Risk Management

Assignment : Case Study :

Boeing 787 : The Dreamliner

Submitted to: Prof. Dr. Sanjay Jharkharia
Submitted By : Group - V Brahmeswara Reddy KV Kannan Kesavapillai Kartikeya Misra Pankaj Gandhi Sanjay Kumar

ePGP-01-003 ePGP-01-010 ePGP-01-011 ePGP-01-018 ePGP-01-030

Executive Post Graduate Programme (ePGP 01)

Indian Institute of Management Kozhikode

Outline of case
Company is in a business of airplane manufacturing On 26.04.2004 they announce for new Jetliner, named Dreamliner (represent a dream of company to develop low cost, compact and fuel efficient jet) Company is facing competition from Airbus Growing economy of India and China is a potential market for Boeing After the order of 60 7E7 from China, Boeing renamed the project as 787

80% of business expected from Asian market

The Boeing Corporation

Company operates through SIX subsidiaries

Commercial airplanes
Integrated defense system (aircraft weapon system) Network system Support system Launch & orbital system Boeing capital corporation Enjoys dominated position in commercial airplane segment

Co. has adopted M & A strategy and acquire its US competitior McDonnel Douglas and expand its mnfg base
During 2003-04, company has diverted its business focus from commercial to defense, which reflects from two movements

Airbus sold more airplanes than boeing

Defense revenue of boeing increased

Industry Wave : Customer's perspectives

Boeing's airline customers financially challenged by

High fuel cost

High labor cost Union strife

High fixed cost of airplanes

Cut throat competition Low cost airlines operation has developed new business model

Airline industry dynamics changing

Launch Super jumbo A 380 by Airbus has challenge the leadership position of Boeing To regain the leadership position, Boeing has decided to launch 787

Design standards of Boeing 787

Design development is based on the breath of the market

taking passengers where & when they want to go

travel with more comfort and affordability to customers Dreamliner Management Team developed by company with an aim to utilized the expertise of team members for converting dream into reality. Provide more space for 'cargo storage' in 787 and generate additional business revenues (57% more space for cargo) Quickest takeoffs and landing and minimum sound from engine Use of light weights composite structure (replace aluminum structure) to meet light weight and corrosion issues Provide more room to passengers in airplane, large windows Provide e-connectivity for entertainment and internet in plane Humidity of 20~30% (than 10% of existing practice) for avoiding travel fatigue in long distance flights Sensor based re4ali-time data to provide better flight scheduling

Making of Boeing 787

Goal of Boeing's Management for new product development

design & deliver super-efficient plane which can met the speed criteria of existing planes
encourage airlines to replace their existing planes with 787 Develop effective position against Airbus

Novelties of 787
Long range capabilities to mid size plane Provide nonstop service on route Offer 787 in various version by stretching (788, 789) the base to meet the capacity of accommodating more passengers on diff routes Interior of plane is having tri-class and two-class (783) configuration Class configuration provides a flexibility to customers to meet their business model of low cost, long range, short distance etc. Design meets the market requirements of deregulations of airline industry

Making of Boeing 787

Use of standard engine of GE and Rolls Royce Use of similar engine of Airbus A 380 for 787 from Rolls Royce

An option of engine interchangeability has attracted the financers & leasing companies
Both engines provide a thrust of 55,000 & 70,000 pounds New design of 787 has 8% increased efficiency

Company has developed a global assembly line for 787

team of more than dozen aerospace companies for composites & aluminum alloys for new structure Structure of plane developed by 35 % by Boeing; 35% by Japan; 26% by Italy; 4% by others Team of 15 cos. from 10 states of US & 7 countries : A true global efforts for 787 development Fragmented type different assembly line approach has been developed with suppliers under an indirect collaboration JV for R&D

Making of Boeing 787

70:30 ratio has been maintained for the product development, which has helped to streamline the supply chain system Synchronized vendor system has been developed with an association of IBM and French PLM s/w co. for streamlining the supply chain management (SCM) system PLM (project life cycle management system) developed PLM digital tools and database shared across Global integrated supply chains and assembly line, make Boeing enable to develop final assembly of 787 in just THREE days save valuable assembly line time Incorporated CAM based robotic manufacturing for single piece fiber body development for barrel sections Boeing has utilized air transportation system for parts delivery which has save a time of 29 days of delivery system. This has reduce the cycle time and shipping cost by 20~30%.

