PEST & Industry Analysis By: Karim Badr

Snap shot of Boeing Founded in 1916 by William E. Boeing in Seattle, Washington. In 1997, Boeing merged with McDonnell Douglas. The world's largest aerospace and Defense Company. Boeing has customers in more than 90 countries around the world. Boeing employs more than 158,000 people across the United States and in 70 countries.

Snap shot of Boeing Continued Boeing operates three divisions: commercial airplanes Integrated Defense Systems (IDS) Boeing Capital Corporation (BCC) In 2009, the firm generated $60.9 billion in revenue and $2.7 billion in net income. Boeing’s newest airplane is the 787 Dreamliner. Competition: Airbus industries of Europe.

Breakdown of Boeing Divisions % of Revenue

Boeing’s PEST Analysis

Boeing’s PEST Analysis Factor Trend Evaluation Impact (1=low 5=High) Rank in term of importance Political WTO trade restrictions in the aircraft industry. WTO-laws and regulations prevent Boeing from government assistance Threat 4 2 Economic Exchange rates favoring US exports. Economic Recession Opportunity 3 Political: World trade organization limits trade due to the competition and the continuous disputes between Boeing and Airbus. WTO intervenes to insure fair trade. WTO also intervenes against unfair government subsidies. Boeing and Airbus are on the debate of unfair subsidies. Economic: Exchange rates favors US exports. Aircraft buyers are more likely to import from the US( Aircraft exports) due the weakness of the US currency. Recession has caused a major collapse of the auto industry in the US,is the aircraft industry next? Recession is the suspect here.

Boeing’s PEST Analysis Factor Trend Evaluation Impact (1=low 5=High) Rank in term of importance Social Anti-US feelings due to the foreign policies will affect business in countries of the Middle East. Threat 2 4 Technological Boeing has developed sophisticated technologies that provides distinct safety advantages. Use of new technologies in the form of robotics that help build aircrafts faster Lighter material in aircrafts Opportunity 5 1 Social: Boeing have major buyers in the Middle east and anti-US feelings could affect business. Technological: Boeing have developed technologies that helped it differentiate itself from competition. systems designed to help pilots avoid two of the more common safety problems in years past: wind shear and controlled-flight-into-terrain (CFIT). Light material aircrafts: Very efficient technology that will reduce the weight of the airplane and therefore reduce other costs associated such as fuel costs.

Boeing’s Industry Analysis Boeing’s Buyers Airlines: Commercial aircrafts US Governments: Military aircrafts, global services and support, and network and space systems. Global based buyers: Customers in more than 90 countries. Boeing’s Suppliers Global based suppliers: Contracts with 22,000 suppliers and partners globally. Engine manufacturers represent the single most significant group of suppliers: General Electric, Pratt & Whitney (US), Rolls-Royce (UK), CFM International

Boeing’s Industry Analysis Boeing’s Competition: Airbus Airbus: European aerospace company based in Blagnac, France. Conglomerate funded by various countries throughout Europe Airbus produces half of the world’s jet airlines and shares the market with Boeing. Airline wars: Intense competition between Boeing and Airbus. Producer of the AB-380.

Boeing’s Industry Analysis Boeing’s Competition: Embraer Emerging competitor Company founded in 1969 in Brazil 11,000 Employees Historically produces Aircrafts: seats between 30-50 passengers Currently developing new jetliner family in the 70-110 seat capacity

Boeing’s Porters Five Forces Barriers to Entry High Supplier Power Weak Buyer Power Threat of Substitutes Rivalry

Barriers to Entry: High Analysis=High New airplanes and engines require extremely high investments accompanied with great risk and the inability to get a positive return on that investment for many years. Aerospace industry requires large amounts of continuous investment in research and development due to the complexity of the industry.

Supplier Power: Low Analysis=Weak Firms in the aerospace industry have several supplier which to choose from. Boeing have round 22,000 suppliers Globally.

Buyer Power: High Analysis=High Airlines are cutting their investments which forces a deadly competition in the aircraft industry. Due to the competition, Buyers(Airlines) force advantageous reductions in the price of Aircrafts. Aerospace firms compete for large orders from airlines to try to recover their high costs

Threat of Substitutes: Low Analysis=Weak No threat of substitute products due to the uniqueness of speed and the ability of aircrafts to travel over water. Exception: for short distances over land, aircrafts may compete against automobiles and trains.

