Boeing 747-X

Case A: Part 1
The Dilemma In 1996, the Boeing Corporation announced its plans to develop two new jumbo jets, expanding the 747 family. Improving the range and capacity of the current 747400 would be the 747-500X and the 747-600X. Engine companies prepared to spend hundreds of millions of dollars into developing new engines to deliver the increased thrust required for the bigger jumbo jets. Suppliers scrambled to sign contracts that could ensure their business for years to come. Boeing sought out carriers to order the new planes. In January 1997, Boeing would be forced to make a decision regarding the 747-X project. The time had come to decide whether or not to launch the project, that is, to fully commit to producing the product.

Boeing History and Project Backgrou nd

The Boeing Company has long had an identity as a creator of airplanes. Boeing does not simply build planes, nor does it just design them; rather, an airplane is a living, breathing creation of all the members of the Boeing family. When the first 777 was rolled out, a production worker lifted his young child up so he could touch skin of the airplane that he helped build. This deep emotional connection between Boeings

employees and their creation demonstrate s the importance that Boeing places on creating the best plane that they can. This may explain why Boeing airliners have the best safety record in the world.

Perfection, of course, does not come cheap, nor does it come quickly. In always striving for perfection, Boeing invests billions of dollars, thousands of employees, and years of development into the creation of each model. In fact, the investment is sometimes so great, that the continued existence of Boeing has rested on the success of their current creation. Boeing bet the company on the original 747and nearly lost. Although the 747 in its mature years helped Boeing to the pinnacle of financial success, the trauma of its birth nearly destroyed the company (Rodgers, 288). The 777 is another example of how Boeing bet the company on a new airplane design. The program director, Phil Condit, pioneered a new design process that included extensive use of a computer program called CATIA. The goal was to define the entire aircraft in digital form, without using the usual mylar drawings. Boeing programmers developed a fly through program which allowed engineers to move through a computerized prototype of the aircraft, iterating the design in virtual space. Designers could immediately see how their creations looked in three dimensions, and how they fit with what every other designer was doing. No longer did the designers have to rely on a mock-up when their work was finished to discover incompatibilities; if, say, an engineer tried to run a duct through an area where somebody had placed a beam that blocked the way, the computer screen would show the impasse immediately. If an engineer wasnt sure a maintenance person could squeeze into a tight space hed designed, he could call up a figure of a man on the screen to see if hed fit (Rodgers, 417).

One of the goals of the software and the teams was to eliminate costly redesign and rework, thereby saving both dollars and time. They succeeded: rework on the 777 was reduced by from 60% to 90% over previous airplanes (Davis, 1995). Quality was also improved; for example, the noise signature of the 777 was lower than previous airplanes, and its fuel efficiency was greater. Furthermore, Boeing designed for the future by anticipating the kinds of derivatives that might be produced, and designing that flexibility into the first 777s. By the time the first 777 flew, Boeing had spent an estimated $5.5 billion on development, due in part to the high costs of computerization. The companys reluctance to admit the actual cost of development has prompted a great deal of speculation, and unnamed sources have put the figure as high as $12 billion. Boeing has now accumulated 419 orders for the 777 line as of March 31, 1999, worth over $60 billion. Because of problems in the implementation of CATIA, the new computer aided design system introduced by Boeing for the 777 project, the development cost of the 777 was billions of dollars more than expected, and the line may have yet to turn a profit, despite the large number of orders.

One of the goals of the software and the teams was to eliminate costly redesign and rework, thereby saving both dollars and time. They succeeded: rework on the 777 was reduced by from 60% to 90% over previous airplanes (Davis, 1995). Quality was also improved; for example, the noise signature of the 777 was lower than previous airplanes, and its fuel efficiency was greater. Furthermore, Boeing designed for the future by anticipating the kinds of derivatives that might be produced, and designing that flexibility into the first 777s.
One of the first 777s, still in testing at Roswell, New Mexico.

By the time the first 777 flew, Boeing had spent an estimated $5.5 billion on development, due in part to the

high costs of computerization. The companys reluctance to admit the actual cost of development has prompted a great deal of speculation, and unnamed sources have put the figure as high as $12 billion. Boeing has now accumulated 419 orders for the 777 line as of March 31, 1999, worth over $60 billion. Because of problems in the implementation of CATIA, the new computer aided design system introduced by Boeing for the 777 project, the development cost of the 777 was billions of dollars more than expected, and the line may have yet to turn a profit, despite the large number of orders.

