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Boeing Case Study
November 15, 2011

Abstract

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Boeing is one of the world’s largest aerospace firms. It manufactures airliners for
commercial and military segments. The company is based in Washington State. It
just opened a new manufacturing facility in South Carolina. Boeing is best known
for the 747 jetliner. They have large contracts with different airlines as well as the
U.S. government. Over the years, Boeing has been plagued with many labor,
manufacturing, and supply problems. Their latest problems are with the 787
Dreamliner. Boeing is outsourcing a lot more its processes. It has worked with
Japanese automakers to improve its production process. Airbus is Boeing’s main
competition. Both compete in the same market segments. The SWOT analysis
looks at Boeing’s processes and strategies.

Boeing

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The Boeing Company, together with its subsidiaries is one of the world’s major
aerospace firms. The company is organized based on the products and services it
offers. Boeing has five principle segments:

Commercial Airplanes,

Boeing Defense, Space, & Security (BDS) consists of three segments:
 Boeing Military Aircraft (BMA)
 Network & Space Systems (N&SS)
 Global Services & Support (GS&S)

Boeing Capital Corporation

Engineering, Operations & Technology (EO&T): provides Boeing with technical
and functional capabilities, including information technology, research and
development, test and evaluation, technology strategy development,
environmental remediation management and intellectual property
management

Shared Services Group (SSG)

The Boeing Company was established in 1916 by William Boeing. It is the largest
manufacturer of commercial jetliners and military aircraft combined. It designs,
develops, manufacturers, sales and supports commercial jetliners, military aircraft,
satellites, missile defense, space flight, and launch systems and services. It is a
major service provider to NASA and operates the Space Shuttle and International
Space Station. Boeing provides products and support services to customers in 150
countries. It is one of the largest US exporters in terms of sales. Boeing’s large
scale of operation and market penetration gives it substantial bargaining power.
Boeing is headquartered in Chicago and employs more than 165,000 people
worldwide. Boeing’s vision is: “People working together as a global enterprise for
aerospace leadership.” Boeing plans to achieve their vision by running “healthy

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core businesses,” leveraging their “strengths into new products and services,” and
opening “new frontiers” (“About us,” 2011).
To realize their vision, Boeing considers “where they are today and where they
would like to be tomorrow.” They emphasize “detailed customer knowledge and
focus that understands, anticipates and responds to customer needs, large-scale
systems integration that continually develops and advances technical excellence,
[and] a lean enterprise characterized by efficiency, supplier management, short
cycle times, high quality, and low transaction costs” (“About us,” 2011).
Boeing is organized into two business units: Boeing Commercial Airplanes and
Boeing Defense, Space & Security. Supporting these units are Boeing Capital
Corporation, a global provider of financing solutions; the Shared Services Group,
which provides a broad range of services to Boeing worldwide; and Boeing
Engineering, Operations & Technology, which helps develop, acquire, apply and
protect innovative technologies and processes (“About us,” 2011).
The company merged with McDonnell Douglas (competitor) in 1997. Today, the
main commercial products are the 737, 747, 767, 777, and the Boeing Business Jet.
Boeing‘s new product development efforts are focused on the Boeing 787
Dreamliner, and the 747-8. Boeing has nearly 12,000 commercial jetliners in
service worldwide, which is about 75 percent of the world fleet. Boeing’s
Commercial Aviation Services provides 24/7 technical support and a full range of
engineering, modification, logistics and information services to its global customer
base, which includes passenger and cargo airlines, as well as maintenance, repair
and overhaul facilities. Boeing also trains maintenance and flight crews in the 100seat-and-above airliner market through Boeing Training & Flight Services, the

including delivery of the first P-8A Poseidon for flight testing.46 earnings per share (EPS) compared with $1. increasing its backlog to 3. In addition. Net income (earnings) increased to $3. The company delivered the 900th 777 and started assembly of the 1. Army.5 world's largest and most comprehensive provider of airline training (“About us. unveiling of two unmanned aircraft—the fighter-sized Phantom Ray and the .” 2011).S. 2010 Financial Results Boeing recorded revenues of $64. Space & Security to $65 billion. Navy.3 billion during the financial year ended December 2010 (FY 2010). It delivered 115 production military aircraft. it extended core Defense.3 billion or $4.5 billion (The Boeing Company. Revenues for the year were down 6 percent from 2009 due to anticipated lower airplane deliveries and reduced defense volumes.3 billion or $1. including contract awards for 124 F/A-18E/F Super Hornet and EA-18G Growler aircraft for the U.” 2011).0 billion. Boeing captured $69 billion of new orders during the year and grew its backlog to $321 billion—five times current annual revenues. and won 530 net orders. and cash and marketable securities of $10.000th 767. and six new commercial satellite orders . Boeing delivered 462 commercial airplanes. Space & Security milestones. and increased backlog at Defense.S.87 EPS in 2009 reflecting solid performance across core production and services programs. low-rate initial production of up to 51 AH-64D Apache Block III helicopters for the U. including record 737 deliveries for the second year in a row. two launch vehicles and four satellites.443 airplanes valued at $256 billion. Space & Security programs. It Achieved key Defense. and more than twice the business unit’s 2010 revenue. It continued to provide strong liquidity with operating cash flow of $3.

SWOT Favorable Internal Strengths:  Large scale operation and  strong global network Strong association with Federal Government  Robust inorganic growth  Focus on R&D   Strong order backlog Strong financial performance  Realignment for growth and expansion to new markets Unfavorable Weaknesses:   Production/supply problems Labor/legal proceedings  Dependence on US government . first flight of the UK Mk4 Chinook rotorcraft. and continuing to reduce the environmental footprint of Boeing operations (The Boeing company. The company advanced their environmental leadership by testing biofuels on commercial and military aircraft.6 hydrogen-powered Phantom Eye—in preparation for flight testing in 2011. improving the global air traffic control system. creating sustainable aviation biofuels research projects around the globe.” 2011). and winning the coveted Collier Award for the International Space Station. demonstrating next-generation energy smart grid technologies.

