Professional Documents
Culture Documents
Case Study: The Boeing Company Strategic Analysis: December 2018
Case Study: The Boeing Company Strategic Analysis: December 2018
net/publication/333417295
CITATION READS
1 43,447
1 author:
Kamal Naimzade
Florida Institute of Technology
7 PUBLICATIONS 1 CITATION
SEE PROFILE
Some of the authors of this publication are also working on these related projects:
All content following this page was uploaded by Kamal Naimzade on 28 May 2019.
(NYSE:BA)
Strategic Management
14/12/2018
Table of contents
1. Introduction..................................................................................................................... 2
2. The history and current position. .................................................................................. 3
3. The strategy and making hierarchy. ............................................................................. 4
4. Diversification strategy .................................................................................................. 4
5. The BA`s hierarchy scheme of strategy consists from the next distinctions ............. 5
6. Organizational structure ................................................................................................ 6
7. PESTEL analysis ............................................................................................................ 7
8. The Porter`s Five forces analysis................................................................................... 9
9. The SWOT analysis ...................................................................................................... 10
9.1 Strengths ............................................................................................................................... 10
9.2 Weaknesses........................................................................................................................... 11
9.3 Opportunities ....................................................................................................................... 11
9.4 Threats .................................................................................................................................. 12
10. The Boeing value chain ................................................................................................ 12
10.1 Primary activities .............................................................................................................. 12
10.2 Support activities .............................................................................................................. 13
11. Generic competitive strategy ....................................................................................... 14
12. 2025 Goals set ................................................................................................................ 15
13. Recommendations ......................................................................................................... 15
14. Weighted Strength Assessment for Suggestions and Recommendations ................ 17
Appendix ...................................................................................................................................... 20
References:................................................................................................................................... 22
1
1. Introduction
When the aviators start to talk, the first thing they begin is the aircraft. The newest
and innovative, the largest and efficient. The airplane, which makes the aviation
industry different, from others. The flying aircraft, carrying tons of cargo and
hundreds of passengers to long distances in short time. The manufacturing most
innovative and progressive product, such the airplane is, might be possible for few
real strong companies, who made their names by manufacturing the best aircraft in
the world. The Boeing Company is the leader between them.
The BA has about 141,322 (Jan 1, 2018, Wikipedia) numbers of employees and
has presentation almost worldwide. The company has five divisions, all related with
aviation:
2
2. The history and current position.
The history of successful company starts in March 1910, when the founder,
William E. Boeing bought Heath's shipyard in Seattle on the Duwamish River, which
became later his first airplane factory. He incorporated the company on July15,
1916, and started with manufacturing of seaplanes. The first big order Boeing
received was from the Navy, for 50 seaplane. After World War1 company faced with
stagnation in business, therefore, temporary became manufacturer of different
products like a dresser, counters and furniture along with flat bottom boats called
Sea Sleds.
Beginning by 1919 the Boeing Company opened new horizons with first flying
boat. That boats began to use for airmail delivery local and international. Later
Boeing entered competition with other manufacturers for developing the fighters for
US Army Air. During period 1925-1947 Boeing developed different models for civil
and military market. In 1947 it flew first military jet aircraft, from that moment
company launched new era in jet airplane constructing. Since that, the company
became the worldwide famous airplane manufacture. The Boeing`s airplanes fly in
every part of world. Almost all airline companies worldwide have Boeing in the
fleet. Some of fleet contains by only Boeing airplanes.
The company manufactures different types of aircraft. The current popular civil
series: 737,747,767,777,787. Besides that, Boeing manufactures military aircrafts
and produces the engines for space rocket and electronic spare part used in space
programs by NASA. The Boeing Company is the second largest defense contractor
in the world and the largest exporter in US. It located in Seattle, Chicago Company,
placed in S&P 100 and S&P500.
The Boeing Company has plans for future. The company work on possibility of
using the biofuel for aircraft engines. They also determines the hybrid electric engine
3
technology, as the best choice for subsonic design. The developing technologies that
way, will keep company improving in future.
