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Monday, July 09, 2007

Boeing 787- Aviation @ the Edge


Today, Boeing unveils the 787, the fastest selling aircraft in aviation history, and the single most important factor in Boeing's miraculous comeback.

The reason Boeing has been able to compete spectacularly is very simple: they gave the customer what they needed. After 9/11 the aviation industry essentially imploded with a toxic mix of, higher fuel costs, lower passenger volume, and antiquated cost structures. The ripple effect was felt from airline doing the flying, to all the suppliers, Boeing included. Boeing was able to respond to the calamity by offering an overpowering value proposition: fly further for less. And voila the market responds with 677 orders! Incredible how that works.

So how did Boeing deliver tremendous the 'fly further for less' value? Boeing has (finally) now developed a plane that takes advantage of composite materials, resulting in a lighter plane. Lighter planes are more fuel efficient. Thank you very much, please sign on the dotted line.

Composites, such as carbon fiber, have long been used in the production of supercars and in Formula 1 racing, primarily for their strength and lack of weight. Perhaps composites weren't used in earlier models due to the higher stresses/g-forces that a fuselage encounters- maybe the technology needed to evolve (?) however I suspect it's more likely that the aircraft industry in general, and Boeing in particular, just needed a wake-up call.

A final piece of the Boeing turn-around has been their willingness to actually participate in this little phenomenon called globalization and farm-out production, even the secretly-guarded, mission critical, aircraft wing:

"For its entire history, Boeing has guarded its techniques for designing and mass producing commercial jetliner wings. For economic and political reasons, the wings will be manufactured by Japanese companies in Nagoya, e.g. Mitsubishi Heavy Industries; the horizontal stabilizers will be manufactured by Alenia Aeronautica in Italy; and the fuselage sections by Vought in South Carolina (USA), Alenia in Italy, Kawasaki Heavy Industries in Japan and Spirit AeroSystems, in Wichita, Kansas (USA). The passenger doors will be made by Latecoere (France) and the cargo doors, access doors and crew escape door will be made by Saab (Sweden)."
This is a prime example, of a core competency moving to the edge. The aviation industry is notorious for jealously guarding its manufacturing secrets, especially development, design, and core processes. The fact that Boeing has agreed for some many critical parts (the wing included), to be manufactured by suppliers is a validation of leveraging edge competencies. Note there is a fundamental difference in globalization and edge competence: globalization is an overall economic/political construct regarding the free flow of goods, business, capital etc. Edge competence requires fundamentally understanding the value chain and leveraging it for greater benefit to the entire eco-system (i.e. yourself, customers, suppliers etc.). In this case, by outsourcing critical aircraft components/systems, Boeing was able to take advantage of its network intelligence, and empower its partners with the ensuing success. Not only is this an economically sound decision, but politically sensible as well- Japan has 35% project work share, with many of the subcontractors supported and funded by the Japanese government- All Nippon Airways is the launch customer, and they received a 40-50% discount- fascinating how that works. Nevertheless, well done Boeing, it's amazing what happens when you look past yourself and mobilize your edge networks (and listen to the market!).

It'll be interesting how they will continue to differentiate their offerings due to the high degree of commodization within the industry i.e. Airbus should be able to deliver their own composite-based offering soon. I believe the key in differentiation will be in service and peripherals, e.g. the 787 can be retrofitted with Rolls Royce and GE engines interchangeably. By continuing to eliminate nuisance costs, and by staying focused on its fundamental value (fly further for less), Boeing should have this market locked up for the next twenty years.


-- kh // 12:13 AM // 2 comments


Comments:

I know this heretical to Europeans, but Airbus could do well to lure a Boeing executive as a key player, if not CEO, of the company.

Airbus needs some new blood that is willing to push the boundaries. The A380 will sell as it meets a particular demand on hub routes, but the A350 is going to face an uphill battle to play against the 787.
// Blogger Simon Cast // 11:15 AM
 

nice post!!
// Blogger umair // 2:17 PM
 
 

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