Boeing Company Analysis

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Boeing [pic] Presented by: Urvishkumar Patel Amitkumar Patel Bhavikkumar Patel Manojkumar Patel Vishal Patel Jonathan Mayes MG - 640 Management Policy Dr. Santanu Borah July 27, 2008 TABLE OF CONTENTS INTRODUCTION5 Company Overview5 Boeing Commercial Airplanes5 Boeing Integrated Defense Systems6 Boeing Capital Corporation6 Background7 Sales/Operations9 Constituent Contributions to Corporate Portfolio and Revenue12 Market Share, Revenues, Income, Expenses and Stock Prices over Previous Five Years14 Current Strategies (Corporate, Business, & Functional)15 Core Competencies18 The VRINE Model19 COMPETITION20 Core Competition20 Competitive profiles23 Comparing Core Competencies25 Threats to Boeing’s Competitive Position27 Main Competitors28 Competitive Profile30 FINANCIAL ANALYSIS32 Introduction32 Role of Financial Analysis33 Liquidity/Solvency Ratios34 Profit Ratios35 Leverage Ratios37 Turnover Ratios39 Conclusion41 SWOT ANALYSIS42 Introduction42 Strengths43 Weaknesses45 Conclusion47 Opportunities48 Threats50 Conclusion52 SWOT Matrix53 BUSINESS DEFINITION55 Evolution of Industry Ten Years From Now55 Business Outlook Ten Years From Now56 OBJECTIVES61 ALTERNATIVES62 Measurable Growth62 community Change64 Innovative Business Concept67 RECOMENDATIONS70 Assumptions/Logic Behind Alternatives70 Achieve Objectives70 IMPLEMENTATION72 Setting Unreasonable Expectations72 Elastic Business Definition72 A Cause, Not a Business73 New Voices73 Open Market for Capital and Talent74 Low Risk Experimentation75 Cellular Division75 REFERENCES77 INTRODUCTION Company Overview The Boeing Company is one of the world’s leading aerospace companies and is one of the largest manufacturers of commercial jetliners and military aircraft combined. Boeing also designs and manufactures rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. Boeing operates the Space Shuttle and International Space Station for NASA as well as numerous military and commercial airline support services. The company employs more than 160,000 people across the U. S. and in 70 countries. Boeing has customers in more than 90 countries world-wide and is one of the largest U. S. exporters in terms of sales. The company values innovation and is ontinually expanding their product line and services to meet emerging customer needs (About Us). Boeing, who generates $66 billion in revenues from their global aerospace and defense markets, conducts business through three operating segments. Boeing Commercial Aircraft (BCA; 50% of revenues and 49% of operating profits in 2007) and EADS's 80%-owned Airbus division are the world's only makers of 130-plus seat passenger jets. Integrated Defense Systems (IDS; 48%, 48%) is the world's second largest military contractor behind Lockheed Martin Corp. Boeing Capital Corp. (2%, 3%) primarily finances commercial aircraft for airlines (Business). Boeing Commercial Airplanes Boeing Commercial Airplanes makes planes that seat from 50 to more than 500 passengers. Models include the BBJ (Boeing Business Jet), 717, 737, 747, 767, 777, and upcoming 787 Dream liner. The unit also provides airplane services, including used aircraft sales and leasing, maintenance, modifications, spare parts sales, and flight support services. Boeing Commercial Airplanes has major facilities in California and Washington (Boeing Commercial). Boeing Integrated Defense Systems Boeing is best known for its commercial planes, but its Integrated Defense Systems (IDS) unit, formed when Boeing combined its Military Aircraft & Missile Systems and Space & Communications units, is well known in the global defense segment. It includes military aircraft (F/A-18E/F Super Hornet, F-15E Eagle, C-17 Globe master, AH-64 Apache, and V-22 Osprey) as well as missiles (Harpoon and SLAM-ER), airborne lasers, and Unmanned Combat Air Vehicles (UCAV). IDS is also NASA's prime contractor for the International Space Station, supports the Space Shuttle program (a joint venture with Lockheed Martin), and makes information and communications satellite systems. The United States Department of Defense accounts for nearly 85% of IDS' sales. Boeing Capital Corporation Boeing Capital provides asset-backed leasing and lending services through two divisions: Aircraft Financial Services offers financing and leasing services for airlines and governmental customers interested in Boeing aircraft; Space & Defense Financial Services offers similar services for Boeing's Integrated Defense Systems customers. Until 2004 Boeing also provided financial services in non-aerospace areas, but it sold its commercial financing operations to General Electric for about $2 billion. Boeing Capital was founded in 1968 as McDonnell Douglas Finance, and changed its name when Boeing acquired McDonnell Douglas in 1997 (Boeing Capital). Background / Timeline with Facts and Figures Boeing’s origin dates to 1916 when the American timber merchant William E. Boeing founded Aero Products Company shortly after he and U. S. Navy officer Conrad Westervelt developed a single-engine, two-seat seaplane, the B&W. Renamed Boeing Airplane Company in 1917, the enterprise built “flying boats” for the Navy during World War I, and in the 1920s and ’30s it successfully sold its trainers, pursuit planes, observation craft, torpedo planes, and patrol bombers to the U. S. military. In the late 1920s Boeing Airplane expanded into airmail services, and in 1928 William Boeing formed Boeing Airplane & Transport Corporation to encompass both manufacturing and airline operations. The next year the company was renamed United Aircraft and Transport Corporation and acquired several aircraft makers, among them Chance Vought, Avion (which became Northrop Aircraft), Stearman Aircraft, Sikorsky Aviation, engine manufacturer Pratt & Whitney, and aircraft and propeller maker Hamilton Metal plane. In 1931 it combined four smaller airlines under its ownership into United Airlines. In 1934, under new U. S. antitrust legislation (the Air Mail Act of 1934), aircraft manufacture was required split from air transport, and a newly ncorporated Boeing Airplane Company became one of the three companies to emerge from the dissolution of United Aircraft and Transport. The other two were United Aircraft Corporation (now United Technologies Corporation) and United Airlines (Boeing Company). On a more current note, there are several important dates in Boeing history (Timeline): Sept. 4, 2001 - Boeing opens for business at its new downtown headquarters in Chicago, less than six months after announcing its planned move from Seattle. Sept. 11, 2001 - Four Boeing-made planes are hijacked by terrorists and crashed in the attacks that kill nearly 3,000 people. Subsequent steep drop in air travel demand sends Boeing's commercial airline customers into a deep slump. Boeing's stock loses more than 40 percent of value within two weeks. Dec. 20, 2002 - Boeing announces it is scrapping plans to build the Sonic Cruiser, a plane that would have traveled near the speed of sound, in favor of a more traditional, fuel-efficient jet. July 24, 2003 - Pentagon bans Boeing from bidding on military satellite launching contracts to punish it for stealing trade secrets from rival Lockheed Martin to help win rocket contracts. Sept. 17, 2003 - Pentagon opens an investigation into allegations that