4. Diversification strategy
The BA aimed to fill the fleets of every airlines with its Boeing airplanes,
therefore the line of products include all kind of airplanes, from short-range to long
and extended-range with added tail tanks. In addition Boeing manufactures
corporate jet: BBJ (Boeing Business Jet), very luxurious, highly equipped aircraft
with special characteristics for private use. Thus the BA develop its strategy to
answer to all kind of needs. Total commercial aircraft orders for 2018 is 642,
delivered aircraft for 2017 is 763, with net orders 912. Beside, BA encompasses the
development of missiles, helicopters and wide range of other technical products used
in the defense and security segment. The revenue from diversification supported the
company during the fluctuations in market.
4
5. The BA `s hierarchy scheme of strategy consists from the next distinctions
Corporate strategy: BA was established from zero and continued to grow first
locally but later it became international. I think W. Boeing planned to enter different
market, as it happened after his leaving the company in 1933. The company
diversified from defense aircraft to commercial became manufacture of not only
civil airplanes, but also fighters and bombers for Army, missile and rocket engines.
Business strategy: From the beginning the BA emphasized the research and
developing for creating the quality product and distinguishing from others. Running
ahead, the financial analysis reveals serious investment in R&D procedures. The
company developed different models of airplanes for any type of operations, with
possibility to change the configurations. That favorably distinguishes it from its
closest and strongest rival: an Airbus. The BA provides lease opportunity for
customers, the spare part chain, technical documentation and information updating.
The BA also has educational centers for certification the technical centers. After
certification those centers allowed to perform the special maintenance, inspection
procedures, and configuration change procedures. Thus enhance the service network
of Boeing and support the requirements of periodical aircraft maintenance check.
Operating strategy: the company create new type aircraft and sells them to
national and international airlines companies. It has representation in 70 countries,
communicating with major and local airlines regionally. That foster supply chains,
5
which is highly convenient for airlines, in terms of short time for spare part delivery,
and very profitable for BA.
6. Organizational structure
Boeing uses the matrix structure, each department has the vice president:
The Boeing Company has its corporate headquarters in Chicago, Illinois. The
company is led by President and CEO Dennis Muilenburg. The BA organization
consists from five primary divisions:
Net earnings in 2017 were $8.2B, with total revenues $93.9B and total
expenses $76.1B
6
7. PESTEL analysis
Political: for foreign markets the new airplanes fleet purchasing is almost
everywhere controlled by local government. Partly because some governments
have ownership in of airlines, partly because the airline operations regulated by
law. Another reason could be the high cost of airplane, at the end this amount of
money leaves local market. Therefore airlines must conform the order. That
aspect is quite significant for BA. It requires good relation between BA and US
government for backup in case of necessity. Another important issue stated in
“The Boeing Company 2017 Annual Report, pg.8”. The BA contracts with US
government are subject to modify, curtail or terminate, in any numbers and turns.
The changes in defense budgeting levels might affect BA in very negatively way.
That factor implies the risk for future planning of company.
7
Social: This factor might affect Boeing in markets, where US antipathy, might be
caused by some economic embargo or by military conflicts in past. Those
markets are mainly in Asia, which are developing and becoming significant.
Environmental: this factor has one of the most significant effect to Boeing.
Aircraft engines are subject for regularly up-to-dating restrictions and
regulations. Those are related not only with air pollution, but also with noise
abatement requirements. This regulation might restrict the purchasing and
exploitation of certain type of aircraft or will require the modifying the existing
one.
8
8. The Porter`s Five forces analysis.
The substitute products threat; used to be low, until the main competitor an
Airbus, started to build the A380. That was moment changed the level to
moderate, because with this aircraft Airbus received significant amount of orders
and became real competitor. However, there are no others manufacturer with
same quality level in market. The Airbus and Embraer (only for short range
aircraft type) are only, who able to provide the same or close to similar products.
The buyers force: The threat is moderate because: despite to the usually, high
power of the customers in any industry, the airline industry is different, thus the
buyers have very high switch costs. Therefore, customer are now willing to
change the aircraft brands. Besides, while the Boeing will continue to build high
end technology equipped and quality aircrafts, with required fuel consuming
characteristics, this threat will remain moderate.