Currently, Boeing has a monopoly on the jumbo jet market, as the 747-400 is the only jumbo currently in production. Not only does Boeing have a monopoly on this sector of the airliner market, but the jumbo jet line has also traditionally brought in a large share of the companys revenue. Based on aircraft prices and delivery figures on Boeings web site, the 747-400 line has brought in about 25% of the companys commercial aircraft revenue in recent years. Clearly, Boeing has a strong interest in protecting this hold on the jumbo jet market. Until recently, this has been quite simple, since nobody else has put a true jumbo on the market. Now, the airliner market demand may prove large enough to support more than one jumbo. Boeing merged with McDonnell-Douglas, its major domestic competitor in the commercial airplane business, in 1997. Its only remaining global competitor, Airbus Industrie, which is a subsidized multinational consortium of European aerospace companies, has the resources to develop such a product. British Aerospace, DaimlerChrysler Aerospace, Aerospatiale, and Casa are the main partners in the consortium. The consortiums greatest asset, however, is the backing of the British, German, French, and Spanish governments. As long as Airbus remains subsidized, it is able to freely spend on aircraft development, without fear of going under.

Air travel is booming worldwide, especially in Asia, which in 1996 and 1997 accounted for over half of Boeings non-U.S. sales (1996 and 1997 Boeing Annual Reports), and the demand for longer routes is growing as well. The result? Major airports are becoming extremely congested. In response to this situation, both Boeing and Airbus embarked on the New Large Aircraft (NLA) program, the first step in creating a super-jumbo that would fly more passengers over greater distances than ever. For Boeing, the NLA concept evolved into the 747-X program, which consisted of the 747-500X and the 747-600X. Airbus announced similar plans for its own superjumbo, the A-3XX.

Artists' concepti ons of the proposed 747500X (left) and 747600X (right)

Of course, these initial announcements in 1996 were little more than grand plans for the future. The proposed super-jumbos were just that concepts. At this point, Boeing has not actually launched the project, but only begun exploring the true feasibility of creating a super-jumbo: what it would cost to develop, what the true market demand for such a plane would be, and whether a super-jumbo would truly lessen the overcrowding that plagues major airports around the world.

Boeing 747-X
Case A: Part 2

Details of the Dilemma

Before both Boeing and Airbus began investing into a project to produce a super jumbo jet, the two companies conducted a joint market study to determine what the future demand for this type of plane would be. They both predicted that the industry would see an annual growth of at least 5% over the next twenty years. This expansion would effectively triple the number of passengers and cause a demand for 16,700 aircraft worth about $1 trillion. Both companies envisioned the Asian continent as the major sector of growth. Boeing and Airbus also came to similar conclusions about the future of the jumbo-jet market. According to Airbus, there would be demand for 1,332 jumbo jets through 2017, which Boeing put the figure at 1,180. Although Boeing and Airbus essentially agreed on the above predictions, each took vastly different action based on the findings. Boeing was unsure as to whether there was a significant need for an entirely new line of jumbo jets. First of all, they already had the 747, which by their predictions would satisfy all but 480 of the predicted orders. Cost was also a major factor. The projected cost of such a development program would be at least $10-20 billion over a period of five years. Airbus, on the other hand, does not have a jumbo jet currently on its production line. Airbus has also committed itself to capturing 50% of the commercial aircraft market, a goal that will require significant penetration into the jumbo jet sector. Announcing plans to develop the A-3XX super jumbo in 1996 was Airbus first step in this direction. Boeing countered this offensive to its virtually monopoly of the jumbo jet market by devising the idea for a new 747, the 747-X based on the extremely successful older design. This Conceptual image of Airbus' proposed A3XX super jumbo. type of aircraft would only cost

an estimated $5-7 billion over 2-3 years instead of the more expensive and lengthy alternative. This new 747 would meet the projected demand for an aircraft with longer range and higher capacity only after a major redesign. The new characteristics of this aircraft would include a new wing design for added lift and fuel capacity, increased fuselage strength, fly-by-wire controls in the cockpit, and an improved (lower) operating cost.