former Air Force official Darleen Druyun improperly gave Boeing information about a competing bid on a widely criticized military contract to acquire 100 air-refueling tankers. Nov. 24, 2003 - Boeing fires Chief Financial Officer Mike Sears and Druyun for unethical conduct, saying Sears negotiated Druyun's hiring while she was still working for the Pentagon and was in position to influence Boeing contracts. Dec. 1, 2003 - CEO Phil Condit resigns, hoping "to put the distractions and controversies of the past year behind us. " Retired Boeing executive Harry Stone cipher succeeds him. Dec. 16, 2003 - Boeing begins taking orders for the 7E7 Dream liner (now the 787), its first all-new airplane since the 777 in 1990. Jan. 15, 2004 - Airbus SA officially overtakes Boeing as the world's largest commercial jet maker, announcing it delivered 305 airplanes in 2003 to Boeing's 281. Oct. , 2004 - Druyun is sentenced to nine months in prison for conspiracy to violate federal conflict-of-interest regulations after admitting she helped Boeing on contracts as a "parting gift" before joining the company. Feb. 18, 2005 - Sears sentenced to four months in prison for aiding and abetting illegal employment negotiations. March 4, 2005 - Air Force lifts its 20-month ban prohibiting Boeing from bidding on satellite launch contracts. March 7, 2005 - Boeing announces that Stone cipher resigned under pressure the previous day as a result of improper conduct related to an affair with a Boeing female executive. July, 2008 – Boeing unveils 777 Dream liners into the commercial market July, 2008 – U. S. government officials plan to rebid the Air Force tanker deal. This gives Boeing another chance to win the $35 billion contract Sales/Operations by Region and Segments The majority of Boeing’s sales and operations result from their U. S. and Asian operations which account for approximately 80 percent of their worldwide sales. Boeing’s core regions and their associated data are illustrated below in Tables 1. Table 1: 2007 Boeing Sales by Region Region |$ mil |% of total | |US |39,336 |59 | |Asia | | | |China |2,853 |4 | |Other countries |11,104 |17 | |Europe |6,296 |10 | |Middle East |1,891 |3 | |Canada |1,653 |2 | |Oceania |1,057 |2 | |Africa |751 |1 | |Latin America, Caribbean & other regions |1,446 |2 | |Total |66,387 |100 | Source: Hoovers In addition, Boeing’s commercial airplane segment accounts for about half of Boeing’s global operations. The various segments and their associated sales data are shown in Table 2 below. Table 2: 2007 Boeing Sales by Segment |Segment |$ mil |% of total | |Commercial airplanes |33,386 |50 | |Integrated defense systems | | |Precision engagement & mobility systems |13,685 |21 | |Network & space systems |11,696 |18 | |Support systems |6,699 |10 | |Boeing Capital |815 |1 | |Other |280 |- | |Total |66,387 |100 | Source: Hoovers Constituent Contributions to Corporate Portfolio and Revenue Boeing’s generates most of its revenue from their two major segments, Commercial Airplanes and Integrated Defense Systems. Table 2 showed the sales figures for each segment and their associated percentages. Within these sectors, several products contribute to their overall corporate portfolio. They are broken down into commercial airplanes, military aircraft and missile systems, and space communications. In all, these products generate over $66 billion in revenue for Boeing. Commercial airplanes • 737 Next Generation (short-to-medium-range two-engine jet) • 747 (long-range four-engine jet) • 767 (medium-to-long-range two-engine jet) • 777 (long-range two-engine jet) • 787 (long-range, super-efficient, 200-250 passenger capacity; due in 2008) Military aircraft and missile systems • AH-64D Apache helicopter • AV-8B Harrier II • C-17 Globe master III • C-40 Clipper • CH-47 Chinook • F/A-15 Eagle • F/A-18E/F Super Hornet • Harpoon Missile • T-45 Flight Training System • V-22 Osprey tilt-rotor aircraft • Various classified projects X-45 (Unmanned Combat Air Vehicle -- the UCAV is an advanced technology demonstrator) Space and communications • 737 AEW&C (Airborne Early Warning and Control) • Global Positioning System satellites (GPS) • International Space Station (contractor to NASA) • National Missile Defense Lead Systems Integrator (NMDD LSI) • Space Shuttle Commercial Airplanes Boeing’s Commercial Airplanes division accounted for about 50 percent of their total portfolio in 2007 with revenues of about $33 billion. This segment’s revenue stems from commercial aviation orders and is directly affected by worldwide travel demand. Integrated Defense Boeing’s Integrated Defense Systems accounted for around 49 percent of Boeing portfolio. Within this segment, their Precision and Engagement and Mobility Systems made up 21 percent ($13 billion), Network and Space Systems 18 percent ($11 billion), and Support Systems 10 percent ($7 billion). Boeing Capital Boeing’s Capital Corporation manages a $6. 5 billion portfolio of about 350 airplanes. This segment leases older planes to customers but has seen a decline since many customers are opting for newer fuel efficient planes. This segment accounts for about 1-2 percent ($815 million) of Boeing’s revenues (Hoovers). Market Share, Revenues, Income, Expenses and Stock Prices over Five Years Boeing competes primarily with Airbus in the Commercial Airplane segment. The companies share the market almost equally and with fluctuations from year to year. Table 3 shows a summary of their five year financials. Table 3: Boeing Five Year Financial Summary ($ mil. ) |Year |Revenue |Net Income |COGS |Stock Price | |2007 |66,387 |4,074 |53,107 |87. 46 | |2006 |61,530 |2,215 |50,437 |88. 84 | |2005 |54,845 |1,872 |45,849 |70. 24 | |2004 |52,457 |718 |45,025 |51. 7 | |2003 |50,485 |492 |43,862 |42. 14 | Source: Hoovers According to Boeing’s financial numbers, their revenue, net income, and stock prices have increased steadily over the last five years. In addition, Boeing’s profit margin almost doubled from 2006 to 2007. In 2007 it was 6. 1 percent, up from 3. 6 percent in 2006. Current Strategies (Corporate, Business, & Functional) The majority of management at Boeing can effectively motivate people and provide guidance and leadership at a high level. Previous top management employees were involved in ethical scandals. New management has made ethics and good business practices a core value of the organization. They communicate the larger company vision and provide a link between the different divisions and programs (Howell). Boeing’s strategy can be divided into corporate, business and functional areas. Corporate Boeing competes primarily in the commercial airplane market and defense systems market. Through their commercial airplanes segment and their integrated division segment, Boeing conducts a wide variety of business at the commercial and federal level. Thus, in reality, their corporate strategy is somewhat varied among these segments. Boeing’s official corporate strategy consists of the following elements: • Run healthy core businesses Leverage strengths into new products and services • Open new frontiers Although these are rather generic, Boeing does harness these concepts in order to create a competitive advantage in their markets. They are able to run healthy operations while leveraging strengths by standardizing many of their standardized manufacturing and development