Enterprise Risk Management at Boeing
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Details
Themes: -
Period : 2003
Organization : -
Pub Date : 2003
Countries : USA
Industry : -
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Case Code : ERMT-002
Case Length : 11 Pages
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Marketing Risks
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The Commercial Airplanes Business was virtually a duopoly between Boeing and Airbus. It was once dominated by Boeing but was now split roughly 50/50 between the two players. The events of 9/11 combined with the economic slowdown had led to a sharp decline in demand for air travel and prompted US airlines in particular to cut capacity. Whilst demand for air travel had rebounded subsequently, it remained well below FY00 levels. Capacity utilization rates had failed to sustain the recovery seen early in 2002. Meanwhile, competition remained intense and the US airlines in particular had remained under considerable financial stress, culminating in UAL's (United Airlines) recent filing of chapter-11 protection. Reflecting the above trends, total global jet deliveries were expected to decline from 852 in 2001 to 760 in 2002 and 575/580 in 2003, with Boeing's share expected to be 527, 380 and 275/280 respectively.
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The A380 was capable of carrying 555 passengers over long distances and had been heralded by some as the only means of coping with the expected long term growth in passenger traffic given limited global airport capacity and congested skies. Boeing's plan had been to develop the 747x
"sonic cruiser", a faster but smaller long range rival but this might be scrapped due to weak demand since September 11. Airbus reportedly had 97 orders for its A380.
Aircraft programs, particularly new aircraft models such as the 717 program, faced the additional risk of pricing pressures and rising costs inherent in the design and production of complex products. Boeing might also have to provide financing support to airlines, which were unable to obtain other means of financing.
The US defence sector was still very competitive although consolidation had resulted in just four prime contractors for defence aerospace systems and electronics; Lockheed Martin, Boeing, Raytheon and Northrop Grumman (which has recently acquired TRW). At a global level, however, the company faced strong competition from major European corporations where consolidation had created a number of formidable competitors such as BAE Systems, EADS (owner of Airbus), Matra BAe Dynamics Alenia (MBDA), Augusta-Westland and Euro copter.
Boeing expected launch services to remain highly competitive due to the downturn in demand for non-geo-stationary satellite launches and the human space flight and exploration market. However, it expected solid growth overall through space digital imagery architecture, missile defence, the current Delta IV launch vehicles and the in-progress 737 Airborne Early Warning and Control System programs.
The launch services market had some degree of uncertainty since demand depended on the launch customers' access to capital markets. Moreover, some of Boeing's competitors for launch services received direct or indirect government funding. The satellite market included some degree of risk and uncertainty relating to the attainment of technological specifications and performance requirements.