Potential new entrants force: this treats is extremely low. The airplane
manufacturing depends not only to huge financial investments, but also to high
skilled, professionally and well educated human resources. The technology
research, innovations and legal regulations are other aspects, which rise the entry
barriers to this market. In case with Boeing, it took 102 years to come to current
level.
Supplier force: Boeing is famous and strong firm with ability to pay, therefore
it could choose the suppliers, accordingly to own quality and stock requirements.
The suppliers of Boeing are also well known, technology firms. Therefore the
threat is moderate. Thus, the suppliers provide with quality parts (engines: Roll
Royce, GE) and raw materials (titanium, composite material), those, the BA will
not be able to buy somewhere else. However, financial strength levels of the treat
to moderate level.
9
Rivalry force: this threats is moderate to high. Despite to fact, that the Airbus
is only one significant competitor (moderate threat), it has the same line of
airplane types, even larger, with A380 (to high threat). Boeing does not have the
same type of airplane. The second players of market: Embraer, Bombardier and
others, also follow the line of quality of leaders, thus becoming the noticeable
rivals.
9.1 Strengths
- Worldwide known, global positioned, high technology quality product
manufacturer
- Diversified product supplier
- Large market
- High net earnings for FY17: $8.2B, operating cash flow for $8.8B
- Backlog for $488B
- High backlog proves the customer`s trust
- High investment to R&D, will further diversify the markets for Boeing, to the
aerospace niche, improve the airplane characteristics, stronger positions in
defense/military market
- High skilled, professional Human resources
10
- Large line of commercial airplanes, satisfying all kind of customer`s needs
- Focus on enlarging the product line
- Strong positions in domestic market
9.2 Weaknesses
- Backlog for orders by $488 (it can be the reason of penalties as the result of
late delivery)
- High expenses for retired personnel (pensions, etc...)
- Significant cost of research and development
- High costs of skilled personnel
- Wrong planning of B787 Dreamliner, resulted with increased costs
- Limits in fuel type for engine, limited by today’s technology.
- High reliance (31%) on US government contracts
- Reliance on suppliers products, strong bargaining power of suppliers
- Fixed-price contracts, possible losses if overrun
9.3 Opportunities
- Only one real competitor
- Airline transportation markets growth: domestic and worldwide(Asia-Pacific,
Middle East, Africa)
- Defense and aerospace orders growth
- Wide backlog($488B), and new orders
- Narrow body aircraft demand growth: B737 Max series
- New B787 aircraft
11
- Expansion in domestic and international markets
9.4 Threats
- Increasing in retired and resigned compensation costs
- Market condition impact on demand for commercial aircraft and related
services
- Possible changes in defense spending by U.S. government
- Possible modifying, curtail or terminating of U.S. government contracts
- Possible U.S. government inquires, investigation and audits related with
reimbursable cost
- Risks related with performing business in other countries
- Increasing the competition level between airplane manufacturers
Supply chain management: Currently Boeing has contracts with raw material,
engine, landing gears and composite material suppliers. However, CEO
Muilenbur`s shared his plans to launch the cutting supply-chain costs policy, by
starting manufacturing more parts on own side. This decision will provide two
visible benefit for BA. Competing with suppliers and long term aftermarket
revenue coming from replacement demand.
12
Operation: The Boeing operation scheme consists building airplane/civil or
military and sell it and provide the service. The significant part of operation to
detect which type of product will be required currently. For instance, the plans
for next few years is earning the largest market share for wide body aircraft.
Distribution: this element important when providing the aftermarket service and
spare part. The authorized technical service centers and improved spare parts net
will add value to the product.
Sales and marketing: Boeing customers are specific and they are not reachable
by classic advertising instruments. The best way to communicate with current
and potential is timely informing them directly about new models and improving
available. In addition, best effect might be achieved by contracting with major
airlines, even with significant discount cost to BA.
Service: the best quality of service might be achieved by providing fast and
professional repairs and fulminant spare parts supplying. Latters might be done
by regional spare part warehouses and special contracts with airline for fast
shipping with avoiding or accelerated custom procedures.
13
Human resource management: Boeing most important investment is skilled staff. It
has special internship program for talented students, to find and hire the best ones.