Rivalry: High Analysis= High Two firms competing in the Aircraft industry, Boeing and Airbus. The two firms are equally balanced and have little differentiation in their products.

Key Force: High Intensity of Rivalry The High Intensity of Rivalry is due: Two firms controlling the Aerospace industry Similarity of products produced by the two firms Firms adopting the same strategies Regulations and policies enforced by the WTO. Firms in the industry need to find ways to differentiate between their products and continue to innovate.

Boeing Strategies Strategies: Run Healthy Core businesses Leverage strengths into new products and services Open new Frontiers

Concluding Thoughts Low: PEST Aircraft Industry and Porter Five Forces Technological opportunities are most opportunities to Boeing. Political factors represent the major threats to Boeing in the form of the WTO regulations and laws Aircraft Industry and Porter Five Forces Low: Supplier Power Threat of Substitutes

Concluding Thoughts High: Key Force: Intensity of Rivalry. Barriers to Entry Buyers Power Key Force: Intensity of Rivalry. Airbus and Boeing control the Aircraft industry, Embraer as a potential emerging competitor. “If you don’t take care of your customers….someone else will”

Assignment 2 Competitor and Market Analysis By: Karim Badr

Segmentation of Aircraft Industry World Aircraft manufacturing industry Military & Space Commercial Aircraft Cargo Aircraft Passenger Aircraft Large Civil Aircraft( LCA) Small to Medium- sized Aircrafts

Key Competitors in the Aerospace Industry Boeing Airbus Bombardier Embraer

Key Competitors in the Aerospace Industry Boeing Leader in the commercial jet manufacturing for decades Merged with McDonnell Douglas in 1996 Second largest defense contractor in 2000 Leader in the satellite making (space industry) business as of 2001

Key Competitors in the Aerospace Industry Airbus Established in December of 1970 Boeing’s only competitor in commercial jet manufacturing Controlled 55% of the large passenger aircraft market in 2001

Key Competitors in the Aerospace Industry Bombardier World’s largest maker of small planes in Canada Make jets that seat between 25-90 passengers Control 36% of the global market for business and regional jets

Key Competitors in the Aerospace Industry Embraer Company founded in 1969 in Brazil 11,000 employees Historically their planes seat between 30-50 passengers Currently developing new jetliner family in the 70-110 seat category

Evaluation of Competitors Boeing Airbus Embraer Bombardier Entity Public EADS Products Commercial Jets Regional jets Revenue 64.3B 63.7B 5.4B 9.4B Gross Profit 12.5B 1.7B 330M 310M Employees 160,500 52,500 17,149 28,900 Global Presence 70 countries 150 Countries 92 countries 35 countries Market Rank 1 2 3 4 Market Rankings in term of profit

Evaluation of Competitors: Focus Boeing Supersonic Jet Airbus Super-Jumbo Jet Bombardier Focus on Smaller Jets Embraer Focusing on the 70-110 seat market Market Rankings in term of profit

How do competitors compete: By Product Differentiation Aircraft Seat capacity Aircraft Speed By Outsourcing Subcontracting production of aircraft components or assemblies to gain competitive advantage By the use of technology The use of advanced technology to seek performance advantages.

How does Boeing compete Products Differentiation Boeing adopts a differentiation strategy , Faster aircrafts in the form of the supersonic 787 Dreamliner series that compete against Airbus bigger airplane the A-380 jumbo Aircraft. By Outsourcing 70% of the 787 Dreamliner was built outside the USA, that enables Boeing to lower its production costs in a very expensive industry. By Technology The 787 will be the first airliner to use composites for most of its airframe construction, that will allow for a lighter aircraft and lower fuel consumption( 20% lower)

Boeing Vs. Airbus Boeing Airbus By Product Faster Airplanes 787- DreamLiner Bigger Airplanes A-380 By Outsourcing Assembly plant in Japan Assembly plant in China By the use of technology Use of composites in Airframes Engine noise reductions

Boeing’s Competitive Positioning Strong Global Network( Buyers, Suppliers) Broad Product line that covers most market niches( commercial, defense and military, ammunitions, space and security) R&D

Aerospace Growth Opportunity Global Aerospace and Defense Market has reached a value of USD 674.6 Billion in 2008 and reports forecast that this figure would go up to USD 910 billion in 2013 based on a year on year increase of 6.17%. Within the aerospace and defense market the defense market accounts for almost 70% of the market value.