processes. In addition, Boeing is successful at opening new frontiers with their “Phantom Works” division. This segment of Boeing is charged with developing the latest innovations in defense and aircraft technologies (Phantom). Business Boeing has a very distinct business strategy in the commercial airline industry. It focuses on harnessing the latest technological innovations and applying these concepts to the marketplace. This can be seen in the Dream liner 787 development. Boeing is using the latest technologies in engines and fuel efficiency to put the 787 ahead of Airbus. Airbus relies on the hub and spoke travel method while Boeing is not taking this travel method for granted. They believe travelers will demand more point to point flights over connecting ones (Boeing Versus). These 787 aircraft may launch a departure from the traditional hub-and-spoke airline flights system to a more direct point-to-point system. Therefore, they may add considerable value as the market continues to change in Boeing’s favor. Functional The Boeing Company has many generic administrative systems that assist the organization in accomplishing economies of scale thus reducing administrative costs and confusion. The organizational structure of The Boeing Company is a matrix with divisional characteristics as determined by the geographical sites. The functions and programs represent the matrix architecture and the different sites provide the divisional aspect. Boeing uses nine common business functions in order to operate their two major business segments, Commercial Airplanes and Integrated Defense. These functions are (About Us): • Business Development and Strategy • Communications Engineering, Operations and Technology • Finance/Shared Services Group/Boeing Capital Corp. • Human Resources/Administration • International • Law • Office of Internal Governance • Public Policy Core Competencies As a predominantly engineering workforce, the ability to recognize problems quickly and to come up with creative solutions is a core competency of the organization. Boeing is able to add considerable value with their human resources and their standardization processes among their large organizational structure. This standardization process allows them to share knowledge among different units. Boeing identifies three main core competencies in their strategy: ) Detailed customer knowledge and focus 2) Large scale systems integration 3) Lean Enterprise Boeing’s lean enterprise practices and systems integration efforts allows for process standardization from division to division. This is a major advantage for Boeing over many of its competitors. VRINE Model Evaluation The VRINE model determines whether or not a resource or capability can help a firm compete and achieve superior performance. The resource or capability must exhibit five basic characteristics 1) value, 2) rarity, 3) inimitability, 4) nonsubstitutability, and 5) exploitability. Boeing’s latest development, the 787 Dream liners is becoming a valuable resource for the company. It was built to meet the market demand for larger and more fuel efficient jets. Boeing has almost 900 orders valued at $144 billion dollars. The 787 uses 20 percent less fuel per passenger, a tremendous innovation that will hedge against rising fuel prices and create more demand from frugal airline companies (Best). The 787 competes directly with Airbus’s A380, a larger and less efficient plane. Boeing and Airbus operate in a duopoly in the industry and have committed large resources to their substantially different programs. Boeing’s innovative 787 design is valuable, rare, inimitable, and nonsubstitutable at the moment. It time Boeing will be able to exploit this design over Airbus in the large commercial jet market. Currently, Boeing is getting more and more 787 orders as consumers are seeing the added value and fuel efficiency of their design. This resource is allowing Boeing to compete and outperform Airbus. COMPETITION: Core competition A Core Competency is a particular skill or technologies that create sole customer value. According to strategic management literature, core competency should provide significant and appreciable value to customers relative to competitor offerings and be difficult for competitors to imitate or procure in the market, thereby creating competitive barriers to entry. Boeing has been identified for its diversified culture of business; so that Boeing is incomparable due its multiple core competence. However, we would like to focus on select few competencies that have a possible to gain uniqueness in short future based on our own study of this business establishment. Boeing classifies three main core competencies such as detailed customer knowledge and focus, large-scale systems integration, and lean enterprise. Detailed customer knowledge and focus Boeing seeks to understand, anticipate and be responsive to our customers' needs. Phil Condit, company’s Chairman and CEO, introduced a concept of "Market shaping". According to Condit, Market shaping gives knowledge where your customer is going; employing Boeing creativity, resources and technological expertise to cooperatively help them there; and having the right products and services waiting when they get there Large-scale systems integration Boeing continuously develops, advance, and protect the technical excellence that allows us to integrate effectively the systems we design and produce. This core competency can also be known as Boeing’s R&D core competency. Lean enterprise Boeing entire enterprise will be a lean operation, characterized by the efficient use of assets, high inventory turns, excellent supplier management, short cycle times, high quality and low transaction costs. The strengths of Boeing are its: • Boeing's strength constantly depends on the diversity of its people, products and opportunities. The people working at Boeing do not work on leading-edge technology but use help make tomorrow better. • Boeing’s product line and services are well maintained to develop and to meet talented customer needs. At Boeing their strengths and processes are reexamine to build a company as strong and vital as its tradition. • Boeing success depends on the Satisfaction of customers. By accepting what customers need and providing service perfectly then Boeing accomplishes total customer satisfaction. • Boeing will take directly to our commitment by working the maximum ethical standards and by worshiping our commitments. • Boeing tries hard to improve quality by finest way they can work to rank among the world’s premier industrial firms in customer, employee and community satisfaction • Boeing will offer a safe workplace and protect the environment and also promotes the health and safety of its people and their families. Our future success is based on a three-pronged strategy: • Run healthy core businesses • Leverage our strengths into new products and services • Open new frontiers (www. graduatingengineer. com) • Boeing’s elements at the maximum level are Diversity and inclusion. For the developing superior aerospace product and service for our different customers in the world is essential in having diverse employees, business partners and community relationships. • Boeing knows that diversity gives them a competitive advantage. • Boeing’s commitment to diversity means providing a work environment