The hiring process is also complex system to choose the best candidates.
General administration: Boeing executives adopted: “1) The Boeing Company Code
for Ethical Business Conduct for the Board of Directors, 2. The Boeing Company
Code of Conduct for Finance Employees which is applicable to Chief Executive
Officer (CEO), Chief Financial Officer (CFO), Controller and all finance employees
and 3) The Boeing Code of Conduct, that applies to all employees, including the
CEO” (Source: Boeing 2017 Annual Report).
14
12. 2025 Goals set
The set of goals for 2025, published on official site, includes parameters which
company planned achieve:
- Market leadership
- Top-quartile performance and Returns
- Growth Fueled by Productivity
- Design, Manufacturing, Service Excellence
- Accelerated Innovation
- Global Scale and Depth
- Best Team, Talent and Leaders
- Top Corporate Citizen
(Source: https://www.boeing.com/principles/vision.page)
We will use those goal set as one of the criteria to value the recommendations.
Other parameters to weigh the competitive strength of Boeing will be:
- Company Effectiveness
- Added Cost
- Added value with customer satisfaction
- Added value with profit
13. Recommendations
Boeing is strong company with some weak point, which are generally possible
to manage. Wide backlog and new orders will secure company with funding for next
decade. However, I developed the recommendations which will strengthen the
positions in market. Some of recommendations related with diversification product
line, which also would positively affect profitability.
15
The recommendations for Boeing future strategy:
1. Enlarge corporate sector. BBJ is not enough to enlarge the business aviation
sector. BA should develop new models and introduce them to sector
2. Enhance aerospace program and products. More contracts with NASA will
add profit and product variety
3. Move assembly and manufacture lines to place with lower labor costs. For
instance to China, Vietnam and etc…
4. Start to manufacture at least 80% of part. Will increase the profit and
competition.
5. Develop and build own engine. Will reduce the cost of building new aircraft
6. Investment to innovations related with cost reducing. Example, robotized
assembly and manufacture lines
7. More composite material, instead of titanium and aluminum. Will decrease
reliance on suppliers
8. Develop international relation with foreign government. Will foster the
agreement for new orders
9. Enhancing technical support center. Will add customer satisfaction value.
10. Develop discount system to support new purchases. Will strengthen the
competition with rivals and company image
11. Build own aircraft with 2 stage (Analogue A380).
12. Establish new assembling lines to speed up the backlog
13. Enhance military/defense sector with less cost, quality and reliable products
14. Develop vertical takeoff flying vehicle manufacturing. That project is quite
significant and promising.
15. Diversify a production, by adding for instance the speed train wagon and
locomotive manufacturing. The airplane manufacturing is limited with physic
laws and fuel types, therefore at the certain moment the company will be
16
stacked with creating the new types. Although, diversification will provide
extra profit and market share.
16. Fasten the positions in U.S. market to prevent the Airbus market share
growing
17. Cooperation with Airbus to create the one aircraft manufacturing
conglomerate.
18. Partnership with airlines or establishing own airline company. This strategy
will provide the transportation with lower ticket price in market, hence the
success of company is certain.
19. New fuel type research. The nuclear, solar or hydrogen would be the good
substitute to the current jet fuel. Continue to develop biofuel researches.
20. Developing presence on Africa and Asia markets with “think global-act
global” transnational strategy.
21. Became the benchmark for aircraft quality.
Next table will show only ten most significant steps to support Boeing in future.