Key Trends in the Aerospace Industry Globalization of Aerospace manufacturing It is estimated that the amount of manufacturing outsourcing in the aerospace industry is close to about 80% of the airplane. Technical Expertise Airplanes have got increasingly complex and it is not expected that a single company would have the technical expertise to meet the myriad requirements. Outsourcing Manufacturers are outsourcing the sub system value chain since they want to shorten development time by increased focus on higher value added portion.

Key Trends of Aircraft Development: Development of LCAs is split into two markets Consolidation Fragmentation Large number of smaller high speed aircraft(100-290 seats) Large and high capacity aircraft (300-600 seats) Boeing 787-Dreamliner Super Sonic jet Airbus A-380 Super Jumbo Jet

Boeing’s Target Market: Buyers Evaluation Short Distance-Medium capacity Many Boeing’s commercial airplane buyers require planes that are more effective at flying short distances with a low capacity( 737 family) Short Distance-High Capacity None With high capacity airplanes the travel time is increased. Long Distance-High Capacity Some Some of the buyers however Boeing is faced by a crucial competition from Airbus products in this segment Long Distance-Low Capacity Niche the clients in this segment include governments or governmental agencies, private individuals, organizations, companies offering business flights, Boeing business jet operators

Boeing’s B2B-Social Media Started by Randy Baseler, Vice President, Marketing Commercial Airplanes in January 2005. Way to expand the conversation of commercial aviation to the Web. In its first two years, Randy’s Journal, as the blog was named, saw more than half million individual. Randy’s blog is another communication outlet for a large public company, he also includes transparent reflections on quarterly earnings, orders and how the impact of results financial results on production and development of ongoing projects. From Randy’s Blog: “We’ve just been through another tough quarter, not only for Boeing but for our industry. So, understandably our results are somewhat parallel to what’s happening in the global economy and its deep effects on the commercial airplane market. Boeing’s first-quarter earnings dropped 50%, to $610 million.”

Conclusion Companied use different strategies to compete Four mains players in the aerospace industry, with Boeing and airbus controlling the market of big size commercial aircrafts Companies in the industry focus on differentiation due to the intensity of rivalry Boeing focus: Supersonic jets- 787 Dreamliner Airbus Focus: Jumbo Jets- A380 series Companied use different strategies to compete By Product By Outsourcing By the use of technology

Conclusion Cont’d Key trends in the aerospace industry Globalization of aerospace manufacturers Outsourcing Technical expertise Key Trends of aircraft development: Consolidation Fragmentation Boeing’s Positioning Long distance-Medium capacity: Many Short distance-High capacity: None Long distance-High capacity: some Long distance-Low capacity: Niche Boeing’s social media B2B social media to interact with its stakeholders( employees, buyers…etc)

Internal Analysis, SWOT Analysis, Generic Strategy, and Grand Strategy By: Karim Badr

Boeing Business Model Design, assemble and support commercial jetliners Boeing 7-series family of airplanes lead the industry Commercial Aviation Services (CAS) offers broad range of services to passenger and freight carriers Design, assemble and support defense systems World’s largest designer and manufacturer of military transports, tankers, fighters and helicopters Support Systems provides services to government customers worldwide Design and assemble satellites and launch vehicles World’s largest provider of commercial and military satellites; largest NASA contractor Integrate large-scale systems; develop networking technology and network-centric solutions Provide financing solutions focused on customer requirements Develop advanced systems and technology to meet future customer needs

Boeing Performance over the past 5 years 2010 2009 2008 2007 2006 Revenues 64,306 68,281 60,909 66,387 61,530 Net earnings 3,307 1,312 2,672 4,074 2,215 Operating margins 7.7% 3.1% 6.5% 8.8% 4.9% U.S dollars in millions 2006-2007: Increase in Operating margin by 3.9% 2007-2008: Decrease in Operating margin by (2.3%) 2008-2009: Decrease in Operating margin by (3.4%) 2009-2010: Increase in Operating margin by 4.6% * Peek of Revenue & Operating margin in 2007

Changes in Distribution of Revenues: Revenues By segment 2010 Revenues 2009 Revenues Changes Commercial Airplanes $31,834 $34,051 (7%) Defense, Space and Security $31,943 $33,661 (5%) Capital Corporation $639 $660 (3%) U.S dollars in millions

