PEST & Industry AnalysisBy: Karim Badr

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

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.

Snap shot of Boeing Continued

Breakdown of Boeing Divisions% of Revenue

Commercial AirplanesIntegrated De-fense SystemsBoeing Capital Corporation

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

Threat

4

42

Economic Exchange rates favoring US exports.

Economic Recession

Opportunity

Threat

3

3 3

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 24

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

Opportunity

Opportunity

5

5

5

1

Boeing’s Industry AnalysisBoeing’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

• HighBarriers to Entry

• WeakSupplier Power

• HighBuyer Power

• WeakThreat of Substitutes

• HighRivalry

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.

Barriers to Entry

Supplier Power: Low

• Analysis=Weak• Firms in the aerospace industry have

several supplier which to choose from.• Boeing have round 22,000 suppliers

Globally.

Supplier

Power

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

Buyer Powe

r

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.

Threat of

Substitutes

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.

Rivalry

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

PEST• 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 ForcesLow:

• Supplier Power• Threat of Substitutes

Concluding Thoughts

High: • 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

Military & Space

Segmentation of Aircraft Industry

World Aircraft manufacturing industry

Commercial Aircraft

Passenger Aircraft

Cargo Aircraft

Large Civil Aircraft( LCA)

Small to Medium- sized

Aircrafts

Boeing

Airbus

Bombardier

Embraer

Key Competitors in the Aerospace Industry

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 IndustryBoeing

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 IndustryAirbus

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 IndustryBombardier

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

Key Competitors in the Aerospace IndustryEmbraer

Boeing Airbus Embraer Bombardier

Entity Public EADS Public Public

Products Commercial Jets

Commercial Jets

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

Evaluation of Competitors

Boeing

◦ Supersonic Jet

Airbus

◦ Super-Jumbo Jet

Bombardier

◦ Focus on Smaller Jets

Embraer

◦ Focusing on the 70-110 seat market

Evaluation of Competitors: Focus

How do competitors compete:

By Produ

ct Differentiat

ion

•Aircraft Seat capacity

•Aircraft Speed

By Outsourcin

g

•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.

Products DifferentiationBoeing adopts a differentiation strategy , Faster aircrafts in the form of the

supersonic787 Dreamliner series that compete against Airbus bigger airplane the A-380 jumboAircraft.

By Outsourcing70% of the 787 Dreamliner was built outside the USA, that enables Boeing to lower its production costs in a very expensive industry.

By TechnologyThe 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)

How does Boeing compete

Boeing AirbusBy Product Faster Airplanes

787- DreamLinerBigger 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 Vs. Airbus

Strong Global Network( Buyers, Suppliers)

Broad Product line that covers most market niches( commercial, defense and military, ammunitions, space and security)

R&D

Boeing’s Competitive Positioning

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.

Globalization of Aerospace manufacturingIt is estimated that the amount of manufacturing outsourcingin the aerospace industry is close to about 80% of the airplane.

Technical ExpertiseAirplanes have got increasingly complex and it is not expected that a single

company would have the technical expertise to meet the myriad requirements.

OutsourcingManufacturers are outsourcing the sub system value chain since they want to shorten development time by increased focus on higher value added portion.

Key Trends in the Aerospace Industry

Key Trends of Aircraft Development:

Development of LCAs is split into two

markets

Fragmentation Consolidation

Large number of smaller high speed aircraft(100-

290 seats)

Large and high capacity aircraft (300-600 seats)

Boeing787-DreamlinerSuper Sonic jet

AirbusA-380 Super

Jumbo Jet

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 SomeSome 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 Target Market:

Started by Randy Baseler, Vice President, Marketing Commercial Airplanes inJanuary 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 howthe impact of results financial results on production and development ofongoing 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.”

Boeing’s B2B-Social Media

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 rivalryo Boeing focus: Supersonic jets- 787 Dreamlinero Airbus Focus: Jumbo Jets- A380 series

Companied use different strategies to competeo By Producto By Outsourcingo By the use of technology

Conclusion

Key trends in the aerospace industryo Globalization of aerospace manufacturerso Outsourcingo Technical expertise

Key Trends of aircraft development:o Consolidationo Fragmentation

Boeing’s Positioningo Long distance-Medium capacity: Manyo Short distance-High capacity: Noneo Long distance-High capacity: someo Long distance-Low capacity: Niche

Boeing’s social mediaB2B social media to interact with its stakeholders( employees, buyers…etc)

Conclusion Cont’d

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

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 Business Model

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:

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%)

Revenues By segment

2010 Revenues Commercial Airplanes

Defense,Space and Security

Boeing Capital Corporation

2009 Revenues

U.S dollars in millions

Cash Accounts Receivables Inventories Goodwill Property, Plant & Equipment Other Acquired Intangibles Investments

Total Assets account for: $68,565 Million Dollars

Boeing’s Key Assets

Boeing’s SWOT Analysis

Strengths WeaknessesStrong 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 ExpertiseStrong reputation of quality and industry leadershipInternational customer base

Labor Problems( Cyclical employment)Dependence on US government in the form of incompatible subsidiesDevelopment Costs for new products: $8-10 BillionWeak turnover ratios

Opportunities ThreatsGrowing demand for commercial AirplanesStrong order backlogRising defense spending in the USNew technologies to build lighter, longer range aircraft

Aggressive Airbus Price Discount Practices.Economic recession

Boeing’s BCG Matrix

Stars Question Marks

DogsCash Cows

RELATIVE MARKET SHARE

HIGH LOW

MARKET GROWTH RATE

HIGH

LOW

HIGH MARKET SHARE:Boeing controls the aerospace market for commercial aircrafts along with Airbus

High MARKET GROWTH:Growing demand for commercial Airplanes.

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 Strategies

Generic Strategy:oDifferentiation based-competitive

advantage

Keys to Successful Differentiation:oUnderstanding customers needs and

preferencesoCommitment to customersoKnowledge of company’s capabilitieso Innovation

Boeing’s generic Strategy

Boeing’s Generic Strategy

Stars

Differentiation Focus

Competitive Advantage

HIGH LOW

Co

mp

etit

ive

Sco

pe

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

Broad Scope:Broad Product line that covers most market niches( commercial, defense and military, ammunitions, space and security).

low Cost High CostB

road

Nar

row

Overall Cost

Leadership

Cost Focus

Differentiation

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 Boeing should keep maintaining or increasing its market share of current products.

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

Boeing focuses on differentiating its products due to the competition.

No Frills

Low Price

Hybrid

Strategies Destined for Failure

Focused Differentiation

Perceived Service Benefits

Price

Boeing’s Ansoff Matrix

Market Penetration

Product Development

Market Development

Diversification

Existing Products New Products

Exi

stin

g M

arke

tsN

ew M

arke

ts

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

Boeing’s Value chain

Value chain

Boeing Value Chain

Component Manufactures

Subsystem Manufacturers

Engine Manufacturers

Airframe Manufacturers Airlines

Competition/ Market AbsorptionCapacity Demand Control

Survival

Competitive Position of Value Chain

Boeing Global Markets

Asia

-Pac

ific

North

Am

erica

Euro

pe

Mid

dle

East

Latin

Am

erica

CIS

Afric

a0%

10%

20%

30%

Series 1

Series 1

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

Conclusions

Boeing Business Model 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 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%