Boeing 787: The Dreamliner Seattle, April 17th 2010

“ Twenty years from now I believe that rainy day… will be viewed as one of the most important on the history of this company and commercial aviation. It… will always be remembered as a day that fundamentally changed the way airplanes are built and how people travel. And it would be seen as a day when Boeing once again proved the kind of company it is: a company of vision and achivement- a company that does great things” - Jim Albaugh, chief executive and president, Boeing Commercial Airplanes

The 787 Challenge Facts and features Outsourcing strategy: Supply chain problems Potential risks The new strategy gidelines Partnerships analysis The last steps of our masterpiece

Boeing 787: Facts & Features Revolutionary aircraft 851 orders from 50 clients Main challenges Design outsourcing 50% composite materials Main features 20% less energy consumption 20% less environmental pollution Electric systems consumes 35% less power from engines 30% less maintenance costs 450 new city pairs connected 787 is the result of Boeing’s efforts to regain aerospace industry leadership

The 787 Challenge Outsourcing strategy: Supply chain problems Facts and features Outsourcing strategy: Supply chain problems Potential risks The new strategy gidelines Partnerships analysis The last steps of our masterpiece

Outsourcing Strategy: Supply Chain Problems Documentation inefficiencies Shortage of fasteners Integration challenges Underestimated computer code (Honeywell International) Supplier coordination & design Wing Box: Mitsubishi Workforce experience Charleston Coordination problems Spirit Aero Systems Job security concerns Union Strike: Boeing US Delay of Boeing 787

Outsourcing: Potential Problems & Risks Political Instability & Regulation Quality Control Know-how transfer Strong R&D dependence Macroeconomic factors Strikes & Labor Laws

The 787 Challenge The new strategy gidelines Facts and features Outsourcing strategy: Supply chain problems Potential risks The new strategy gidelines Partnerships analysis The last steps of our masterpiece

The 787: A shift from traditional strategies Strategy Guidelines 787 Planes Structure Supply Strong Manufacture & Design Outsourcing Suppliers financing their own R&D expenses. Great incentives for costs reductions. Market assistance to Boeing Air Transportation as a key advantage Lighter & advanced composites Over 20%- 40% cost reduction per day Global Integration of suppliers Project life cycle management system. Reliance on outside suppliers for assembly (over 70%) Internal assembly at Boeing Outside assemby Boeing Vision for 2016: “From a wrench-turning manufacturer to a master planner, marketer, and snap together assembler of high tech planes”

The 787: A shift from traditional strategies Strategy Guidelines 787 Planes Structure Supply Strong Manufacture & Design Outsourcing Suppliers financing their own R&D expenses. Great incentives for costs reductions. Market assistance to Boeing Air Transportation as a key advantage Lighter & advanced composites Over 20%- 40% cost reduction per day Global Integration of suppliers Project life cycle management system. Reliance on outside suppliers for assembly (over 70%) Other countries 4% Italy 26% USA 35% Japan 35% Boeing Vision for 2016: “From a wrench-turning manufacturer to a master planner, marketer, and snap together assembler of high tech planes”

The 787 Challenge Partnerships analysis Facts and features Outsourcing strategy: Supply chain problems Potential risks The new strategy gidelines Partnerships analysis The last steps of our masterpiece

The Boeing 787 & Main Suppliers

Outsourcing Strategy: Partnership Analysis Positive Aspects Negative Aspects Highly experienced partners Well known for their aircraft components manufacture & design. Highly technologically based Strong investments in R&D Industry leaders Consolidate relationship Mitsubishi, Kawasaki & Fuji played a key role during the Boeing 777 project. Alenia participated in the Boeing 767 manufacture Rolls Royce & GE as traditional partners for engines. Big corporations located in solid economies Low macroeconomic and political risks Consolidated corporations in terms of market share, profits and quality. Lack of expertise regarding assembly of components. Inexperienced workforce in design and assembly Weak direct communication between partners. Potential future competitors Risk of feeding future competitors through know how transfer.

The 787 Challenge The last steps of our masterpiece Facts and features Outsourcing strategy: Supply chain problems Potential risks The new strategy gidelines Partnerships analysis The last steps of our masterpiece

The Boeing 787: On schedule Extend control & coordination of the outsourced supply chain Acquisition of North Charleston factories to meet committed deadlines New assembly line under construction The production of 787 will go up to 10 planes/month in 2013 The production of the derivative 787-9 on schedule Technical problems solved Composite materials behavior under flight stress proved to be reliable. Wings, fuselage, electronic systems performed excellent during the test flights. Low likelihood of Union Strikes High involvement of machinist & engineers (e.g.: First Flight) Higher compensation and other benefits Time commitment

Long-term strategy General view Where are we now? Long-term strategy drivers Redefinition of the core business International markets Integration, innovation & coordination