and the second-largest defense contractor in the US.7  External Diversified business offerings Opportunities: Threats:   Increased aircraft demand Rising global defense  Intense competition and  spending 787 Dreamliner to gain     pricing pressure Risks concerning labor issues Uncertain airline industry Rising fuel costs Change in US budgetary market share priorities and contracts Strengths Large scale operation and strong global network Boeing is one of two major manufacturers. Boeing is one of the leading producers of commercial aircraft and offers a broad spectrum of commercial jetliners designed to meet passenger and cargo requirements of both the US and non-US airlines. It is the global . equipped to produce aircraft capable of carrying more than 100 passengers for the worldwide commercial airline industry. The company has customers in more than 150 countries around the world and is one of the largest US exporters in terms of sales.

satellites. The company deals with numerous US government agencies and entities. Hill & Jones. NASA. C1-C15). Boeing’s large scale of operation and market penetration gives it substantial bargaining power (“About us. human space flight and launch systems and services. It’s Defense. The strategy includes understanding the art of using current and emerging technologies to improve the capabilities of existing products and deliver new solutions (“About us. unmanned airborne systems. and the Department of Homeland Security. missile defense. production.” 2011. FY2008. 2009. development. Strong association with Federal Government Boeing has worked with the Federal Government for over 30 years. intelligence and security systems. and surveillance and engagement programs. Boeing’s military aircraft business includes tactical and airlift aircraft. NASA and other defense customers. Boeing’s Defense. Boeing’s IDS (integrated defense systems) segment provides various research. Space & Security is a $32 billion business with 64. “Boeing SWOT. Boeing also engineered and .” 2011. development. “Boeing SWOT. Space & Security strategy is to understand the enduring needs of customers and provide capability-based solutions to meet their rapidly evolving requirements. manufacture.” 2009). communications architectures and extensive large-scale integration expertise across several diverse business areas. Boeing’s contracts with the US government accounted for 46% of its total revenues. sale and support of commercial jetliners. modification and support services to the US Department of Defense (80% of IDS 2008 revenues). military aircraft.8 market leader in design.000 employees worldwide that combines manned and unmanned airborne capabilities. missiles.” 2009.

reliability. C1-C15). the company also received a $5. Boeing also acquired eXMeritus. In FY 2009.9 million contract from the US Navy in May 2009. the company acquired Vought Aircraft Industries 787 business conducted at North Charleston. Robust inorganic growth Boeing focuses on acquisitions as a business-level strategy to expand its business and to earn more revenues. Boeing received a contract from the US Army for future combat systems.9 deployed various products for the Army. In the same month. The acquisition strengthens Boeing’s 787 program and bolsters its capability to develop and produce large composite structures (“Boeing SWOT. maintainability. a Fairfax Virginia based company that provides hardware and software to the federal government and law enforcement organizations. for development and testing of a Distributed Targeting system for the F/A-18E/F Super Hornet strike fighter. Strong relationships with major customers enable the company to receive many new contracts and hence serve as a competitive advantage (“About us. The company played key roles in improving the performance.” 2010). for sharing information securely. Boeing received a $48. The company has received significant contracts from these customers. Most recently. In FY 2009.” 2011. 2009. Boeing received A-10 sustainment and integration contract from the US Air Force.2 million US Marine Corps contract to provide a solution for recovering disabled Mine Resistant Ambush Protected vehicles. In June 2009. South Carolina. Hill & Jones. and weapons effectiveness. Navy and Air Force and tests complex and mission critical hardware and software systems used by these agencies. Vought’s 787 business produces fuselage sections. assembly and systems installation. supportability. for the 787 program. “Boeing SWOT 2009. including the fabrication. In June 2009. across classified and .

R&D expenditures involve experimentation. including both commercial and military. EO&T is an advanced research and development organization focused on innovative technologies. technical expertise and system integration of . improved processes and the creation of new products. These acquisitions are part of Boeing’s global-level strategy to expand its presence in the cyber and intelligence markets. Alenia North America is a subsidiary of Italy’s Alenia Aeronautica. FY 2008. a Finmeccanica company. Strong focus on research and development Boeing’s strategy also has a strong focus on R&D activities.768 million and $3.” 2010). The acquisition of eXMeritus complements FY 2008 acquisitions of Digital Receiver Technology Ravenwing and Kestrel Enterprises.10 unclassified networks and systems. Therefore. acquisitions bring complementary technologies. This acquisition increases productivity for the 787 program and allows Boeing to maintain its long-term competitiveness. The Boeing military aircraft division continues to focus on R&D resources to leverage customer knowledge. new and derivative jet aircrafts. $3. design.850 million in FY 2009. and FY 2007 respectively. The company’s R&D investment amounted to $6. support geographic expansion. The addition of exMeritus enhances Boeing capabilities developed through years of experience on secure networks for some of the most complex systems in national security (“Boeing SWOT.” 2010). a South Caroling fuselage subassembly facility for Boeing’s 787 Dreamliner. development and related test activities for defense systems. advanced space and other company-sponsored product developments. In addition. Its 'other' business segment principally includes the engineering. during FY 2009 Boeing acquired Alenia North America’s half of Global Aeronautica. and leverage existing infrastructure for Boeing (“Boeing SWOT. operations and technology (EO&T) activities.506 million.

Investments were also made to develop concepts and capabilities related to cyber and security products. Unfilled orders broken down by aircraft type were as follows: 2.396. to increase communications availability. 54 for the 767. the order backlog for Boeing Commercial Airplanes totaled 3.11 manned and unmanned systems that provide innovative solutions to meet the warfighter’s enduring needs. Strong order backlog As of June 30. and to leverage innovative networking and ISR (intelligence." 2011).392. 291 for the 777. and reconnaissance) concepts. Boeing’s global services and support (GS&S) continues to focus investment strategies on its core businesses. utility and bandwidth through more robust space systems. which totaled 3. 2011. Both figures are decreases compared to the company's year-end-2010 order backlog of 3. The backlog at the end of June 2011 represents a decrease from the backlog at the end of the previous month (May). surveillance. The network and space systems division of Boeing is investing in capabilities to enhance connectivity between existing and new air/ground and maritime platforms. 111 for the 747. and have an advantage over its competitors (“Boeing SWOT. Successful development of adaptable systems has allowed GS&S to transition from Boeing platforms into the broader aviation market. Strong financial performance .” 2010). strengthen its product portfolio. and 827 for the 787. Strong focus on R&D allows Boeing to develop proprietary products.443 ("Boeing reports second-quarter. as well as the development of next-generation space and intelligence systems.109 for the 737.

