Business Policy

Case Study: Boeing Bets The Company

Submitted by:
Abdullah Amin (17E01019)
PMBA
Section A
Business Policy MBA

Boeing Bets the Company

Introduction

Boeing, the maker of Boeing 747, has been slowly losing its market share to the European based
Airbus since 1990. In 2001, the board of directors of EADS (Airbus) vowed to take the market
leadership in commercial aviation from Boeing by building the largest jet plane in the world, the
Airbus A380. This new aircraft would be designed to carry 481 passengers as opposed to 400
passengers by its counterpart Boeing. This new plane would cover greater distances and the
operating cost would reduce by 15%-20%.

Boeing, after reeling through an acquisition, concentrated on its aerospace and defense units
while ignoring its mainstay: commercial aviation. This has cost them a lot as the manufacturing
cost increased by 10%-20%, therefore, increasing the price tag. This has resulted in the slip of
market share from Boeing. Realizing their mistake, CEO of Boeing decided to concentrate on
their commercial aviation unit and to come up with a strategy to regain the market share. To that
end, Boeing came up with an idea of launching a new aircraft Boeing 787 that would be a
midrange aircraft capable of carrying 220-250 passengers with 20% less fuel consumption and
10% cheaper to operate.

The future outlook of both, Being and Airbus, was totally different. Airbus believed that the
future of aviation would be larger aircrafts that would be operating on “hub and spoke” principal
i.e. the travelers would first gather at one central airport and from there everyone board the
plane. Their estimate was that in future airlines would demand 1500 big planes like A380.

On the other hand, Boeing’s has a completely different perspective of the future. They estimated
that no more than 320 extra-large planes would be sold in the future and the airline industry
would move away from the hub and spoke networks towards direct flights. They took Southwest
and other low cost airlines as an example and consumers interest their low fares. Their primary
rationale was revolving around lower cost that could only be achieved by less fuel consumption.
Boeing forecasted that this new aircraft has a market of 2000-3000 numbers.

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Business Policy MBA

Each of these companies has their separate strategic positions with their own understanding of
the future. Keeping in perspective both companies’ position, I believe the Boeing’s prediction of
the future is more potent.

 As the world is becoming more concerned about the cost and with an emergence and success
of Airlines such as Southwest, that provides low cost travel, they are becoming increasingly
famous among the consumers.
 In addition to the huge cost of development of Airbus A380, there needs to be a lot of
investment in terms of infrastructure at airports to cater these huge planes.
 The composite material from which Boeing 787 is to be build would be much lighter and that
would give this plane a competitive edge in terms of cost saving in fuel and operating cost.
 It will be easier for the airlines to purchase more of these planes, instead of just a few oif
Airbus A380s and would therefore cater to more travelers.

To achieve this task of manufacturing Boeing 787, the company has to make changes to its
current operations. As Bowing was once a market leader in commercial aircrafts, they can still
achieve this by achieving economies of scales. For this, they have to change their vertical
integration strategy and outsource their operations. This would give them time to just concentrate
on the final assembly and deliver the plane in time.

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