for all employees, respectful and attracting, with opportunities for personal and professional development. This in turn increases productivity, quality, creativity and innovation. • Boeing knows that diversity gives them a competitive advantage. Boeing is a company with nearly 200,000 people, operations in 26 states, and customers in more than 145 countries. Still, they must do more than assume that diversity will simply come to them because of their size and global reach. • Diversity is about each employee. The point is not that there are differences. The point is whether they can learn from those differences • Boeing has a strict diversity strategy, mission and goals, which leads a variety of internal programs and events. Boeing quality reaches new pinnacles every day motorized by Boeing people. In Boeing’s view, the true test of diversity within an organization or across a whole society is whether people build upon their differences or whether they are divided by them (“Culture”, Boeing). Competitive profiles In Boeing Commercial Airplane sector, the direct competitor is Airbus and in the integrated defense systems sector the main competitors are Lockheed Martin and Northrop Grumman. The table provides competitive profiles of Boeing and Airbus in the large commercial airplane industry for year 2007. | |Boeing |Airbus | |Revenues ($ mil. ) |$66,387. 0 |$34,301. 8 | |Net Income ($ mil. ) |$4,074. 0 |$3107. | |Net Profit Margin |6. 1% |5. 7% | |Market Capital |$46,486. 1 |$37,281. 6 | |Number of employees |159,300 |147,450 | |Operating Income |$5,937. 0 |$4,842. 0 | |Revenue Growth |6. 9% |6. 5% | Table: Commercial Airplane Competitive Profile Comparisons Boeing focused on being No. 1 by giving their best efforts helping to secure its future and by looking for innovation across the board: ? Engineers are showing the enterprising spirit that initially made Boeing and its predecessor companies great. ? Factory people are pioneering Lean initiatives that are spreading into the office environment. ? Sales, marketing and business development people are helping understand what products and services that customers need now and what solutions they will need in the future. ? Functional and support organizations are working on providing common systems that will make Boeing more efficient and better able to compete in tough, ever-changing markets. ? Boeing has put in place clear and challenging new targets for revenue growth, earnings, asset performance and cash creation in 2005 and 2006 and is working to achieve them. Airbus Airbus is the main competitor in airplane sector, having nearly the same competencies and core objective to make Airbus more efficient and competitive, so as to produce the most advanced and profitable products, and to serve its customers better in the future. Airbus have force it to the front position of the industry through its customer focus, commercial know-how, technological leadership and manufacturing efficiency have force it to the forefront of the industry as it is the leading aircraft manufacturer. With a turnover of around 22= billion Euros in 2005, Airbus today consistently captures about half of all commercial airliner orders. By affecting its expertise to the military market, Airbus expands its scope and the product range. (About us. “Airbus. com”) For applying power 8 Airbus has the full support of all EADS core shareholders. The EADS and Airbus management has evaluated the programs and predicts measures which will distribute on its economic promises. According to CEOs of EADS Tom Enders and Louis Gallois of Airbus, the core objective of the programs is to make Airbus more efficient and competitive, so as to produce the most advanced and profitable products, and to serve its customers better in the future. Power 8 modules are: • Develop Faster states reduction of cycle time of new aircraft development from 7. 5 to 6 years Lean Manufacturing (further integration of manufacturing and associated engineering, • increase productivity by 16 percent until 2010), • Smart Buying (reduction of the Airbus supply cost base; • building of a network of strong risk-sharing partners, • streamlining the logistics organization), • Maximize Cash (reduction of financial working capital) and • Customer First (serving customers even better, higher levels of services, more reliability and further improved quality) Comparing core competence In the overall view of air transportation industry the competition between Boeing and Airbus is regarding on the decisions of present and future directions of their companies gives close into direction of industry. In their vision of the future of air transportation Boeing and Airbus have recently take apart by their newest models in production, the A380 and the 7E7 respectively. Due to the production of their new planes the view differs: The goal of Boeing’s smaller 7E7 focuses on airplanes flying nonstop between smaller terminals. In compare, the goal of Airbus’ A380 jumbo jet focuses on planes flying from local terminal to international terminal. It is predicted by a by Drs. Irwin and Pavcnik an economic analysis of the Airbus and Boeing competition that the A380 will further reduce the market share of Boeing’s 747 by 14. 8% (Irwin & Pavcnik, 223). This analysis shows that Boeing’s will maintain to decline while Airbus’ current market share will maintain to control for the next decade. There is an increase in air traffic of 5 percent every year and the analysts estimate that there will be a purchase of 40,000 planes over the next two decades. Airbus currently has orders for 156 A380s. The A380 has encouraged a number of operations for the larger planes like constructing double-decker passenger ramps and strengthening bridges and roads. Airbus estimates that more than 60 airports will be handling A380 flights by 2010. There is a interruption in corporation as the division created by Airbus and Boeing, their competition may be differentiate as that between the unknown European Union and the United States and also their policies on the future air transportation. Thus, it will provide approaches into the globalization forces determining air transportation and its future due to the comparison of Airbus and Boeing, competition factors, and also plans for the future. In 2001 Airbus addition as single company, has quickly moved from the market beginner to the market leader in air transportation. Airbus has mountaineering between the periods of 1988 to 1996 by 16% to 37% of the market respectively. (Dempsey & Gesell, 85). However, Airbus has delivered 305 jets in 2003 soared to more 50% of the market in 2004, and its target was to transport 310 jets in 2004 and 400 jets in 2005 (Reuters, 9/8/2004). There is no revelation that Airbus has had speedy growth though the economic recession of the late 1990’s and early 2000s. Innovative designs and broad based customers focus gives advantage to Airbus. After a sequence of purchases and merger, Boeing has known as a world leader of aircraft production with such companies as Rockwell International (merger, 12/1996) McDonald Douglas (merger, 8/1/97), Hughes Electronics (purchase, 1/2000), Jeppesen Sanderson (purchase, 9/2000), and Hawker de Havilland (purchase, 10/2000). Boeing connect in a many of business sectors such as air traffic management, commercial airplanes, broadband services to