Market Forecasting
Fragmentation of market due to the multiple operators India and China will raise demand for commercial airplanes

Demand of 25,000 planes in next 20 years

80% of the demand will be for smaller planes of capacities of 100~200; 200~300 & 300~400 seats Growth of air business is at 5.2% v/s the GDP growth of 3%

Additional growth of 2.2% expected by co. in view of foreign trade and liberalized airline market
A business of 2,520 nos. of small widebody planes expected by co. in next 20 years

Boeing will face a tough competition from Airbus in its business segment of 787 (a perceived risk for the company)
For China, both Airbus and Boeing has contradict forecasting Chinese air traffic will surge by 8% / annum. Rush for low cost airlines increases, demand for 737s

Consideration of global economy & market forces

400 city pairs have been developed across the globe demands for direct flight connectivity for non-stop flying China and India are going to play a dominant role for absorbing the newly designed 787 in aviation industry Airlines has a need of fuel efficient airplane (20% less fuel consumption) Jet Fuel prices were rocketing to new heights, poses a concern of profitability to airlines The increment in crude oil prices were due to the economic development in China and India for meeting their industrial development The cargo business segment has shown higher growth than the passenger segment in airline industry Need of low maintenance airplane with longer durability of airplane life Minimum wear and tear in plane to meet the low cost criteria of maintenance

Challenges faced by Boeing

Air travel phobia after 9/11 incident Lay off 39,000 employees in view of maintaining the business profit and growth aspects Drop in demand for commercial airplanes Competition from Airbus CEO and CFO departs from Boeing, CFO has a perception of unethical practices adopted by Boeing to recruit air force employee who can help for getting the orders from defense dept Harry Stonecipher (CEO) of ex McDonnell Douglas has been forced to step down on the ground of company's ethics code of conduct

For raising the fund to meet 787 requirements of expansion, Boeing has sold out its 4 plants @ 1.2 $ m : a strategy for focusing on core business of airplane mnfg (a similar strategy to 3M of focus on core area)
In fiscal year 2004, they have increased revenue generation and profit

Project Challenges faced by Boeing

Design of proper Vendor System Customization of supplier's system according to the need of Boeing in view of avoiding the system conflict Due to the practices and systems, a technology based supportive work culture has been developed across the company. Involvement of suppliers in the mainstream of Boeing manufacturing for innovation, detailed drawings, tooling to reduce the financial risk of suppliers / partners Design of wing for both types of plane Accommodation of high-bypass engine on airplane

Convince airlines for automatic cabin-pressurization systems for its high maintenance cost perception
Mass production of carbon fiber wing Cockpit design (new v/s traditional 777) Control system for Pilots : paradigm shift in thinking pattern

Risk / Threats to Boeing

Delay in the program of launching the products in the amrket Over run of cost and time for 787 project

Competitor (Airbus) has adopted aggressive marketing strategies, which has left no room for Boeing to make mistake
Risk from strategic partners to become competitors in future, as Boeing has shared all its core competency with them

Technical know-how sharing with Japanese manufacturer has posed a serious threat (as per experts view)
Kawasaki aerospace is one of the supplier (with whom Boeing had shared all its technical know-how for design and construction) has declared its objective of manufacturing commercial airplanes China a major customer for 787 can be turned out as a manufacturer Head hunting of key executives of Boeing by the competitors Comparative analysis of 787 with A 330, reveals no marginal difference in operating cost, even 787 consume 20% less fuel

Risk / Threats to Boeing

Industry experts are of opinion that Airbus will counter attack 787 by having a new designs

Rolls Royce fail to supply the engine to Boeing in time, this has delayed the launching of 787
Flight Global aviation news site reported that, Trent 1000 engine suffered from an uncontained failure, means debris broke out of the engine casing A330 will pose a serious challenge to 787 on a ground of cost aspects Airbus has a better cash generation model compare to Boeing due to its earlier R&D efforts and large streams of revenue from different models

Use of composite material : a new in the market and no one is sure for its operational durability
Favorable support to Airbus under bilateral agreement between US and Europe

New poker players from Japan & China will develop tough competition in aviation business

Favorable conditions for Boeing

Use of composite materials will develop a new trend in aviation industry for meeting the non-corrosive and light-weight structure

Airbus has made sizable investment in A380, which has left no room for airbus to counter attack the 787
Government assistance to Being after 9/11 incident Support from Japanese government in the form of subsidies via its Japanese partner in project of 787 A complaint filed by US trade representative to WTO, for unfair subsidies of billion dollar to Airbus