporate

many of the technological advances developed for

the 787, including significant use of composites. It

will be offered in both a freighter and an intercontinental

passenger configuration that will carry 467

passengers in a three-seat configuration and have a

range of 8,000 miles (the 747-400 can carry 416 passengers).

The 747-8 will also use the fuel-efficient

engines developed for the 787 and will have the same

cockpit configuration as the 737, 777, and 787. Development

costs are estimated to be around $4 billion.

By October 2006, Boeing had orders for forty-

four 787-8 freighters, but none for passenger planes.

However, some analysts speculated that with the

A380 mired in delays, the 747-8 passenger configuration

might begin to garner more orders.

Not all is smooth sailing at Boeing. The company

experienced some problems with suppliers for the

787, who have fallen behind schedule designing

some components for the project. As of late 2006,

Boeing was insisting that the 787 was still on schedule.

Some analysts, however, are concerned that this

might be a sign of things to come and that the complexity

associated with coordinating a diverse base of

suppliers might lead to delays in the 787.

Complicating issues, both Airbus and Boeing

have been through some changes in key management

over the last few years. At Boeing, CEO Phil Condit

resigned in late 2003, after it was revealed that the

company's CFO, Mike Sears, had hired a key Department

of Defense procurement officer in return for

her backing of a huge order for air force tankers

based on the 767. Sears was subsequently prosecuted

and sent to jail. The Sears scandal was only the latest

in a number that Boeing executives had become embroiled

in during the early 2000s. Condit's resignation

was widely taken to indicate that the board felt

that a new CEO was needed to clean house. Condit

was replaced by Harry Stonecipher, who was CEO of

McDonnell Douglas when it was acquired by Boeing

and later president of Boeing. Stonecipher resigned

fifteen months later, when it was revealed that he had

had an affair with a subordinate and communicated

with her using the company's email service. Stoneci-

CASE 1 Boeing Commercial Aircraft: Comeback? C15

pher was replaced by Jim McNerney, who moved to

Boeing from the CEO position at 3M. Prior to join

ing 3M, McNerney had run the aircraft engine busi

ness at General Electric. McNerney was widely

viewed as a skilled manager who had brought the op

erating discipline that GE is famous for to 3M. He

was expected to do the same at Boeing, pushing the

company to continue to pursue various productivity

initiatives, such as lean production, Six Sigma

processes, and global sourcing.

At Airbus, following the announcement of the

delay in A380 production, there was pressure on

Noel Forgeard, the CEO of EADS, Airbus's parent

company, to resign. Forgeard refused, although Gus

tav Humbert, the CEO of Airbus, did offer to step

down. After a three-week crisis, the board of EADS

took matters into its own hands and fired both

Forgeard and Humbert. They were replaced by Louis

Gallois, a Frenchman who once ran an aerospace

company that was acquired by EADS, and Christian

Streiff, the former number 2 at Saint Gobain, the

French glassmaker.

With new management in place at both compa

nies, the focus is on the unfolding competitive battle.

Can Airbus make money on the A380, and, if it does,

will it gain a monopoly that rivals Boeing's 747 dy

nasty? Will the 787 live up to its promise and be

come the right plane for a new era of global travel?

Can Airbus come back at Boeing with its new ver

sion of the A350, the A350 XWB? And what of the

ongoing trade dispute? How will this impact on the

long-running dog fight between the two companies?

ENDNOTES

1. http://www.boeing.com, accessed September 2006.

2. http://www.airbus.com/en, accessed September 2006.

J. Palmer, "Big Bird," Barren's (December 19, 2005): 25-29;

http://www.yeald.com/Yeald/a/33941/both_a380_and_787_

have_bright_futures.html.

G. J. Steven, "The Learning Curve: from Aircraft to Spacecraft"

Management Accounting (May 1999): 64-66.

D. Gates, "Boeing 7E7 Watch: Familiar Suppliers Make Short

List," Seattle Times.

The figures are from the International Airline Travelers Association

(IATA).

IATA, "2006 Loss Forecast Drops to US$1.7 Billion," Press Release,

August 31,2006.

"Turbulent Skies: Low Cost Airlines," Economist (July 10, 2004):

68-72; "Silver Linings, Darkening Clouds," Economist (March 27,

2004): 90-92.

9. Data from the Air Transport Association at www.airlines.org.

10. IATA, "2006 Loss Forecast Drops to US$1.7 Billion."

11. Boeing, Current Market Outlook, 2006, http://www.boeing.com.

12. http://www.airbus.com/en/myairbus/global_market_forecast.html.

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