90 and $4. improved model mix and higher services volume. reflecting strong operating performance.8 billion at quarter-end.3 percent reflects higher Commercial Airplanes volume and strong core performance across the company's businesses.7 billion. Total company 2011 revenue and cash flow guidance is unchanged. on revenue of $16. partially offset by higher R&D ("Boeing reports secondquarter.0 billion.6 billion.25 per share. Space & Security's second-quarter revenue was $7. Last year's results were impacted by a charge on the Airborne Early Warning & Control program. Debt was essentially unchanged in the quarter.8 billion at the beginning of the quarter. Boeing's quarterly operating cash flow was $1. which are expected to be on contract later this year. The company increased its 2011 earnings per share guidance to between $3.S. Navy's study contract for the Unmanned Carrier- . Boeing Commercial Airplanes second-quarter revenue increased by 19 percent to $8. down from approximately $2.10 per share reflecting the strong core performance. partially offset by higher pension expense. Operating margin was 10. while operating margin was 10. India signed an agreement for ten C-17s. and BMA was awarded the U." 2011).6 billion. Cash and investments in marketable securities totaled $8. up from $7.4 percent. Boeing Military Aircraft (BMA) secondquarter revenue was $3.5 billion.9 billion." 2011).6 percent. reflecting strong operating performance and continued investment in development programs.8 billion on higher deliveries. or $1.12 The Boeing Company (NYSE: BA) reported second-quarter net income of $0. Operating margin was 10. Boeing Defense. During the quarter. Capital expenditures for 2011 have been reduced to approximately $2. reflecting the higher revenue and strong operating performance.3 billion ("Boeing reports second-quarter.4 percent. Operating margin of 9.

network and space systems. Network & Space Systems (N&SS) second-quarter revenue decreased to $2. reflecting United Launch Alliance performance and a gain on the sale of property. During the quarter. From January 2010. the combat systems business and the command. BDS operations principally involve research. development. production. reflecting strong performance in integrated logistics. the realignment consolidates some businesses." 2011).S. These businesses will be unified as the new network and tactical systems business (“Boeing SWOT. which is part of a continuing effort to successfully compete in a rapidly evolving global defense and security marketplace. Air Force ("Boeing reports second-quarter. and global services and support). Global Services & Support (GS&S) second-quarter revenue was $2. GS&S was awarded modernization and upgrade contracts from the U.13 Launched Airborne Surveillance and Strike Program ("Boeing reports secondquarter. modification and support of global strike systems.9 percent.5 percent.” 2010). Operating margin was 10. Boeing consolidated two businesses in network and space systems division. Realignment for growth and expansion to new markets The company focuses on realignment.1 billion. control and communications networks business. . due to funding reductions in Brigade Combat Team Modernization and lower SBInet volume. global mobility systems. While BDS will retain its current operating divisions (Boeing military aircraft." 2011). Boeing’s integrated defense systems business unit began operating under the name Boeing defense. space and security (BDS). Operating margin was 9.0 billion.

and space and intelligence systems. Hill & Jones. realignment positions Boeing for further growth in new and adjacent markets while continuing to serve existing defense and space customers (“Boeing SWOT. It not only manufactures commercial aircraft but also manufacture aerospace and defense aircrafts (“About us. the company extends its core programs even as it enhances its capabilities designed to capture business in promising markets in the US and around the world (“Boeing SWOT. missile defense systems. “Boeing SWOT. and development of common networkenabled solutions across all customers’ domains. knowledge of legacy platforms. Boeing anticipated flattening defense budgets and shifting customer priorities for the past few years and has been taking aggressive steps to position the company for profitable growth in a challenging economy. Its production system is also very efficient. 2009. Therefore.” 2011. BDS provides affordable solutions and brings value to customers through its ability to solve complex problems utilizing expertise in large-scale systems integration. Its rank as defense contractor with different countries is second. Diversified business offerings Boeing is the largest aircraft manufacturer globally and delivers aircraft to a large number of developed and developing countries. airborne surveillance and reconnaissance aircraft. C1-C15). There is no fault in its designs.” 2009. It also has the strength of product diversification. The designs of Boeing’s aircrafts are efficient.” 2010). With the latest strategic move.” 2010). network and tactical systems intelligence and security systems. .14 rotorcraft systems.

15 Boeing has been a manufacturer of commercial jetliners for more than 40 years." 2011). BDS designs. Realignment for growth and expansion to new markets . which includes the world's passenger and cargo airlines. Boeing Capital Corporation arranges. Space & Security.and space-based platforms for global military. aerial refuelers. and supports fighters. missiles. civil and commercial use. government and commercial customers. as well as maintenance.000 commercial jetliners in service worldwide. Boeing Defense. Boeing Capital Corporation is a global provider of financing solutions. produces. Boeing also trains maintenance and flight crews in the 100-seat-and-above airliner market through Boeing Training & Flight Services. modification. munitions and spacecraft for military." 2011). which is roughly 75 percent of the world fleet. structures and provides financing to facilitate the sale and delivery of Boeing commercial and military products ("Boeing: Boeing in. Commercial Aviation Services offers a full range of world-class engineering. The company has nearly 12. Through Boeing Commercial Aviation Services. Boeing merged with McDonnell Douglas in 1997 adding to its existing commercial aviation product line. transports. Working closely with Commercial Airplanes and Defense. land-. logistics and information services to its global customer base. the company provides around-the-clock technical support to help operators maintain their airplanes in peak operating condition. New product development efforts are focused on the Boeing 787 Dreamliner. the main commercial products are the 737. Space & Security (BDS) provides end-to-end services for largescale systems that enhance air-. bombers. 767 and 777 families of airplanes and the Boeing Business Jet. and the 747-8. modifies. repair and overhaul facilities. rotorcraft. the world's largest and most comprehensive provider of airline training ("Boeing: Boeing in. Today. 747. sea.