Before betting the entire company future on the two new designs, the 747-500X and 747-600X, it was absolutely necessary for Boeing to consider all of the arguments for or against launching the project. There are several reasons why Boeing should go forward with the project. As previously mentioned, Boeing has a history of betting its entire company future on the success or failure of a new plane. This risk factor may account for the continuing quality of Boeings aircraft. So the design of new models could be consistent with Boeings past nature. Boeing has possessed a virtual monopoly of the jumbo jet market with the 747 since the planes original production. By succeeding the 747-400 with the 500X and 600X, Boeing could continue to dominate this substantial portion of the market. This would prevent up-and-coming Airbus from achieving a large share of the jumbo jet demand. Only by countering or eliminating its competition will Boeing be able to guarantee its continued success in the aircraft industry for years to come. Boeing also had to consider several arguments against launching the 500X and 600X project. The likely cost of the projects increased from the original projection of $5-7 billion to an amount of at least $12 billion, as was reported in January 1997. At that point, Boeing was spending about $3 million per day on a project that hadnt even been officially launched. This increase in cost augments the risk involved in the project because of the ever-present possibility of failure, thus calling into question the future of the company. In some past instances of Boeing betting the companys future on the success of a single plane, there was no other alternative; the company would cease to exist independently if they didnt take the risk, so an all-or-nothing project didnt seem so risky at all. The existence of a satisfactory jumbo jet is also a valid argument not to continue with the project. The 747-400 is already serving its customers needs sufficiently and

has an outstanding safety and maintenance record. Although they would cost almost as much as a completely new line of aircraft to develop, the 747-500X and 747-600X would still be extensions of the 747 family. Airlines would be hardly inclined to purchase a 747-600X from Boeing when they could purchase a less costly 747-400 that suited their needs. When decision time came around, Boeing had still not found a true launch customer an airline that would agree to place a significant order upon the launch of a project. Airlines had still not decided whether they truly would need such gargantuan planes, or whether or not they could even use them. Most major airports would be unable to handle the 747-X with their current infrastructure, and have not yet decided whether or not they will accept the super jumbos. The relationship between the boom in the air travel industry, the proposed super jumbos (NLA projects) and airport infrastructure, is best summed up by this quote from Aerospace America in 1996: At present growth rates it will be impossible for the aviation industry to meet the demand for air travel by the year 2006 with aircraft, air traffic control, and airport infrastructure. There is not enough runway space, terminal space, or airspace to handle twice as many passengers as nowIf the ACI (Airports Council International) is to be believed, it [the NLA] will make matters worse.
The quote refers to a study by the ACI on the capability of major airports to handle super jumbos. Only the newest major airports are even close to being capable. Most others will have to make moderate to major overhauls to their infrastructure if they wish to be able to smoothly integrate super 747-100's parked at LaGuardia. Note the proximity of their wingtips. If an aircraft of the size proposed for the 747-X was at this terminal, the two spaces adjacent to it would not be usable. jumbos into their operations. Some airports

had already taken steps in this direction, such as Frankfurt, which had completed a new terminal with parking stands large enough for the proposed 747-X, even though neither Airbus nor Boeing had announced plans for their super jumbos. Worldwide, the cost of upgrading would total billions of dollars a hefty sum to pay when considering that airports will benefit little in business terms from accommodating these behemoths. Airports may also choose to either deny airlines the ability to land super jumbos, or disruptively restructure their operations to accommodate them, rather than upgrade their facilities. Clearly, the airports are one

of the largest wildcard factors in determining demand. If airlines can not land the 747-X anywhere, then they will not buy it.

Boeing 747-X
Case A: Part 3

Decision Time You are now in the shoes of top executives that govern Boeing. The facts have been laid out, and you must decide whether to launch the 747-X, or kill the project.