airlines, integrated defense systems, and research and development. In turn, Boeing estimates more orders for Boeing 787 because it uses 20% less fuel than other similar planes operating today. Still in current situation, Boeing’s production facilities are largely booked for the next few years, and the 787 is sold out through 2011 thus limiting Boeing’s ability to accept new orders. However, in the future competition between Airbus and Boeing plays a vital role. Because Boeing versus Airbus is one of the most difficult which strongly observe marketing battles elsewhere? It's also one of the most captivating. But one will increase difficulty in management through the networks of national and international policy formation, supplier-airline worker-corporation tensions, passenger demands, technological innovations, market uncertainty, and ever-increasing economies of scale. Due the current oligopoly the market has become overly complex; but if any of these companies develop to take over aircraft production then surely suffers. At the present Airbus is better over Boeing, but if Boeing accomplishes in winning this battle it will amount to one of the great change or the problem of business fortunes. It will moreover provide as evidence of the knowledge of understanding the marketplace well sufficient to direct. According to Marc E. Babej and Tim Pollak, to date, Airbus carriers 159 order of A380s, and roughly twice of Boeing 787s. (elsmar. com/Forums/showthread. php? t=16728 - 84k) Threats to Boeing’s Competitive Position In the 1970s, world airplane markets began to transfer from the U. S. to other countries. The main hindrance to the Europeans union was Boeing’s idea of how the work was to be common. In spending amount on R&D there is a vast difference between Boeing and Airbus. Airbus is leading with regard to R&D spending and capital investment. For example in 2003, Boeing has spent only 3. % of its total revenues towards R&D where as Airbus allocated 9. 5 % of its total revenue. In the same year Boeing spent 0. 97 % of its total revenue towards capital investment where as Airbus allocated 9. 1%. This makes Boeing difficult to ‘catch-up’ by the time the A380 of Airbus, 787 of Boeing unfold. More over The British government announced it would finance research into new computer-modeling techniques at several British universities. This could help Airbus speed up product development by as much as 90%. This strategy of Airbus spending more on R&D in innovating new technology is a direct threat to the Boeing’s competitive position. Boeing’s Vulnerability Boeing is not on time for the implementation technological innovations that its rival Airbus is accepting as getting family approval for different planes, accordingly without any certification it also permit pilots to move from one model of plane. • It s also true that Airbus gets the aid of finances and leasing operation to maintain it’s sales in which Boeing is back. • Boeing should not expect that It is not that in the future the EADS will reduce its financial assistance to Airbus Boeing should not expect that and compete without any protection in the world market. So that Boeing should search association or agreement for its financial assistance and break its rival. • According to the U. S. Federal Aviation Administration, there is a susceptibility of Boeing's new 787 Dream liner which has serious security weakness in its onboard computer networks that could a allow passengers to access the plane's control systems. Main Competitors Lockheed Martin is the world’s number 1 defense contractor which leads Boeing and Northrop Grumman and also the company transport it’s product in times of crisis. Lockheed Martin plays an important role in serving to strengthen the quality of life in our nation. In the world, Lockheed Martin utilizes the most modern in engineering technology. Lockheed Martin Corporation, expands manufactures, integrates, controls, and sustains technology systems, products and varieties of management such as engineering, technical, scientific, logistic, and information services and also expanded in the United States and globally. Lockheed Martin Corporation also uses the most new features production technologies such as laser ultrasonic inspection and laser direct manufacturing. Lockheed Martin have capable professionals and experts in their fields, so that they can contribute good to their customers and their employees also offers myriad volunteer hours to advance a wide variety of causes. At Lockheed Martin, the diversity and inclusive is not just a short-term trend. It is a business imperative. They are committed in generating an environment that welcomes, respects, creating one company, one team and leverages our individual differences as a competitive strength. Diversity is clear of legal requirements like Affirmative Action and Equal Employment Opportunity. Lockheed Martin is committed to cultural and nationally equality and also identifies the qualities to make people unique which include their beliefs, job experiences, cultural backgrounds and intellectual perspectives (“ABOUT US, At A Glance”, Lockheed Martin). Northrop Grumman Corporation is a global defense and Technology Company which is the company is the fourth largest defense contractor in the world. Northrop Grumman Corporation’s120, 000 employees provides innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide. Northrop Grumman has several business sectors such as Electronic Systems, Information Technology, Integrated Systems, Mission Systems, Newport News, Ship Systems, Space Technology, Northrop Grumman Corporate together comprise Northrop Grumman (“Northrop Grumman”, about us). Northrop Grumman vision is the trusted provider of systems and technologies that ensure the security and freedom of our nation. Northrop Grumman is technology leader and also to classifies the future of defense from undersea to outer space, and in cyberspace and develops the next generation flying tanker transport, space radar, long-range strike aircraft bomber and the next generation aircraft carrier, destroyer and cruiser. Northrop Grumman has four business areas like Information and service, Electronics, Shipping and Aerospace. And also helps to define globally health-information network architecture and other highly developed information systems. (Northrop Grumman. com) Competitive Profile Supplier diversity is a fundamental business strategy at Boeing. Diversity brings strength, innovation and flexibility to the supply base. Beating the skills and technologies available within the community of small and diverse businesses is an important to sustaining position as the leading aerospace company in the world (“Supplier Diversity”, Boeing). The competitor’s of Boeing openly Integrated Defense sector are Lockheed Martin and Northrop Grumman. The following table shows the competitive profile of Boeing, Lockheed Martin, and Northrop Grumman for the year 2007. | |Boeing |Lockheed Martin |Northrop Grumman | |Revenues ($ mil. ) |$66,387. |$41,862. 0 |$32,018. 0 | |Net Income ($ mil. ) |$4,074. 0 |$3,033. 0 |$1,790. 0 | |Net Profit Margin |6. 1% |7. 2% |5. 6% | |Market Capital |$46,486. 1 |$40,610. 4 |$23,276. 3 | |Number of employees |159,300 |140,000 |122,600 | |Operating Income |$5,937. 0 |$4,324. 0 |3,006. 0 | |Revenue Growth |6. % |7. 3% |6. 