16 The company focuses on realignment. network and space systems. The 787 is seen as the future of . which is part of a continuing to successfully compete in a rapidly evolving global defense and security marketplace.” 2010). While BDS will retain its current operating divisions (Boeing military aircraft. Therefore. and development of common network-enabled solutions across all customers’ domains. three years later than expected. From January 2010. Boeing consolidated two businesses in network and space systems division. Boeing’s integrated defense systems business unit began operating under the name Boeing defense. realignment positions Boeing for further growth in new and adjacent markets while continuing to serve existing defense and space customers (“Boeing SWOT. These businesses will be unified as the new network and tactical systems business. the combat systems business and the command. knowledge of legacy platforms. space and security (BDS). Weaknesses Production and supply problems Boeing delivered its first 787 Dreamliner airplane to All Nippon Airways (ANA) in September 2011. With the latest strategic move. control and communications networks business. Boeing anticipated flattening defense budgets and shifting customer priorities for the past few years and has been taking aggressive steps to position the company for profitable growth in a challenging economy. BDS provides affordable solutions and brings value to customers through its ability to solve complex problems utilizing expertise in largescale systems integration. the realignment consolidates some businesses. and global services and support). the company extends its core programs and enhances its capabilities designed to capture business in promising markets in the US and around the world.

Assembly of the composite components requires a large number of high-quality. during a test near the Boeing facility in Seattle. Officials at Boeing and Rolls Royce deny that the delays with the Rolls Royce engine are due to the explosion (Logan. Reed. Alcoa Fastening Systems and Allegheny Technologies (ATI). Consequently. Some distributors bet on strong demand for the Dreamliner in 2008 through 2010 and were burned when production was postponed multiple times. lightweight fasteners from suppliers such as Carpenter Technology. Demand is stronger right now for the premium fasteners used to build aircraft engines. In addition. There were other problems with the design. 2011. Engineers have also had difficulties trying to remedy issues with a horizontal stabilizer on the airplane's tail made by a subcontractor in Italy. However. It is a sophisticated carbon-composite aircraft.17 air travel as well as the future of Boeing. the facility had to be shut down for repairs. 2010). As a result there was a supply overhang that made it difficult for . a Rolls Royce engine blew apart and caused severe damage to the testing facility. The 787 uses eight times more titanium fasteners by weight than the 737. there were problems with the GEnx engine powering some of the 787s. supply chain and manufacturing such as a shortage of fasteners. Boeing controls production of composites through a closely monitored supply chain. over double the usual development of a new airliner. Boeing experienced problems with the availability of the new Rolls Royce Trent 100 engine. Aircraft fastener supplies have been negatively affected in the last three years by speculation in the supply chain. which has been rapidly ramping up capacity. In August 2011. Carbon fiber composites come from Toray Industries. the 787 has been plagued by problems of delay and quality control in the company’s complex global supply chain and costs more than $32 billion.

France and elsewhere that manufacturer Boeing components. Boeing plans on keeping the original Washington state plant open and continue to send the majority of its 787 Dreamliner business there. Regardless. Boeing uses an international team of suppliers and engineers from the United States. The repeated Dreamliner delays result from a splintered engineering strategy and a complex supply chain of about 50 partners (Smock. Boeing opened a new $750 million assembly plant in South Carolina. Instead of drawing primarily from its traditional pool of aircraft engineers.18 OEM suppliers to operate consistently. The controversy is over Boeing's decision to assemble its fuel-efficient 787 Dreamliner. Washington and close the . Japan. Boeing had planned to reach 10 planes per month by the end of 2013 (Thomas. They filed a complaint against Boeing in April 2011. According to Bernstein Research. mechanics and laborers in the Seattle area. The National Labor Relations Board (NLRB) is accusing Boeing of breaking the law when it violated workers’ rights. 2011). The NLRB is charging Boeing with retaliating against workers in Washington State to punish them for past strikes by building the plant in a right-to-work state where unions are not as prominent. 2011). Boeing remains in the news about government attempts to force Boeing to place the second final assembly line in Puget Sound. Labor/legal problems Boeing has been plagued with legal problems in the past. Its recent problems involve a new Boeing plant in South Carolina. Boeing has added more than 2.000 jobs there since the 2009 decision to open a second production plant. Boeing will not reach target goals for its 787 production of 10 planes per year until 2015. Australia. Italy. Boeing lowered its outlook due to concerns over additional delays from eight 787s down to six this year and 51 (from 61) for 2012.

19 South Carolina final assembly and delivery facility (Devaney. 2011). However. In September 2011.” 2011). Boeing plans to assemble three of the wide-body Dreamliners a month at the South Carolina plant and seven per month in the Washington plant by 2013 (Devaney. 2011. 2011). Kesmodel & Trottman.” According to the NLRB. N&SS (Network & Space Systems) and GS&S (Global Services & Support). the United States Department of Defense (DoD) is BDS’s primary customer. Dependence on US government According to Boeing’s 2010 Annual Report. Kesmodel & Trottman. deliveries. leaders at Boeing made a decision to place the plant there based on numerous factors including the firm’s need to ensure a competitive future and insist that the decision is consistent with the law. Other significant revenues were derived from the National Aeronautics and Space Administration (NASA) and international defense markets. 2011. the NLRB stated that they obtained documents under subpoena that demonstrates that Boeing opened its second assembly line in South Carolina to avoid labor problems. documents from 2009 reveal that Boeing knowingly located the plant in South Carolina to help rebalance an unbalanced and uncompetitive labor relationship. Reliance on these governmental poses a threat to Boeing (“The Boeing Company. accounting for 82% of its revenues. . The South Carolina plan is known as “Project Gemini. and support. even though Boeing officials considered the location its highest-risk option. BDS consists of three capabilities-driven businesses: BMA (Boeing Military Aircraft). civil markets and commercial satellite markets. Boeing’s objectives in the move were to improve its cost-competitiveness and regain a reputation among customers for reliable products.

In addition.” 2010). In addition to normal business risks. To reduce its dependence on the U. The company is subject to cost adjustments if any costs are found to be improperly allocated including refunds. Boeing depends heavily on U. Long-term government contracts and related orders are subject to cancellation. Recently. The termination or reduction of funding can result in an adverse effect on Boeing’s earnings. Budgets are expected to increase in 2011. Changes in military strategy and priorities can affect future procurement opportunities and existing programs.S. and financial position. these contracts are subject to risks beyond the firm’s control. government can modify. delay. the Obama administration has sought Congressional approval for Boeing to sell $60 billion worth of F-15 jets to Saudi Arabia. current defense budgets exceed $700 billion for 2010. government contracts that are subject to unique risks. The funding of U.S. While Boeing is concerned about future cuts. In 2010.” 2011). Boeing’s contracts are subject to audits by the U. government agencies for incurred and indirect costs. curtail. government. the company recently delivered three F-15s to the Republic of Korea. Additionally. 43% of its revenues were derived from U. (“Boeing: Boeing delivers.S. Many of the government programs may last several years and are funded annually. cash flow.20 Any budgetary and spending cuts affect future revenues. government contracts. or terminate contracts with Boeing without prior notice and at its convenience upon payment for work done (“The Boeing Company. After 2011. if appropriations for subsequent performance periods are not made. . Expanding its business overseas is one such strategy. or restructure. BDS has developed several diversification strategies. The U.S.S. government programs is subject to congressional appropriations.S. fiscal policy changes could drastically alter future earnings in the defense industry.