Criteria Weight Company Added Added Added Value Supporting the 2025
-------------------- Effectiveness Cost Value with Profit goal achievement
(10 with
Recommendati
lowest Customer
on cost) satisfying
17
2.Own engine 0.1 9 3 5 8 9
building
5.Enlarge 0.1 9 2 7 9 9
corporate
segment
6.Cooperation 0.09 10 5 5 5 8
with Airbus
7.Partnership 0.09
with or 9 2 3 10 9
establishing
airline company
8.Develop 0.08 9 2 9 10 9
vertical takeoff
flying vehicle
9.Diversify 0.08 8 1 2 8 6
products(speed
train,
locomotives)
18
10.Enhancing 0.08 9 5 9 10 10
military/defens
e sector
11.Enhancing 0.08 8 5 9 8 9
technical
support centers
19
Appendix
1. Financial data of Boeing
“BA is considered a "True Stalwart", according to this methodology, as its earnings growth
of 17.59% lies within a moderate 10%-19% range and its annual sales of $98,154
million are greater than the multibillion dollar level. This methodology looks for the
"Stalwart" securities to gain 30%-50% in value over a two year period if they can be
purchased at an attractive price based on the P/E to Growth ratio. BA is attractive if BA can
hold its own during a recession”.(Source: Morningstar.com)
Boeing dividend (Updated 12/07/2018): Dividends has been paid continuously since 1973
and increased for 7 consecutive years. Price: $322.96; current dividend annualized:$6.84;
Dividend yield: 2.1%; Normalized diluted Earnings per share: $16.64; Cash flow from
operations per share: $25.82; Free cash flow per share: $22.90; Market Capitalization :
$183B(Source: https://finance.yahoo.com/quote/BA/analysis?p=BA)
EBIT data:
EV to EBIT (TTM): 18.5
EV to EBITDA (TTM): 15.5 (8/17 points)
EV to CFO (TTM): 14.0
1
Price to Book Value (TTM): n/a
Price to Earnings Ratio (P/E) (TTM): 21
PE 10: 53
Ratio data:
Earnings Quality Score (8/33 points)
Operating Earnings Yield (TTM): 5.1% (4/15 points)
Gross Profit (TTM): $18208 M
Total Assets: $114659 M
Gross Profitability Ratio = GP / Total Assets: 16% (4/18 points)
Cash Return On Invested Capital (CROIC)(TTM): 117%
Return on Invested Capital (ROIC)(TTM): 87%
Profit Margin (TTM): 10%
Dividend Safety Score (24/33 points)
Dividend Payout Ratio (TTM): 38%
Cash Dividend Payout Ratio (TTM): 28% (9/12 points)
Net Financial Debt: $1886 M
Total Assets: $114659 M
Net Financial Debt / Total Assets: 2% (9/12 points)
Net Financial Debt to EBITDA (TTM): 90%
Piotroski Score (1-9) (TTM): (6/9 points)
TOTAL POINTS – (53/100) (50 is an average score)
20
Earnings Report: 10/24/18
Next Earning Report: 1/31/19(Source: http://fernfortuniversity.com/term-
papers/porter5/lse/1395-boeing-co-.php )
21
References:
-Crafting & Executing Strategy: the Quest for Competitive Advantage Concepts &
Cases, Thompson, Peteraf, Gamble, Strickland, 21st Edition (2018)
-Financial Management, Brigham and Ehrhardt, Theory and Practice, 15e;
-http://investors.morningstar.com/ownership/shareholders-
overview.html?t=BA®ion=usa&culture=en-US
-Bonds:
http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=BA&Country=us
a
-Nasdaq: http://www.nasdaq.com/symbol/ba/stock-report
-https://www.gurufocus.com/term/wacc/BA/WACC-Percentage/Boeing%20Co
-https://www.gurufocus.com/economic_indicators/37/10year-treasury-constant-
maturity-rate
-https://www.gurufocus.com/stock/BA
http://s2.q4cdn.com/661678649/files/doc_financials/annual/2016/2016-Annual-
Report.pdf
22
-The Boeing financials from Google Finance:
https://finance.google.com/finance?q=NYSE%3ABA&fstype=ii&ei=Z7MVWuns
CJWBmAH514-IBg
-https://thesystemsthinker.com/operational-strategy-mapping-learning-and-
executing-at-the-boeing-company/
-https://www.fool.com/investing/2018/12/04/why-boeing-and-gm-stock-dropped-
5-today-and-polari.aspx
-http://investors.boeing.com/investors/investor-news/press-release-
details/2018/Boeing-Reports-Record-2017-Results-and-Provides-2018-
Guidance/default.aspx
-http://www.boeing.com/commercial/customers
-http://www.fi-aeroweb.com/firms/Materials/Materials-Boeing.html
-http://investors.boeing.com/investors/overview/default.aspx
23