9% | Table: Competitive Profile Comparison FINANCIAL ANALYSIS Introduction Financial statement analysis involves comparing a firm’s performance with the performance of other firms in the same industry and evaluating trends in the firm’s financial position over time. Financial analysis aids in understanding why a company is performing as it is and in forecasting where the company is headed. Financial analysis is used by managers to improve performance and by lenders to assess the likelihood of loan collection and also by investors to forecast earnings, dividends, and stock prices (Brigham, p. 71). Financial statement analysis uses ratios computed from absolute financial measures divided by common denominators. Absolute measures from financial statements include net income, gross margin, and other specific measures. These absolute measures are useful for assessing the growth of one firm over time, but not for comparing firms of different sizes or in different industries (Brigham, p. 73). Ratios standardize these absolute measures and make comparison possible. Some common ratio measures are return on sales, return on assets, and return on equity. Financial performance measures are probably the most common measures taken. However, performance is a multidimensional concept. Measures other than financial ratios are used to assess performance and the health of the business. For example, stock market performance measures are another important performance measurement. Stock market measures include one- and five-year market returns, earnings per share, and price earnings ratio. Market share, industry-specific measures, cycle time, and time-to-market are also measures of performance (Harvey B. Lermack, Steps to a Basic Company Financial Analysis). Users of financial statement analysis must be aware of extraordinary items and accounting adjustments that can affect the numbers on the financial statements. It is wise to “look beyond the numbers” when using financial data to assess competitive advantage. Users must read the “Notes to Accompany the Financial Statements” and consult a wide variety of resources to assess a firm’s financial position and health (Duhaime, p 57). Financial statement analysis has both strengths and limitations. One advantage of financial analysis is the availability of data. Financial data for publicly held companies is widely available and easily accessible. A second advantage of financial analysis is the use of ratios that makes comparison among companies easy. Limitations of financial analysis include the following: the ratios must be compared with another company, the industry, or that company’s past performance to have any meaning; and financial data reflects activity from the past (Brigham, p 73). This financial analysis is a comparison among competitors in the large commercial aircraft industry. Boeing will be compared with a key competitor, EADS (Airbus’s parent company). The ratios used for this comparative analysis were retrieved from the different website. Any statements regarding a company’s financial position or health are drawn from personal interpretation and are not representative of any formal, professional opinions or statements. Role of Financial Analysis Financial data represent the concrete results of a company’s strategy and structure. Although analyzing financial statements can be quite complex, a general idea of a company’s financial position can be determined through the use of ratio analysis. Financial performance ratios can be calculated from the balance sheet and income statement (Hill, C8). These ratios can be classified into four major subgroups: liquidity/solvency ratios, profitability ratios, leverage ratios, and turnover ratios. The purpose of the following financial analysis is to measure The Boeing Company and their financial performance in 2007. A key competitor, EADS (Airbus’s parent company), will also be shown in the analysis. To fully understand Boeing financial situation, Boeing will be compared to EADS and the industry as a whole. Liquidity/Solvency Ratios A liquid asset is an asset that trades in an active market, which means it can be quickly converted to cash at the going market price. A firm’s liquidity position deals with whether the firm can pay off its debts as they come due over the next year or so. A company’s liquidity or solvency is a measure of its ability to meet short-term obligations. An asset is deemed liquid if it can be readily converted into cash. Liquid assets are the current assets such as cash, marketable securities, accounts receivable, and so on. Several liquidity ratios are commonly used to assess these abilities (Hill, C9). |Ratio |Boeing |EADS |Industry | |Quick Ratio |. 55 |. 57 |. 1 | |Current Ratio |. 86 |1. 13 |1. 29 | Source: Reuters [pic] According to the general rule of having a quick ratio of 1. 0 to be healthy, Boeing, whose ratio is . 55, is not capable of satisfying current liabilities without depending on sales from inventory. EADS has a higher quick ratio and higher current ratio. This indicates that EADS may be in a better position to pay off short-term obligations. Quick ratios below 1 indicate that the company may be more susceptible to bankruptcy due to failures with short term commitments. However, the industry average falls well below the 1 mark, showing that this low quick ratio is common in the industry. Profit Ratios Profit ratios measure the efficiency with which the company uses its resources. The more efficient the company, the greater is its profitability. It is useful to compare a company’s profitability against that of its major competitors in its industry to determine whether the company is operating more or less efficiently that its rivals. In addition, the change in a company’s profit ratios over time tells whether its performance is improving or declining (Hill, C8). A number of different profit ratios can be used, and each of them measures a different aspect of a company’s performance. Ratio |Boeing |EADS |Industry | |Profit Margin |6. 55 |-1. 12 |2. 99 | |Return on Assets |7. 85 |-. 59 |3. 20 | |Return on Equity |59. 84 |-3. 42 |13. 58 | |Return on Capital |17. 3 |-1. 1 |13. 7 | |Price/Sales Ratio |. 72 |. 4 |. 88 | |Price/Cash Flow Ratio |8. 2 |7. 40 |9. 2 | Source: Reuters [pic] Return on assets and return on equity are two of the most commonly used profitability ratios. Return on assets (ROA) is the ratio of net income to total assets. It is calculated by dividing net income available to common stockholders by total assets. The higher the number the better the profitability is. As long as a company’s ROA exceeds its interest rate on borrowing, the company is said to have positive financial leverage (Brigham, pp. 78). Looking at the data above, Boeing is far more profitable than EADS and they are more profitable than the average competitor in the industry. Boeing’s higher return on equity shows that they are creating a superior value to investors in contrast to EADS and the industry average. Leverage Ratios A company is said to be highly leveraged if it uses more debt than equity, including stock and retained earnings. The balance between debt and equity is called the capital structure. The optimal capital structure is determined by the individual company. Debt has a lower cost because creditors take less risk; they know they will get their interest and principal. However, debt can be risky to the firm because if enough profit is not made to cover the interest and principal payments, bankruptcy can result (Hill, C10). |Ratio |Boeing |EADS |Industry | |Debt to Equity |90. 