9% per year and cargo traffic. with China leading the way at 7. the demand for new airplanes worldwide is expected to be 29.700 will be twin-aisle.2% each year. The rise of new airline business models and rapid growth of air travel in the world’s emerging economies are stabilizing worldwide demand for airplanes. Opportunities Increased demand for aircraft Air transport throughout the world is constantly changing in response to market opportunities and challenges. followed by Southwest Asia (6.6%) and Asia-Pacific (4. including China.100 will be regional jets (less than 100 seats). Africa (4.” 2010). According to Boeings’ Current Market Outlook for the period 2009-2028. of which 2.1%).4% a year (“Boeing SWOT. of which Asia-Pacific. 19. 6. All this translates into revenues of $3. At a global level. will experience growth in air travel of 6. grows 4. measured in revenue passenger-kilometer. and 740 will be large. At the same time.9%).000 over the next two decades. for an average of $160 billion/annum. passenger traffic. measured in revenue tonne-kilometers. The emerging markets are driving economic expansion.2% GDP growth.” 2011).460 will be single-isles. The growing demand for aircraft represents an .1%. Southeast Asia (4. grows 5. The global GDP is at 3. This translates into world average air travel growth of 4. Their government business is also subject to specific procurement regulations and other requirements that increase Boeing’s performance and compliance costs (“The Boeing Company.9%.2 trillion over a score of years. Boeing is well positioned both geographically and technically to service the huge aircraft market in the future.4%).21 They are also subject to government inquiries and investigations that could have adverse effects on their financial condition.1% and North America is set at 2.9%. the number of airplanes in the world fleet grows at an average 3.

” 2011). and that very large jets will be required to transport people between hubs. The US Federal Budget for FY 2011 is a . The 2011 US budget allocates $708. This trend is expected to continue through 2031 due to faster economic growth in other parts of the world.S.2 billion to the Department of Defense (DoD).” 2010). The International Air Transport Association also predicted 3. Boeing believes that the flights between city pairs will continue to grow (Hill & Jones.with U. In a 2006 report. airlines handling 7. with China being the major driver of growth (“FAA sees 3. the FAA expects international traffic to grow more rapidly than domestic travel . C1-C15). up by nearly one-third from 2009. Airbus believes that hubs will continue to play an important role in airline travel especially international travel. will account for some 3% of deliveries and 10% of value between 2006 and 2025. 2009. airlines will carry 1 billion passengers a year by 2021. The FAA expects U.8 percent more international passengers but only 3 percent more domestic passengers.3 billion air travelers worldwide by 2014.5%. Surge in the US defense spending Defense spending is a long-term recession-proof industry which would not be affected by cyclical downturns and upturns. amounting to 1. Boeing believes that travelers prefer nonstop service between cities and want to avoid congested hubs. Airbus believes that the demand for very large aircraft will be robust. two years faster than previously forecast.S. In its annual report published in February 2011. Boeing believes that the 747 range including the Airbus A380.22 opportunity for Boeing to capitalize on this market and would be able to expand its revenues and profits from this market (“Boeing SWOT. pp.648 large passenger aircraft and freighters in the 747 range and above or 22% of the total value of aircraft delivered. However.

Airlines also have more cargo revenue capacity. while the 787-9 will carry 250 . and Pakistan. such as the President’s commitment to reform defense acquisition. Boeing’s primary customer is the US DoD with approximately 80% of Boeing defense.250 passengers on routes of 7.85. to fund defense operations from October 2010 to September 2011.000 to 8. the 787 provides airlines with excellent fuel efficiency.” 2010).3 billion for DoD’s ongoing overseas contingency operations in Iraq. In addition to bringing big-jet ranges to mid-size airplanes. The 2011 Budget for DoD provides $548. the 2011 Budget provides $159.9 billion for the DoD base budget in 2011. a 3. It will also travel at a similar speed as today's fastest wide bodies. and continue to provide high quality health care to wounded service members.650 to 8. A supplemental funding request of $330. The 787-8 Dreamliner will carry 210 . The modern systems architecture also offers increased functionality and .200 nautical miles. develop a ballistic missile defense system that addresses modern threats. Afghanistan.290 passengers on routes of 8.4% increase over the 2010 enacted level.500 nautical miles. It also releases 20 percent less carbon dioxide and flies 15 percent faster due to its ultra-light carbon fiber components. 787 Dreamliner to gain market share Boeing’s 787 Dreamliner offers more comfort and convenience and is 20 percent more fuel efficient compared to other airplanes the same size. Therefore. Mach 0.23 spending request by President Barack Obama. space and security’s 2009 revenues being derived from this customer. a surge in the US defense spending could provide growth for the company in the short to medium term (“Boeing SWOT. resulting in exceptional environmental performance. This funding increase allows DoD to address its highest priorities.0 billion for 2010 addresses immediate funding requirements for these missions. In addition.

. 2009. It predicts the market at 3. Airlines can reduce their operating costs. who are intent on increasing their market share. As older fleets near retirement. faster. Space and Security (BDS) business also faces strong competition in all market segments. Boeing has 426 orders for the Dreamliner. Boeing faces aggressive international competitors. pp. The first 787 was just delivered to ANA in September 2011 as the world watched. demand for newer. the Dreamliner offers airlines a more cost efficient way to fly. Threats Intense competition and pricing pressure The commercial jet aircraft market and the airline industry remain extremely competitive. In addition. Boeing estimates the plane to have a 30 percent maintenance savings and a 10 percent better cash seat mile cost compared to peer airlines. jets are heating up. Boeing also estimates the 787 will connect 450 new city pairs ("Boeing: commercial airplanes-787." 2011). C1-C15). hub cities become more congested.24 efficiency. Smaller cities that offer nonstop flights are more convenient and easier to get in and out of especially for business travelers. Since being launched in April 2004 with a record order from All Nippon Airways (ANA). Boeing opportunities consist of a growing demand for small to mid-size airline to serve the increase in travel through pair cities and nonstop destinations. including Airbus.310 units over 20 years (2009-2028). quieter. As cities become more populated. As of 2011. Many travelers prefer to avoid hubs and travel through city pairs. 56 customers from six continents have placed orders for 821 airplanes valued at about $145 billion. Demand has been strong for the 787 (Hill & Jones. making it the most successful twin-aisle launch of a new commercial airplane in Boeing’s history. Boeing Defense.