Total Assets account for: $68,565 Million Dollars Boeing’s Key Assets Cash Accounts Receivables Inventories Goodwill Property, Plant & Equipment Other Acquired Intangibles Investments Total Assets account for: $68,565 Million Dollars

Boeing’s SWOT Analysis Strengths Weaknesses Strong Global Network( Buyers, Suppliers) Broad Product line that covers most market niches( commercial, defense and military, ammunitions, space and security). Diversified business offering Innovation and Technical Expertise Strong reputation of quality and industry leadership International customer base Labor Problems( Cyclical employment) Dependence on US government in the form of incompatible subsidies Development Costs for new products: $8-10 Billion Weak turnover ratios Opportunities Threats Growing demand for commercial Airplanes Strong order backlog Rising defense spending in the US New technologies to build lighter, longer range aircraft Aggressive Airbus Price Discount Practices. Economic recession

Boeing’s BCG Matrix HIGH MARKET SHARE: Stars Question Marks HIGH MARKET SHARE: Boeing controls the aerospace market for commercial aircrafts along with Airbus HIGH MARKET GROWTH RATE High MARKET GROWTH: Growing demand for commercial Airplanes. LOW Cash Cows Dogs HIGH LOW RELATIVE MARKET SHARE

Boeing’s Strategies Run healthy core businesses Leverage strengths into new products and services Open new frontiers People working together as a global enterprise for aerospace leadership

Boeing’s generic Strategy Differentiation based-competitive advantage Keys to Successful Differentiation: Understanding customers needs and preferences Commitment to customers Knowledge of company’s capabilities Innovation

Boeing’s Generic Strategy Competitive Advantage Differentiation: Boeing follows this strategy by developing products that offers unique attributes to customers and that are different from the competition products: the 787 Dreamliner low Cost High Cost Stars Broad Overall Cost Leadership Differentiation Competitive Scope Broad Scope: Broad Product line that covers most market niches( commercial, defense and military, ammunitions, space and security). Cost Focus Differentiation Focus Narrow HIGH LOW

Boeing’s Grand Strategy Component Comment Innovation Most commercial aircraft are examples of incremental innovations . Boeing’s innovation is about taking risks, challenging assumptions and reinvestigating what customers want. Market Development Boeing should keep maintaining or increasing its market share of current products. Market Penetration Product Development Boeing plans on providing the aerospace industry with lighter and fuel efficient Aircrafts. Boeing reduced the weight and fuel consumption of its Aircrafts by 70% over the years. Research and Development Boeing plans on expanding its Global R&D initiatives by establishing relationships with universities in the UK (Cambridge, Cranfield and Sheffield ) to seek the best technologies and acquire talent.

Boeing’s Strategy Clock Focused Differentiation Hybrid Boeing focuses on differentiating its products due to the competition. Perceived Service Benefits Low Price No Frills Strategies Destined for Failure Price

Boeing’s Ansoff Matrix Existing Products New Products Market Penetration: Boeing should keep maintaining or increasing its market share of current products. Market Development: Boeing can achieve this by keeping its differentiation strategy to access new geographical markets Market Penetration Product Development Market Development Diversification Existing Markets New Markets

Boeing’s Value chain

Capacity Demand Control Value chain Boeing Value Chain Component Manufactures Subsystem Manufacturers Engine Manufacturers Airframe Manufacturers Airlines Capacity Demand Control Competition/ Market Absorption Survival Competitive Position of Value Chain

Boeing Global Markets New Airplane deliveries for 2009-2028 Asia-Pacific as Boeing’s biggest market 31%

Conclusions Boeing Business Model Changes in distribution sales: Design, assemble and support commercial jetliners Design, assemble and support defense systems Design and assemble satellites and launch vehicles Integrate large-scale systems; develop networking technology and network-centric solutions Provide financing solutions focused on customer requirements Develop advanced systems and technology to meet future customer needs Changes in distribution sales: Small decrease in revenues Boeing Generic Strategy Differentiation

Conclusions Boeing Grand Strategy Boeing Strategy Clock Drive long-term growth and value creation Provide the industry's with customer-focused solutions Provide financial services in support of Boeing sales Pursue technical & functional excellence for the enterprise Utilize advances in technology in making products more environmentally friendly Boeing Strategy Clock Differentiating Boeing Global Markets Asia-Pacific 31% North America 27% Europe 25% Middle East 6% Latin America 6% CIS 3% Africa 2%