78 |36. 78 |105. 65 | |Leverage Ratio |6. 7 |5. 8 |4. 8 | |Interest Coverage |705. 3 |N/A |465. | |Book Value/Share |12. 02 |25. 57 |18. 01 | Source: Reuters [pic] Boeing’s debt-to-equity ratio is much higher than EADS but lower than the industry average. This may be the most widely used measure of a company’s leverage. This indicates that Boeing has a higher debt within its capital structure. They have been more aggressive in financing its growth with debt. This can lead to volatile earnings as a result of the additional interest expense of debt, but may also lead to increased growth if the benefits of the debt financing outweigh the interest expense. However, after analyzing Boeings interest coverage ratio, it is evident they generate sufficient revenues to satisfy interest expense. Turnover Ratios Turnover ratios indicate how effectively a company is managing its production. This includes the management of receivables, inventory, and assets. The word velocity describes the idea of speed, turnover, or movement. Think of raw materials moving through a factory and becoming finished products, and think of those finished products moving off the shelf to the customer. That’s velocity. The faster the better products move through a business to the customer. The faster the velocity, the higher the return of turnover is. In fact, return on assets is nothing more than profit margin multiplied by asset velocity (quintsblog. wordpress. com). |Ratio |Boeing |EADS |Industry | |Receivable Turnover |11. 87 |8. 24 |5. 59 | |Inventory Turnover |5. 79 |1. 94 |2. 93 | |Asset Turnover |1. 20 |. 53 |. 45 | Source: Reuters [pic] Boeing’s receivable, inventory, and asset turnover numbers are superior to EADS and the industry average. They are more effective at moving their products than their competitors. This generally implies higher sales figures. Overall, by analyzing this turnover data, Boeing is very successful in their production and sales processes. Conclusion This analysis has been a general overview of ratios used to evaluate a company’s (Boeing) performance and compare that company’s performance with its competitors and the industry as a whole. Liquidity, asset management, debt management, profitability, and market value ratios were evaluated. Also, historical revenue data was reviewed and revenue per employee was evaluated. The following conclusions are drawn based on the comparison of different financial ratios and evaluation of the data discussed: ? Boeing ranked number one in civil aerospace categories ? Boeing’s strengths are quick inventory, strong return on equity, and efficient use of employees ? Boeing increased its sales during past ten years. ? Boeing’s net profit margin declined in past seven years. ? Boeing is gaining as a competitor in this industry relative its competitors. IV. SWOT ANALYSIS Introduction The Boeing is one of the world’s major aerospace manufacturing firms. Boeing is one of the prime contractors for the US Department of Defense (DOD) and NASA and also supplies the commercial jet for private companies. It is one of the largest exporters in the US, serving customers in all over the world. Leveraging its strong market position, Boeing has established its brand image, which gives it a competitive advantage over regional players such as Bombardier and other companies like EADS (Airbus’s parent company). However intensifying competition in all its major segments could reduce the market share of the company (www. datamonitor. com). SWOT is a tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Particularly, SWOT is an essential, basic model that assesses what an organization can and cannot do as well as its potential opportunities and threats. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats). Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results (Investopedia. com). In this case, the SWOT is (wikipedia. com): ? Strengths: attributes of the organization those are helpful to achieving the objective. ? Weaknesses: attributes of the organization those are harmful to achieving the objective. ? Opportunities: external conditions helpful to achieving the objective. Threats: external conditions harmful to achieving the objective. Strengths Leadership Position In aerospace world, Boeing is one of the world’s leading aerospace companies, being the largest manufacturer and supplier of satellites and military aircraft in the world. The company is also a global market leader in human space flight, missile defense, and launch services. In terms of sales, Boeing is one of the largest US exporters, with revenues and the export. The solid reputation and brand recognition worldwide are great sources of competitive advantage. Boeing enjoys all the benefits of being a large global company such as cost benefits arising through economies of scale. Leveraging its strong market position, Boeing has established its brand image, which gives it a competitive advantage over regional players such as Bombardier and Airbus. (www. datamonitor. com). Steady Defense Business Boeing’s defense business has been increasing continuously in the recent years. Revenues from the company’s integrated defense systems segment grew from 2003 to 2008, representing a CAGR of 6%. The defense business accounts for over 55% of the revenues and strong performance of this division would guard it against any downturn in the commercial aircraft industry (www. datamonitor. com). Strong Growth from Developing Geographic Markets Boeing has registered a strong growth in the developing markets of China, Oceania and Africa. Recently, Boeing lands $10 Billion in emerging market deal with China which is increasing revenues from these markets regions represent the company’s growing market share. Further these regions represent some of the fast growing economies of the world and the company’s growing market share in these regions would boost the revenues in the future (www. datamonitor. com). Strong Global Network The company has strong international operations with customers in around 145 countries, employees in more than 60 countries and operations in 26 states. Worldwide, Boeing and its subsidiaries employ close to 188,000 people with major operations in Washington State; Southern California; Wichita, Kansas; and St. Louis, Missouri. Boeing enjoys the ownership of a brand with good and far reaching awareness on a global scale. Boeing enjoys many strong alliances with many other globally powerful companies. In defense projects Boeing works closely with Northrop Grumman in programs such as the joint common missile program. Boeing is also a partner with Lockheed Martin in the United Space alliance. Boeing also works with many other organizations such as NASA in close relationships, which strengthen the company’s position in other markets (www. 123helpme. com). Broad Product Line That Covers Most Major Market Niches / R&D Development Boeing Company produced a wide range of product. Company main product is commercial product such as aircraft; Boeing has 717, 737, 747, 757, 767, and 777 families of jetliners and the Boeing Business Jet. Boeing is planning to release a new version of aircraft, 787, which is called the Dream liner. This