Long term strategy Objective: “At Boeing, we aspire to be the strongest, best and best-integrated aerospace-based company in the world—for today and tomorrow.” (AR 2009) Where is Boeing now? Boeing aspiration Strengths Weaknesses Opportunities Threats “People working together as a global enterprise for aerospace leadership” (Vision 2016) How? Redefine Boeing’s Core Business: R&D International markets: New clients Greater supply chain intergration

Long-term strategy Where are we now? General view Long-term strategy drivers Redefinition of the core business International markets Integration, innovation & coordination

Where are we now? Strengths & weaknesses Boeing’s future strategy must retain the company’s strengths … … and turn weaknesses into opportunities Experience and reputation The capacity to anticipate to new market trends. Good international relationships High technical knowledge that allows constant product innovation Most part of Boeing`s revenues derive from a limited number of clients. Difficulties to meet plane delivery deadlines; high dependence on: Suppliers Subcontractors Regulatory cerifications

Where are we now? Threats & opportunities … and concentrate efforts on actual opportunities Boeing’s must learn to avoid current threats … Outsourcing of R&D Transfer of knowledge: actual supplies may become future competitors Lose of control and quality standards Possible new comptetitors Provide new services (i.e. maintenance) Explode new markets Asia-Pacific New trends: Low operating costs Environmental friendly airplanes More cargo capacity …

Boeing long-term strategy drivers - Most part of Boeing`s revenues derive from a limited number of clients. - High dependance on: supplier, subcontractors and regulatory certifications - High dependence on market conditions - Outsourcing - Transfer of knowledge - Lose of control - Experience and reputation - Capacity to anticipate to market trends - Good international relationships - High technical knowledge that allows constant product innovation - New geographic market: Asia-Pacific - New trends: Low operating costs Enviromental responsible products More cargo capacity

Boeing long-term strategy drivers - Most part of Boeing`s revenues derive from a limited number of clients. - High dependance on: supplier, subcontractors and regulatory certifications - High dependence on market conditions - Outsourcing - Transfer of knowledge - Lose of control - Experience and reputation - Capacity to anticipate to market trends - Good international relationships - High technical knowledge that allows constant product innovation - New geographic market: Asia-Pacific - New trends: Low operating costs Enviromental responsible products More cargo capacity S Redifine the core business: R&D International markets: new clients Greater supply chain integration W T O

Long-term strategy Long-term strategy drivers General view Where are we now? Long-term strategy drivers Redefinition of the core business International markets Integration, innovation & coordination

Boeing’s core competence… Integration, innovation and coordination in the aeronautic industry

Boeing: Integration, innovation & coordination Boeing’s competitive advantage is based on its know how and its ability to predict market trends Current 787 outsourcing strategy must be revised and redefined in order to gurantee the company’s sustainable growth Outsourcing must be limited to manufacturing processes while retrieving R&D inside the company.

Boeing: Integration, innovation & coordination Integration & coordination Environmentally friendly production Longer distances: reduce operating costs Improve passenger experience at flight Greater cargo capacity Efficient fuel consumption Suppliers working together: no delays, no communication problems… Higher supply chain integration will permit to satisfy the future demand efficiently. Small supliers should concentrate on the production of selected components Transmission of value between Boeing and its suppliers creates a win-win sountainable long-term relationship

Boeing & International Markets Asia Pacific region presents the greatest aerospace market and economic growth Market growth rates Asia Pacific North America Europe Middle East Latin America Russia and Central Asia Africa World GDP growth rate 4,4 2,4 1,9 3,8 3,7 4,9 3,1 Traffic growth rate 6,5 3,2 4,1 6,6 5,1 5,8 Cargo growth rate 6,2 4,6 4,8 6,3 5,3 5,4 Fleet growth rate 1,8 3,0 1,3 2,8 RPK Growth / GDP Growth 1,5 2,2 1,7 1,4 1,2 1,6

Boeing & International Markets Region Regional Jets Single-aisle Twin-aisle Large Total deliveries Asia Pacific 440 5.600 2.590 330 8960 Values in 2008 $B Regional Jets Single-aisle Twin-aisle Large Total Market Value Asia Pacific $14 $420 $590 $110 $1.130 Boeing will have to concentrate its efforts in the development of the single-aisle and twin-aisle categories as represented by B737 and B787

Boeing & International Markets Commercial Aircraft Corporation of China Direct competence: C919 (2016) for B737 Not total development until 10 to 20 years Get advantage of this margin Create long- term relation through the mantainance and update of the actual models

Boeing’s long term strategy: Integration, innovation & coordination Where is Boeing now? Boeing aspiration Boeing’s long term strategy Long term competitive advantage: Focus on innovation: satifaction of current trends and forecast of future needs. Integration and coordination of the supply chain in order to repond efficiently to maket demand Capture international demand from new markets: Asia-Pacific

Conclusion

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