Boeing's Anlysis

Threats of new entrants

Boeing operates in a duopoly market structure with Airbus being its major competitor. The threat of new entrants is low due to heavy capital. For example Dreamliner 787-8 cost US$ 193.5 million (2011) while 787-9 costs US$ 227.8 million (2011). These are heavy fixed costs that pose a challenge to start-up companies. Airplane manufacturers must also be in a position to sell around 500 aircrafts: 50 per year in order to recoup the investment cost in ten years time (Dertouzos, lester & Solow 1990). Such a lead time to break-even-point is also a barrier. However, there is a potential new entrant threat from China after the government of China launched a commercial Aircraft expected to manufacture large planes for passenger.   

Substitute

Customers are rational in their consumption decision. A barrel of fuel is approximately going for $130, which makes passengers indifferent in using other means of transport. Statistical analysis of the past trends in prices indicates high chances of increased prices in future. This puts the demand for airplane at risk. There has been a remarkable decrease in the Boeing’s manufactured airplanes as a result of bullet train operations. This, together with other surface transport provides a city centre to city centre services, which are beyond the Boeing product’s service package. Worthwhile noting, Boeing has embarked on technologies that will help solve on the fuel consumption to reduce the cost of operating an airplane. In building 787, a one-piece fuselage is used eliminating; 1500 aluminum sheets and around 40000-50000 fasteners. This reduces the weight and amount of fuel consumed by around 20% per seat compared to a similar sized airplane.

The power of suppliers

Boeing has some monopsony power which leaves the thousands of suppliers with little power. However, it’s clear that there are still challenges that may arise due to the under and overcapacity input requirement in the industry. The delays in operation of the new 787 resulted from fastener predicaments. Before mid-2000s, the reduced demand for aircrafts had made some upstream fastener suppliers to close up while other consolidated in form of mergers. The demand however rose in the mid-2000, demanding a sudden increase in the production. The exceeded capacity led to a delay in revolutionary 787 jet’s roll-out. Boeing has however gone ahead to secure some certainty in the market by buying Vought Aircraft Industries Inc.’s 50% stake to reduce reliance on suppliers whom may not cope with a sudden demand.

Bargaining power of the customers

Boeing has two types of customers: government for defensive division and airline for commercial division. The customers have a low bargaining power but may sometime have a great impact. A case in 1998 involving Iberia airline and Boeing’s competitor Airbus, Boeing lost a tender to supply Iberia after being pushed to the threshold. Iberia demonstrated a lot of authority in determining the bid price. Airline may decide to change their suppliers but it involves high switching costs. Boeing produce aircrafts with different designs and control system compared to those produced by Airbus. This requires the pilots to be retrained and therefore prudent as long as the company wants a fleet of airplane.

Strength

Boeing’s strength mainly comes from its core competencies which are unique. It has a business structure that that designs products according to customers’ specifications using light-weight components and wing technologies. This has helped develop strong bonds with the customers. Boeing has a good and extensive brand on a global scale. Its customers are spread across 145 countries providing a wealthy customer pool. Additionally, it has managed to develop strong alliances with global giant companies. Northrop Grumman for example, is a strong ally in the defense projects. It also enjoys a 50-50 partner in the United Space alliance with Lockheed Martin. The company’s strength is also compounded by the close relationship with NASA. A strong research and development department has enabled the company to come with a variety of airplanes. It has in excess of 14000 commercial jetliners operating worldwide with almost 3/4 share of the total world fleet.

Weaknesses

Since the World War II, the company seems to have hold on to the traditional way of administration where very little consultations were made to the employees on the management issues. This led to problems especially with the union workers and on racial discrimination practices. In the late 80s, when there were delays in production processes, Boeing hired more inexperienced labour force that resulted to more problems and hence additional costs. Inexperienced workforce and forced working hours compromised the quality of the Boeing’s products and customer complaints started streaming in. A special inspection request on Boeing’s jetliner produced from 1980 was made by the Federation Aviation Administration (FAA). Any defect realized, capable of causing accident, may have devastating effect on the position of the company. A negative publicity for example contributed to a decline of revenue from $68.28 billion in 2009 to $64.31 billion in 2010 owing to the delays in 787-Dreamliner.

Opportunities

Boeing has been able to seize opportunities even after Airbus developing the A380 by coming up with 787-Dreamliner. In its design stage, Boeing had already received a number of orders for the 787-Dreamliner. To tap such opportunities, Boeing has consistently focused on producing more capable, long-range and smaller planes with the ability to go point to point hence serving city pairs. This strategy works well with the low-cost companies which use point to point routes to operate at a lower cost. Through its research and development, Boeing has been able to come up with commercial jets that consume less fuel per seat. This has helped to open up new opportunities as the airline companies strive to replace their old airplanes due to the rising fuel costs. Boeing 787 and 777 have to a larger extent met such requirements.  

Threats

From 2001, the airline industry has suffered great losses in terms of revenues. This resulted from the terrorism attack that led to a reduced demand for air travels. However, the situation has improved owing to increased international deliveries and tourism. This has seen Boeing’s revenue rise up to $68.28 billion in 2009. However, in 2010 there was a drop in revenue resulting from reduced demand to $64.31. There are uncertainties with respect to production schedules, prices and cost arising from competition and fuel prices. Increasing costs may lead to reduced production capacity while eroding the company’s profits.    

Decision making

As an investor my major concern is the returns on my investment and therefore I will be interested on the trends on growth as indicated by profitability. The going concern of the company is tied on competition and my decision will depend on the company’s internal strengths, opportunities and threats.

Internal stakeholders

Boeing’s internal stakeholders mainly consist of the employees and the shareholders. The employees are mainly concerned with remunerations, promotions, retraining to get the relevant skills and the entire working environment. As noted earlier, Boeing had previously disregarded some important needs of the employees which resulted to riots. It currently employs around 154000 people, with a third being unionized. This has compelled Boeing prioritize the Employees wants. The shareholders’ major concern is the profits. Boeing has embarked on strategies to reduce cost and employ technologies that help it realize higher profits hence meeting the shareholder wants.

External stakeholders

External stakeholders include the suppliers, government, customers and the public. Customers’ needs are diverse and ever changing. However, Boeing has maintained flexibility in its production to be able to tailor make products as per specifications. It has for example been able to design tankers, fighter jets and transports as per the US military requirements.  Boeing has legal requirements to abide to which relates to obtaining the best value at the best prices. The laws also require competition that is open and based on evaluation and specification criteria. Additionally, the company must eliminate fraud, waste and abuse. To meet these requirements, Boeing employ employees who understands the legal requirements.  

Boeing has around 17500 suppliers in 50 countries. The major interest of the suppliers is the availability of market and better terms of trade. It has indicated major concern to meet the suppliers’ requirements but this has been hindered by the cycles in airplane demands. At some point, Boeing has been forced to cancel some orders due to changes in the market. Internal problems with employees has resulted to strikes which have also had effects on supplies required. For example, in the strike in 2008, Boeing produced 100 less jets than planned. Boeing however, appreciates the effort of the suppliers and recognizes it on annual basis. These include suppliers who spearhead top-not client satisfactions and outstanding performance as per the objectives of Boeing.