new revolutionary product, takes Boeing into the new millennium by giving airlines and passengers a better, safer, and more comfortable aircraft with less time in the air. The company has more than 14,000 commercial jetliners in service worldwide, which is roughly 75% of the world fleet. Its product line is continuing to expand, creating new versions of its family of commercial airplanes. Because of all these revolutionary technology development helps Boeing to stay a leader in the industry. Weaknesses Losing Market Share to EADS (Airbus’s parent company) Boeing has been losing its market share to its rival EADS in the commercial jetliners market. From the year 2003, EADS has been always selling more jetliners than Boeing in terms of new aircraft orders. As a result, Boeing has lost its leadership position in commercial aviation. Declining market share in the commercial aviation market could affect Boeing’s revenues growth and profit margins (www. datamonitor. com). A Hierarchical, Ridged, and Semi Autocratic Management Style The bureaucracy and hierarchical, semi-autocratic management style in which the employers makes decisions on their own with little or no input from employees. This does not fit in the modern management and for this reason; Boeing has several problems in management when it practices racial discrimination, tussle with its union workers, and then lets its executives flee the scene to avoid accountability (www. 123helpme. com). Declining Revenues from the Key Geographic Segments Boeing’s revenues from the key geographic markets have declined in the fiscal 2005. Revenues from Asia, other than China, and Europe segments declined by 8. 5% and 19. 6%, respectively, in the fiscal 2005 over 2004. These two markets together represent more than 17% of the company’s revenues. Declining top lines in these markets indicates that the company has been losing ground to its competitors (www. atamonitor. com). Labor Problems Boeing lacks effective vertical and horizontal communications within the company and has a great deal of unnecessary information. As a result, employees feel divided from management. As a result, production problems delayed delivery, Boeing was forced to increase its work force, working in three shifts, to complete the planes. Because of inexperienced work force created additional problems and the cost per plane is increased significantly. Moreover, the inexperienced workforce found the aircraft design too complex to implement. The problems affected other Boeing airplanes and complaints from customers began to increase. The Federal Aviation Administration (FAA) ordered special inspections of all Boeing jetliners produced since 1980 to look for defects that might affect safety. The strains of the forced overtime contributed to a 48-day strike in the fall of 1989 that hurt Boeing financially (www. 123helpme. com). Dependence on US Government and WTO-Incompatible Subsidies Recently, Boeing mainly gains the benefit from the US, which is 65% of the company’s total annual sales. Moreover, Boeing is being criticized by EADS for the subsidy contracts as well as foreign and domestic support all amount to aid for Boeing’s 7E7 model that is double what was available for the new Airbus A380. Whilst this fact is on one hand a great strength of the company with many opportunities it could also be construed as a weakness (www. 123helpme. com). Conclusion Boeing should supplement its strengths in the commercial aircraft sector and in the space and defense sectors by developing new technologies. Boeing’s unique technical knowledge and continual learning in these two sectors will complement each other and thereby providing ample opportunities to create sustainable competitive advantages. Boeing should exploit its vast network in the commercial aircraft side to find optimal partners and alliances in order to outsource more responsibilities in the areas of design and manufacturing to gain further comparable cost advantages. At home, Boeing should supplement its technical knowledge on composites and other materials for further reductions in aircraft weight. In areas that Boeing is weak, Boeing should seek out alliances that leverage its capabilities. In aircraft engine development, an area of current intense focus, Boeing should partner in the development of new technologies that allows the use of alternative fuels such as ethanol. Boeing is in a unique position on the space and defense side to exploit emerging markets in commercial space applications. For example, several private firms are currently developing prototype inflatable space “hotels” which can be used for a wide variety of applications. Everything from tourism to Scientific Research could be a reality within the next decade. Boeing cannot go at it alone, however. As the commercial industrialization of space becomes a reality, Boeing must seek out complementary alliances in order to reduce risk and gain complementary resources and capabilities for the development of technologies that will be needed in the near future. Opportunities New Aircraft to Gain Market Share With the very impressive show of Airbus A380 recently, Boeing also plans to release its powerful weapon in the competition with Airbus. The new version Boeing 787, which has the most advanced technologies and advantages of the previous models is hoped to be considered as a big hit to the airline industries. At the moment, Boeing has received a large number of orders (booked through 2013) for Boeing 787- Dream liner which indicates that Boeing still insists on its successful business strategy to build longer-range, more capable, smaller aircraft that could go point-to-point and, therefore, serve city pairs directly rather than having to hook them up through a hub. The new 787 is the proof that Boeing does not lag behind the competition in this competitive era. Expanding Commercial Jetliner Market The commercial jetliner market is not overwhelmingly expected to grow to $2. 1 trillion by 2024. By that year the global commercial airplane fleet is expected to double, in comparision to the existing fleet size. It is projected that the passenger traffic would further grow at 4. % annually till 2024, requiring approximately 25,700 new commercial airplanes to meet the increasing traffic. As single-aisle aircrafts offer more frequencies and increased non-stop trips in domestic service and short-haul international flights, the demand for single-aisle is expected to be more than the larger aircrafts. Out of the total demand for new airplanes, more than 50% would be for the single-aisle aircrafts. Boeing has a strong hold in the single-aisle airplanes segment and is well placed to gain a major share in the growing commercial airplanes market. (www. datamonitor. com). Increase Demand for Point-To-Point Routes This is pertained to the booming market of low-cost airline. In order to reduce the costs substantially, all the low-cost airline companies use a point-to-point route which is suitable with the strategy of Boeing as mentioned in the previous parts. Airbus A380 is still not sure about its future because most of the big airline companies at the moment are not gaining profit (www. 123helpme. com). Increasing Demand for Business Jets The business jet market is growing well as an increasing number of weal
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