25 primarily from Lockheed Martin. Additionally. China. Regional jet makers Embraer and Bombardier continue to develop larger and more capable airplanes. continue to pursue a strategic presence in the US market by strengthening their North American operations and partnering with US defense companies (“Boeing SWOT. the parent of Airbus.” 2010.” 2010. Northrop Grumman. Hill & Jones. intense competition across all business divisions of Boeing could erode the market share of the company and could also affect its profit margins (“Boeing SWOT. Furthermore. BDS expects the trend of strong competition to continue into 2012 with many international firms pursuing announced intentions of increasing their US presence. market liberalization in Europe and Asia has enabled low-cost airlines to continue gaining market share. Raytheon Company and General Dynamics. Non-US companies such as BAE Systems and European Aeronautic Defense and Space Company (EADS). other competitors from Russia. offer competitive products and have access to most of the same customers and suppliers. In addition. 2009. 2009. C1-C15). This results in continued cost pressures for all airlines and price pressure on Boeing’s products. C1-C15). certain of Boeing’s competitors have occasionally formed teams with other competitors to address specific customer requirements. These airlines have increased the downturn pressure on airfares. International competitors who are intent on increasing their market share. Therefore. Airbus has historically invested heavily to create a range of products to compete with Boeing. This market environment has resulted in intense pressures on pricing and other competitive factors and Boeing expects these pressures to continue or intensify in the coming years. . pp. Hill & Jones. and Japan are likely to enter the 70 to 190 seat aircraft market over the next few years.

2009. 1. Approximately 57. Also in May 2010. Boeing may experience additional work stoppages in the future. Airbus can offer large discounts because it is subsidized by European markets. Union actions at suppliers can also affect the company. Boeing experiences work stoppages from time to time due to worker strikes.” 2010).26 Risks concerning labor issues Boeing faces risk concerning labor issues at its plants. It also offered an increase in the basic pension benefit to $79 per month for each for each year of service. Uncertain airline industry environment Boeing’s main competitor is Airbus.000 payout and a 3. The work stoppage was tough at a plant where workers were accustomed to rolling a new C-17 onto the tarmac every three weeks. Both have spent millions lobbying politicians for various reasons from . The strike was halted in June 2010. The competition between Boeing and Airbus is fierce. from $70.000 employees. which could adversely affect its business.000 non-union workers were on the job. are union represented as of December 31. As a result. Work stoppages and instability in the company’s union relationships could delay the production and development of its products. The company experienced a work stoppage in 2008 when a labor strike delayed commercial aircraft and certain BMA program production. theC-17 production line was shut down although 3. which could strain relationships with customers and cause a loss of revenues (“Boeing SWOT. The company cannot predict how stable its relationships will be with 14 different US labor organizations and 7 different nonUS labor organizations.4% over the life of the agreement. which constitute approximately 36% of the company’s total workforce.700 Boeing workers who assemble giant C-17 cargo jets in Long Beach. as Boeing offered to pay a $4. California were on strike for a month over pension and medical benefits.

It may be more cost effective over the long haul for airlines to replace planes due to the fuel efficiency and cost savings of the Dreamliner (“Boeing SWOT. airlines are dependent on the overall health of the business environment. and profits from business travelers typically make up a majority of that. airplanes age and must be refurbished or replaced. Stock prices and profits are down for American. Before the drastic decline .S. there is also a shift away from travel on business and first class seats towards economy. Airlines are focusing on refurbishing old aircraft rather than new ones which can decrease the demand as well as sales of new aircraft. Travelers do not have the money to travel. there has been a decrease in air travel due to the economic state of the global economy. Businesses are spending less on travel. airlines' total passenger revenue. Delta. and United airlines as they struggle to keep up with rising fuel costs and thinning demand. Hill & Jones. with total industry profits falling to $4. 2009. pp. but the slowdown in corporate premium travel poses new risks and has the potential to cause even more damage. The decrease in passenger economy travel has been a problem for airlines over the last decade. down about 17 percentage points from 1990. With time and use. Since business travel is directly related to corporate profits.9 billion from $6. Although there was a significant rebound in travel after the recession officially ended last year. The airline industry will likely face a decline in profitability heading into 2012.9 billion this year. Losing those premium travelers could prove to be a huge hit to carriers’ corporate profits.” 2010. C1-C15). Boeing has an opportunity with its Dreamliner to capture the aging airplane market. according to the Department of Transportation. Passenger tickets now account for just 71% of U. Indicators for business travel point to a continued slowdown for the remaining months in 2012. In addition.27 industry regulations and funding to contracts.

5-8% placing more pressure on airlines to cut costs. However. dropped 13. The volatility of fuel threatens profitability and dampens plans airlines have to increase capacity in the next year.7% decline in July (Booton. that has fallen to about 7. Revenue offset the steady climb of jet-fuel prices last year. conflict in the Middle East led to jetfuel prices increasing at an accelerated pace compared with 2010. These regions used to be one of the strongest for air travel. Air travel in the European and North Atlantic markets have dropped significantly which reflects the economic conditions of this part of the world. First-class travel to the Far East from the U.28 in the economy two years ago. which is on top of a 9.S. many airlines have had to cut system wide capacity for 2011 by as much as 2 percent.S. . The industry is predicted to remain flat for the remainder of this year. In the latest periods. however. also grew modestly and showed little sign of any slowdown. Rising fuel costs Rising fuel costs are threatening airline margins.S. With the increased economic interest in Asian markets. the U.2%. A strong demand could offset some of the price of fuel. premium travel growth within the Far East was up for July and August 2011. travel on the spacious leather seats within the U. Delta expects its fuel bill to be about $3 billion for 2011. Demand began to build in 2010 as airlines kept the number of seats available for purchase relatively low and the recession started to ease. travel to Asia continues to be robust as those emerging markets become more attractive to foreign businesses. On a positive note. airlines have increased airfares six times compared with four times in 2010. American. So far in 2011. 2012). In fact. United. In the early months of 2011. premium travel made up 9-10% of total international air travel. and Delta Airlines reduced their capacity-growth plans due to fuel prices.

