Boeing 777 Project Group Report
Group Number: 3
Participating Group Members:
In October 1990, the Boeing Company announced that it was launching a new aircraft model, the 777. The company praised the superior technology of the product and the fact that it filled a gap in Boeing’s product line. Moreover, it was targeted to service routes in a critical high growth market segment. The chief objective of the analysis is to evaluate the 777 against a financial standard. The case gives internal rates of return (IRRs) for the 777 project base case and alternative forecasts. The ...view middle of the document...
4. Describe the aircraft industry. Characterize the nature of doing business in this industry. What basic strategies are pursued in the industry?
The aircraft industry is an oligopoly market industry with three dominated players, the Airbus Industry, MacDonnell Douglas and Boeing. It is very sensitive to variations in consumer and business confidence; it has a huge out lays for individual airframes, a high investment in R&D and have a long life cycle therefore cash-flow for companies in this industry is extremely important.
Basic strategies: customer focus; diversify the business, divide market to different segments. In the long run, companies in the aircraft industry should introduce successful products and having financial deep pockets with which to survive the cash flow through
5. Characterize the nature of risk taking in this industry.
The aircraft industry relies highly on customers and business confidence that could be easily influenced by accidents like war, risen of fuel price, fuel supply, global economic low down, key supplier risk, security incident.
In October 1990, the prime question was whether the Boeing 777 project remained a sensible investment for Boeing. Political and economic conditions worsened. The economy was slowing and entered into a recession in July 1990. On August 2, Iraq invaded Kuwait. A major concern was the threat Iraq now posed to Saudi Arabia. The United States assembled a coalition of forces to oppose Iraq’s aggression. Iraq had the world’s fourth largest army and could field one million troops and 850,000 reservists, 4,500 tanks, 3,000 artillery pieces, and 700 combat aircraft and helicopters. Opposing them in Saudi Arabia was a coalition force of 956,600 troops. The question at the time of the case was not if war would break out (fighting began on January 17, 1991); but how destructive and far reaching the impending war would be to the region’s oil fields, pipelines, and port facilities. Would there be a major disruption in the flow of oil from the Persian Gulf? Also, could the war deepen the recession?
6. Boeing’s concern is the impact of the war and its aftermath on the prospects for the Boeing 777 project. On one hand, the war could have a long term impact on oil prices/fuel prices and air travel. On the other hand, its impact could be relatively short lived, especially if the battlefield could be contained and the damage to the oil fields and facilities limited. Perhaps one could look back in history at the oil crisis that followed the 1973 Arab-Israeli War and its negative economic impact on the decade. Which future scenario would be deemed most likely in October 1990?
The future scenario in October 1990 is that the impact of war would be relatively short lived, because the battlefield could possibly be contained. Looking back in history at the 1973 Arab-Israel War, the war is about the deeply-rooted religious conflict between the Arabic world and Jewish country. A lot more...