To launch the project is to commit the Boeing Company to the full development and production of the 747-500X, and the 747-600X. If produced, these planes will be able to comfortably fly as many as 550 passengers over a distance of 10,000 nautical miles, and at a cost below that of any other aircraft in existence. If it is successful, and proves superior to the Airbus A-3XX, assuming that project is launched as well, then Boeing dominance of the jumbo and super jumbo jet market will continue indefinitely. At the very least, Boeing will be able to prevent an Airbus monopoly on the super jumbo market. The 747 is Boeing's greatest weapon in the war on Airbus. Be warned this project is projected to cost from $7 billion to $12 billion.

The projected market demand is a very educated guess, but still a guess and far from certainty. If the project fails, then you leave Boeing in a difficult financial situation that could threaten its very existence and ability to compete with Airbus. Should you decide to cancel the project, then the risks for Boeing are lower, but not non-existent. You will not be faced with the failure of a multi-billion dollar project. You will not find your corporate existence threatened. You will, however, open the door for a move by Airbus, who has clearly announced intentions to eat up a quarter of your market share as its business objective. Should Airbus be successful with the A-3XX, then they will have the only super jumbo in existence, and will likely infringe upon the jumbo jet market, which is, at present, all yours. The risk is there for the A-3XX to force the 747 family into obsolescence, wiping out one of your largest sources of revenue. You must also recognize that by backing off from a project as risky and costly as the proposed 747-X, you may set a powerful precedent for the future that could affect whether Boeing will ever again create a new airplane. The decision you make here will be a powerful force in shaping Boeings direction for years to come.

Airbus intends to invade your market. If built, the A-3XX would be the vanguard of that invasion.

WHAT DO YOU DO?

Boeing 747-X
Case A: Part 4
Boeings Response and The Aftermath Boeing decided not to launch the 747-500X/600X project. Boeings market projections did not justify the creation of an entirely new class of aircraft the superjumbo. Airbus, however, has pressed on with development of the A-3XX, and intends

to launch the project sometime in 1999. To Airbus, Boeings unwillingness to enter the super-jumbo market presents an excellent opportunity. The A-3XX is what Airbus believes will allow it to accomplish the consortiums goal of having 50% of the commercial aircraft market share.

The cancellation of the 747-X project forced Boeing to reevaluate its methods of new aircraft development. Boeing now realizes that, to remain dominant in the commercial aircraft industry, it cannot continue to take years and billions of dollars to create new airplanes and their derivatives. The company cannot simply abandon aircraft development Boeing will not stand by idly and watch Airbus eat up the market with its new, potentially superior planes. Boeing needs a new plane. They also need a new way to create them a new design process in which development time is measured not in years, but in months. They also need to reform their production processes. Boeing goes to great lengths to meet every need and want of its customers, but, to offer 38 choices of pilot clipboards The 747-400 assembly line at Boeing's Everett plant. and 109 shades of white paint, as Boeing has done, is ludicrous. Multiply these numbers by the approximately 1000 options on each aircraft ordered, and it is easy to see the troubles that go along with manufacturing each and every plane Boeing builds. One option open to Boeing, which is being actively pursued by the company, is to produce derivatives of existing models. Creating a derivative involves improving upon a successful design to add greater value to the aircraft, such as increased range. Derivatives are also much less expensive to develop than a entirely new aircraft. In the case of the 747-400, the derivative now being considered is the 747-400X. Since Boeing offers aircraft in size from the 100-seat 717 all the way up to the 420-seat 747-400, the majority of derivatives being developed are designs that will offer longer range, not increased capacity. However, the 747-400X is being designed to offer both greater range and passenger capacity, because the purpose of the 747-400X would be

Silhouettes of two versions of the proposed 747-400X.

to compete with the A-3XX, which would be larger and fly farther than the 747-400. The cost of creating such a derivative, with current development methods, is in the range of $2-3 billion. The time from project launch to the delivery of the first aircraft would be about 3 years.

The issue put forth to you, as an engineer, is how reform the design and production of aircraft to maintain Boeings dominance in the commercial aircraft industry. This is the same dilemma faced by Boeing following the abandonment of the 747500X/600X. The costs associated with developing a derivative of the 747-400 are unacceptable, as the 747-400X would reach into a niche market, one smaller than that which would be entered by the 747-500X/600X. If you were an engineer at Boeing, what would you propose to lower development costs and time to make the creation of both derivatives and all-new airplanes a profitable business venture?