" 2011). Boeing has a great opportunity with its Dreamliner aircraft (Neighbor. the airline industry downsized and removed a lot of capacity. airlines may be forced to furlough and lay off employees and add ancillary fees to tickets as fuel price increases and demand decreases. As war conditions change. heavily reliance on these contracts also represents a threat. Airlines are in a better position today than in 2008. After 2008. Boeing was awarded one of the biggest contracts in military history consisting of $35 billion to build the next generation of air refueling tankers. with the continued threat of rising fuel prices. Ancillary fees include charges for checked bags. the military requirements also change. jet fuel ranges from 35 to 40 percent of airlines’ operating costs. However. there are fewer travelers. Reducing and maintaining capacity has meant the difference between hardship and survival for many airlines. Jet fuel was at an all time high in 2008 when prices were over $4 per gallon. To combat rising fuel prices and improve cash flow. Change in US budgetary priorities and contracts One of Boeing’s strength is its contracts with the government. blankets. Boeing provides commercial aircraft to many foreign airlines and is one of the largest exporters in the U.S. It is also one of the biggest defense contractors or the . the reduced capacity affects their bottom line in airplane sales. 2011).29 a 35 percent increase over 2010. These new tankers will replace 179 of the Air Force’s aging tankers which are equivalent to a flying gas station ("Boeing receives $35. however. 2011). Besides adjusting capacity. and snacks. Utilization rates are higher and there are not many empty seats on planes. For Boeing and Airbus. However. Airlines are threatened by the volatility in jet fuel prices. some airlines are deferring delivery of planes and may cancel future orders (Neighbor. Today.

is facing the potential for major cuts and reductions in overall defense spending by the United States. despite this business. however. . the 707. Boeing merged with McDonnell Douglas in 1997 primarily for its strong military business and has been a dominant player in the commercial aerospace industry. In 2010. introduced in 1957. the firm has been losing market share to Airbus since the mid-1990s. Boeing as well as other defense contractors. In 2006. the Air Force is looking at moving a great deal of their logistic support back to their own depots and away from commercial providers which affects Boeing’s bottom line (Potter.S. the 787 Dreamliner. Boeing gets a lot of support from the U. Boeing received about 63% of all guarantees from the government entity. and its newest wide-bodied super-efficient jet. Personal Observations Boeing has been building commercial airliners since 1927 with the first Boeing commercial jet airliner. However. The contract Boeing received for the new KC-46A refueling tanker helps offsets the end of the C-17 production for the Air Force and the end to other programs. Boeing started taking orders for the 787 in 2006. Boeing enjoyed strong sales of its 737. All Nippon Airlines did not take delivery of the first plane until September 2011. 777. Boeing and Airbus directly compete with each other. 2011). It is receiving about $15 billion in loan guarantees from the bank which help finance foreign commercial customer purchases. However. due to production delays the first aircraft was three years late. Export-Import Bank due to its overseas sales volume. However. transports or other products purchased from them.30 military and other government departments. This means that there may be fewer tankers. Boeing is best known for its 747 jumbo jet it introduced in 1966.

However. In an attempt to gain share from Airbus. Airbus. However. recruiting many from suppliers. inefficient. C1-C16). Historically. the company ran into some severe production bottlenecks. Over the years. In 1997. Boeing’s 767. 2009.31 Boeing’s competitor. a move it came to regret when many of the suppliers could not meet Boeing’s demands and shipments of parts were delayed. introduced along with the 757 in 1982. Airbus also had outsourcing problems. things got so bad that Boeing shut down its 747 and 737 production lines so that workers could catch . was the first aircraft in which the firm contracted out a significant portion of work to Japanese manufacturers. This process was labor intensive. Boeing had numerous problems with suppliers and manufacturers causing significant delays with its aircraft. Boeing cut prices.000 workers. It has been difficult to coordinate the manufacturing process with suppliers. When one process was complete. Their functional level strategy of keeping production in house had many flaws. Contracting out has caused production problems and delays. over the past two decades. The company scrambled to hire and train about 41. there has been a shift to contract out production components and entire subassemblies to independent suppliers. 2011). Airplanes were housed in garages where they were assembled. the plane was moved to another area for the next process. Boeing was plagued by a number of production problems. Its largest A350 wide-body aircraft that competes with Boeing’s 777 has been delayed for 18 months (Rothman. airline manufacturers tried to manage the supply process through vertical integration making many of the component parts that went into the aircraft. pp. and costly. By the late 1990’s. had its own production problems with the A380 super jumbo jet (Hill & Jones. Delivering aircraft meant that Boeing had to more than double its production schedule between 1996 and 1997.

and the company committed itself to a major acceleration of its attempt to overhaul its production system. the company had to take a $1. In addition to shorter runs and quicker turnover times. Until then. Boeing made very little money out of its mid-1990s’ order boom. Boeing looked at what Toyota had done. As a result.6 billion charge against earnings to account for higher costs and penalties paid to airlines for the late delivery of jets. the change to lean production enabled Toyota to provide better customer responsiveness and operate more efficiently. This cut down assembly time and manpower. pp. Ultimately. Instead of moving the aircraft. C1-C15). switched to a process known as lean production. In contrast to conventional or mass production. In addition.32 up with out-of-sequence work and wait for back-ordered parts to arrive. Boeing was drowning in inventory and had the huge financial expense of housing the inventory. These “moonshine” teams started developing their own equipment and machines that were essentially like moving garages and assembly lines. This small scale and quick turnaround . Boeing created cross-functional teams to develop lean production processes. Toyota. In the 1990s. Boeing changed its business strategy to an outsourcing manufacturing process. They looked at the Japanese automobile manufacturing processes. expensive equipment took up a lot of space and remained idle for long periods of time. lean production shortened production runs by using a system of levers and pulleys which reduced setup times for production equipment which is a major source of fixed costs. Boeing’s production was about producing parts in high volumes and storing them in warehouses until they were needed. 2009. after analyzing their production and manufacturing process and discovering numerous flaws. The head of Boeing’s commercial aerospace business was fired. elements of which dated back half a century (Hill & Jones. they wheeled machines around the plant to work on the planes.

