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Risk Management

Assignment : Case Study :

Boeing 787 : The Dreamliner

Submitted to:

Prof. Dr. Sanjay Jharkharia

Submitted By : Group - VBrahmeswara Reddy KV ePGP-01-003

Kannan Kesavapillai ePGP-01-010Kartikeya Misra ePGP-01-011

Pankaj Gandhi ePGP-01-018Sanjay Kumar ePGP-01-030

Executive Post Graduate Programme (ePGP 01)

Indian Institute of Management Kozhikode

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Outline of case

Company is in a business of airplane manufacturing

On 26.04.2004 they announce for new Jetliner, named

Dreamliner (represent a dream of company to develop low

cost, compact and fuel efficient jet) Company is facing competition from Airbus

Growing economy of India and China is a potential market

for Boeing

After the order of 60 7E7 from China, Boeing renamed theproject as 787

80% of business expected from Asian market

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The Boeing Corporation

Company operates through SIX subsidiaries

Commercial airplanes Integrated defense system (aircraft weapon system)

Network system

Support system

Launch & orbital system Boeing capital corporation

Enjoys dominated position in commercial airplane segment

Co. has adopted M & A strategy and acquire its US competitior

McDonnel Douglas and expand its mnfg base

During 2003-04, company has diverted its business focus from

commercial to defense, which reflects from two movements

Airbus sold more airplanes than boeing

Defense revenue of boeing increased

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Industry Wave : Customer's perspectives

Boeing's airline customers financially challenged by

High fuel cost High labor cost

Union strife

High fixed cost of airplanes

Cut throat competition

Low cost airlines operation has developed new businessmodel

Airline industry dynamics changing

Launch Super jumbo A 380 by Airbus has challenge theleadership position of Boeing

To regain the leadership position, Boeing has decided to launch787

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Design standards of Boeing 787

Design development is based on the breath of the market

taking passengers where & when they want to go travel with more comfort and affordability to customers

Dreamliner Management Team developed by company with an aim toutilized the expertise of team members for converting dream into reality.

Provide more space for 'cargo storage' in 787 and generate additionalbusiness revenues (57% more space for cargo)

Quickest takeoffs and landing and minimum sound from engine

Use of light weights composite structure (replace aluminum structure) to meetlight weight and corrosion issues

Provide more room to passengers in airplane, large windows

Provide e-connectivity for entertainment and internet in plane

Humidity of 20~30% (than 10% of existing practice) for avoiding travelfatigue in long distance flights

Sensor based re4ali-time data to provide better flight scheduling

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Making of Boeing 787

Goal of Boeing's Management for new product development

design & deliver super-efficient plane which can met the speedcriteria of existing planes

encourage airlines to replace their existing planes with 787

Develop effective position against Airbus

Novelties of 787

Long range capabilities to mid size plane

Provide nonstop service on route

Offer 787 in various version by stretching (788, 789) the base tomeet the capacity of accommodating more passengers on diff routes

Interior of plane is having tri-class and two-class (783) configuration

Class configuration provides a flexibility to customers to meet theirbusiness model of low cost, long range, short distance etc.

Design meets the market requirements of deregulations of airline

industry

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Making of Boeing 787

Use of standard engine of GE and Rolls Royce

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

An option of engine interchangeability has attracted the financers &

leasing companies

Both engines provide a thrust of 55,000 & 70,000 pounds

New design of 787 has 8% increased efficiency

Company has developed a global assembly line for 787

team of more than dozen aerospace companies for composites &aluminum alloys for new structure

Structure of plane developed by

35 % by Boeing; 35% by Japan; 26% by Italy; 4% by others

Team of 15 cos. from 10 states of US & 7 countries : A true globalefforts for 787 development

Fragmented type different assembly line approach has been developed

with suppliers under an indirect collaboration JV for R&D

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Making of Boeing 787

70:30 ratio has been maintained for the product development, which has

helped to streamline the supply chain system

Synchronized vendorsystem has been developed with an association

of IBM and French PLM s/w co. for streamlining the supply chain

management (SCM) system

PLM (project life cycle management system) developed

PLM digital tools and database shared across Global integrated supply chains and assembly line, make Boeing enable

to develop final assembly of 787 in just THREE days

save valuable assembly line time

Incorporated CAM based robotic manufacturing for single piece fiberbody development for barrel sections

Boeing has utilized air transportation system for parts delivery which has

save a time of 29 days of delivery system. This has reduce the cycle

time and shipping cost by 20~30%.