assembly of the 737 went from 22 days to 11 days. This reduces time and work and eliminates workers from wandering around for parts and tools. Boeing also moved from a static assembly line to a moving line in which the aircraft is moved at a rate of 2 inches per minute moving past a series of stations where tools and parts arrive the moment needed. Set-up times were minutes instead of hours. Supplier problems caused major delays. and improve customer responsiveness. Boeing outsourced more work for the 787 than any other aircraft to date. Boeing reduced labor hours by 74% and reduced manufacturing space by 50 percent. Boeing was now able to produce smaller lots of parts economically and switch to just-in-time inventory systems reducing waste. It shifted the 747 to a moving line with the production of the new 747-8 jet. By 2006. Although Boeing had made great improvements in their production and manufacturing processes. manufacture and produce more efficiently.33 made it possible to produce these parts just in time. Coordinating . the moving line is stopped when a problem occurs. The moonshine teams also adopted other process improvement methodologies including Six Sigma quality improvement processes and total quality management systems (TQM). In addition. Portable machines such as routers were built for a fraction of the cost of large fixed machines. Changing its functional-level and business-level strategies from large inefficient production processes to lean production processes has enabled Boeing to reduce cost. These changes have had a significant effect. In addition. These arrive on workstations delivered to the assembly area. they were mired with supplier problems. Boeing asked it major suppliers to bear some of the development costs. By 2005. Work-in-progress inventory was reduced by 55% and stored inventory was reduced by 59 percent. eliminating the need to produce and store inventory. all Boeing’s production lines except the 747 had shifted from static bays to moving lines.

they had have had very different views for demand projections. Airbus believes that demand for very large aircraft will be robust. airlines introduced more flights between city pairs in North America and Europe and more frequent departures. Boeing believes that airline travelers will demand more frequent nonstop flights between city pairs. this declined to 13% with smaller wide-bodied aircraft such as the 767 and 777 (Hill & Jones. for the first time Boeing used cross-functional teams composed of engineering and . Annual projections of future demand is based on assumptions about future global economic growth. According to Boeing.3 percent. Boeing forecast demand for 27. not larger aircraft. C1-C15). By 2004.34 suppliers proved to be complex. Both Boeing and Airbus have had similar problems with production and suppliers.210 aircraft valued at $2. These differences reflect different views of future demand. costly due to delay penalties. The 777 was the first jet to be designed entirely on a computer. pp. In 2006. aircraft in the 747 and the Airbus A380 range will account for about 3% of deliveries and 10% of the value. amounting to 22% of the total value of aircraft delivered. 2009. In 1984. Boeing believes that the majority of aircraft will be for regional jets (which have fewer than 100 seats) and the large 747 aircraft.6 trillion over the next twenty years. and time consuming. Boeing lost orders for the 787 due to the delays and potential customers switched to Airbus (Hill & Jones. and the financial health of the world’s airlines. Boeing’s report showed that passenger traffic would grow at 4. In addition. the resulting growth in demand for air travel. C1-C15).8% per annum over the next twenty years versus Airbus’s forecast of 5. 63% of all flights across the North Atlantic were in the 747. However. On the other hand. After Boeing introduced the 767. 2009. Boeing developed the wide-bodied 777 in response to Airbus’s A330 and A340.

Firms should develop a mindset of mutual trust and responsibility by building good and strong cooperative relationships as equal . what was Boeing’s philosophy behind their approach? Exactly what was Boeing’s mission? According to Miller (2008). C1-C15). which supplied 20% of the 777 airframe. poor execution of their plans. being on-time with good quality. they had 850 orders (Hill & Jones.” The work of sourcing or purchasing within an organization should create value. In addition. Good plans should consider risks and allow for contingencies. They have continued these efforts for over a decade now and seemed to have learned a few things along the way. and in some cases a combination of both. Boeing should learn from its supply chain mishaps with the 787. purchasing activities should create profit in a real and concrete way by streamlining the entire process and building a strong supply base. and Fuji. there is a lot that they are doing right in the area of their lean efforts. including the Japanese companies Mitsubishi. 2009. pp. Some of the problems were due to poor planning. Firms can take actions toward a better lean supply chain strategy.35 production employees. As with the 767. It also brought major suppliers and customers into the development process. By mid-2006. In total. Kawasaki. Although Boeing encountered a lot of problems. Questions that arise are “Why did things go so wrong for Boeing. a significant amount of work was outsourced to foreign manufacturers. “The mission statement of the purchasing group of any company aiming to become a world class lean manufacturer should be a variation on the theme of: “Buy the best products at the lowest price. on-time in a way that ensures long-term stability by building strong supply base. This means not running out of parts. did they have a good plan or just good intentions?” In addition. some 60% of parts of the 777 were outsourced. Boeing’s break-even point with the 777 is 200 planes. and purchasing at a low price.

economy. The level . All projects have delays. A firm should organize its SPTT (Supplier Parts Tracking Team) to make sure there is a smooth start up of production and delivery from suppliers. The industry will always require bigger aircraft like the 747 and A380 for international flights. Cut-throat supply chains that erode trust or relationships based on one-way responsibility work for a short while. War. I did not find information on the project management team responsible for developing the project time schedule. Both companies see growth in the industry but differ in the amounts of growth and the market segments that will experience growth. The economic environment that the world faces today is much different than in the past. Boeing should spend less time putting out fires and more time on a SPTT to prevent these fires (Miller. For example. They have some of the same problems but deal with them differently. It needs to work on strategies that will ensure better predictions on delivery dates. The next ten years will be interesting for Boeing and Airbus. I see airline travel growing more in the city pairs segment with smaller aircraft and more frequent nonstop flights going from city to city. Personally. Managing projects as big as the 787. The company needs to be careful not to make the same mistakes. Boeing was not paying attention to the detail and intensity when it managed to run out of fasteners. 2008). The major hubs will grow but at a lower rate. and then can fail. a 3 year delay with the 787 seems unreasonable and unacceptable. Boeing has made a lot of changes to its manufacturing strategy and supply chain strategy. should be monitored with precision. Fair and reasonable commitments that both sides can live up to and fulfill are simply good business. People that travel on longer transcontinental flights prefer larger. more comfortable aircraft. In all research for this paper. However.36 partners with suppliers. and terrorism all affect the future of these airlines.

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