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Market Forecasting

Fragmentation of market due to the multiple operators

India and China will raise demand for commercial airplanes

Demand of 25,000 planes in next 20 years

80% of the demand will be for smaller planes of capacities of 100~200;

200~300 & 300~400 seats

Growth of air business is at 5.2% v/s the GDP growth of 3%

Additional growth of 2.2% expected by co. in view of foreign trade and

liberalized airline market

A business of 2,520 nos. of small widebody planes expected by co. in

next 20 years

Boeing will face a tough competition from Airbus in its business segment

of 787 (a perceived risk for the company)

For China, both Airbus and Boeing has contradict forecasting

Chinese air traffic will surge by 8% / annum.

Rush for low cost airlines increases, demand for 737s

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Consideration of global economy & market forces

400 city pairs have been developed across the globe demands for direct

flight connectivity for non-stop flying

China and India are going to play a dominant role for absorbing the

newly designed 787 in aviation industry

Airlines has a need of fuel efficient airplane (20% less fuel consumption)

Jet Fuel prices were rocketing to new heights, poses a concern of

profitability to airlines

The increment in crude oil prices were due to the economic

development in China and India for meeting their industrial development

The cargo business segment has shown higher growth than the

passenger segment in airline industry Need of low maintenance airplane with longer durability of airplane life

Minimum wear and tear in plane to meet the low cost criteria of

maintenance

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Challenges faced by Boeing

Air travel phobia after 9/11 incident

Lay off 39,000 employees in view of maintaining the business profit and

growth aspects

Drop in demand for commercial airplanes

Competition from Airbus

CEO and CFO departs from Boeing, CFO has a perception of unethical

practices adopted by Boeing to recruit air force employee who can help

for getting the orders from defense dept

Harry Stonecipher (CEO) of ex McDonnell Douglas has been forced to

step down on the ground of company's ethics code of conduct

For raising the fund to meet 787 requirements of expansion, Boeing hassold out its 4 plants @ 1.2 $ m : a strategy for focusing on core business

of airplane mnfg (a similar strategy to 3M of focus on core area)

In fiscal year 2004, they have increased revenue generation and profit

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Project Challenges faced by Boeing

Design of proper Vendor System

Customization of supplier's system according to the need of Boeing in

view of avoiding the system conflict

Due to the practices and systems, a technology based supportive work

culture has been developed across the company.

Involvement of suppliers in the mainstream of Boeing manufacturing for

innovation, detailed drawings, tooling to reduce the financial risk ofsuppliers / partners

Design of wing for both types of plane

Accommodation of high-bypass engine on airplane

Convince airlines for automatic cabin-pressurization systems for its highmaintenance cost perception

Mass production of carbon fiber wing

Cockpit design (new v/s traditional 777)

Control system for Pilots : paradigm shift in thinking pattern

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Risk / Threats to Boeing

Delay in the program of launching the products in the amrket

Over run of cost and time for 787 project

Competitor (Airbus) has adopted aggressive marketing strategies, which

has left no room for Boeing to make mistake

Risk from strategic partners to become competitors in future, as Boeing

has shared all its core competency with them

Technical know-how sharing with Japanese manufacturer has poseda serious threat (as per experts view)

Kawasaki aerospace is one of the supplier (with whom Boeing hadshared all its technical know-how for design and construction) has

declared its objective of manufacturing commercial airplanes China a major customer for 787 can be turned out as a manufacturer

Head hunting of key executives of Boeing by the competitors

Comparative analysis of 787 with A 330, reveals no marginal difference

in operating cost, even 787 consume 20% less fuel

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Risk / Threats to Boeing

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

Rolls Royce fail to supply the engine to Boeing in time, this has delayedthe launching of 787

Flight Global aviation news site reported that, Trent 1000 enginesuffered from an uncontained failure, means debris broke out of theengine casing

A330 will pose a serious challenge to 787 on a ground of cost aspects

Airbus has a better cash generation model compare to Boeing due to itsearlier R&D efforts and large streams of revenue from different models

Use of composite material : a new in the market and no one is sure for

its operational durability Favorable support to Airbus under bilateral agreement between US and

Europe

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

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Favorable conditions for Boeing

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

Airbus has made sizable investment in A380, which has left no room forairbus to counter attack the 787

Government assistance to Being after 9/11 incident

Support from Japanese government in the form of subsidies via itsJapanese partner in project of 787

A complaint filed by US trade representative to WTO, for unfairsubsidies of billion dollar to Airbus