Jaque Qian

1. Jaque Qian Utkarsh Sahu Mark Szabo Anna Zhang

2. The 787 Dreamliner is expected to revitalise Boeing Visionary Design Unparalleled Passenger Experience Media Hype Environmentally Progressive Exceptional Value for Airlines

3. The delivery of the 787 has been plagued with issues First 787 orders Third delay First order cancellation Final delay to date First successful test flight First delays Further delays due to supplier issues

4. We have identified two sets of recommendations Short-term supply chain solutions Key Recommendations Ensuring long-term competitive advantage

5. These recommendations will reduce supply chain problems when the 787 is in production in the short term 1 2 Injecting Expertise Extend GoldCare

6. Pioneering an outsourcing strategy to produce the 787 Boeing – in-house functions 30% 70% Partner – outsourced functions

7. Boeing faces challenges in its own supply chain Boeing supply chain Issues Product does not meet promised specifications Risks Customers may cancel further orders Issues Discontent labor force due to low job security RisksFurther strikes

8. The outsourced supply chain also faces numerous challenges Research & Development Parts Production Part Assembly Partner supply chain • Issues • Limited R&D and production expertise • Insufficient regulatory knowledge • Risks • Manufactured parts do not meet regulatory or Boeing specifications • Incomplete or unsafe parts manufactured

9. Title slide for RECO 1 HERE? Injecting Expertise

10. This recommendation identifies the underperforming suppliers who are most likely to threaten the 787 production schedule

11. These recommendations alleviate the problems plaguing the supply chain in a timely manner Parts Production and assembly Key issues and risks Inadequate expertise Limited regulatory experience Risk of parts not meeting specifications Risk of Low quality products Sharing of expertise ensures suppliers are not at a disadvantage during production Ready access to Boeing experts will ensure issues are prevented or quickly resolved Presence of Boeing personnel will prevent low quality or non-compliant goods from being shipped

12. This recommendation makes good financial sense $ Cost savings arising from preventing a one-month delay $165 million Upfront investment required $50 million Breakeven point: 1 month Ongoing yearly costs $18 million p/a

13. Extend GoldCare

14. This recommendation extends the GoldCare program to allow airlines to outsource plane maintenance to Boeing Boeing leads and integrates a global team of partners Performs all maintenance and parts support, as well as track airplane conditions and configurations Boeing absorbs the risk and complexity of airplane maintenance Airlines pay an agreedupon per-flight-hour price

15. The new incentive provides airlines the opportunity toreduce non-core overhead costs Focus on core competencies Simplifies aircraft ownership Reliable maintenance and monitoring

16. This initiative will convince customers that Boeing will deliver a quality product without further delays Confidence in planes Aligns Boeings long term interests • Breakdown and maintenance • costs transferred to Boeing • Instills belief that Boeing • guarantees performance • Provides customers with • security that Boeing is • willing to sustain • involvement in plane • performance even after sale. Emphasize quality to customers

17. This recommendation makes good financial sense Cost of providing discount is 141.2m per 30 planes Breakeven points 6/3 cancellations for 100/50% discounts

18. We have identified two sets of recommendations Short-term supply chain solutions Key Recommendations Ensuring long-term competitive advantage

19. From the 787 experience, Boeing has developed core competencies which can be leveraged to gain competitive cost advantages CORE COMPETENCIES: Global Supply Chain 1 • Economies of scale • Reduced risk of R&D investment • Collaborative innovation • Lean enterprise Technical, design and assembly expertise 2 • Composite materials innovation • Designing fuel efficient aircrafts • Rapid 3 day ‘snap’ assembly process

20. The 787 process caused much delay and sparked concern regarding the choice of supply partners

21. Problems were caused by insufficient criteria for partner selection LESSONS LEARNT: Reasons for the delay • Lack of communication and monitoring • Overestimation of supplier’s capacity • Suppliers were in need of managerial and regulatory expertise • Incentives were insufficient to ensure timely delivery Reasons for leak of IP to potential competitors • Suppliers have long term objectives to enter the production market • IP rights traded to gain shared R&D investments to decrease overall costs

22. Two recommendations to minimize delays and mitigate the risk of aiding potential competitors Effective Partner Selection Selective Outsourcing

23. Boeing needs to reassess its partner selection criteria and work closely with partners to prevent future delays • Choose partners with: • A high level of managerial expertise • Regulatory insight • Adequately resourced to fund R&D • A high level of logistics experience • Avoid partners who are: • Short term goal oriented • Unskilled with production and delivery • Eager to extract IP from collaboration

24. Two recommendations to minimize delays and mitigate the risk of aiding potential competitors Effective Partner Selection Selective Outsourcing

25. Boeing needs to strategically decide what can be outsourced to maintain their competitive design and IP advantage

26. Boeing will be relatively better placed in the market than competitors once it capitalizes on supply chain efficiencies Low Cost Efficient integrated network IP risk mitigation + = COMPETITIVE ADVANTAGE Production Innovation

27. Boeing will be relatively better placed in the market than Airbus once it capitalizes on supply chain efficiencies Boeing Partners absorbs non-recurring costs and risks of R&D Outsourced the entire wing design and manufacturing to external suppliers (75%) Long unparalleled dominance in Japanese market & strong presence in China Airbus Workshare arrangements Increased outsourcing but kept core technologies in house (50%) Relative newcomer to Japan & China Relative advantages are sufficient given the nature of the market

28. Aviation First is a joint industry research partnership with airlines to give Boeing first access to upcoming industry changes Extension of research and development focusing on gauging industry demand Partnership with core customers who are the airlines Shared research to identify future needs and demand in industry Boeing develop aircraft and services catering to needs

29. To innovate Boeing needs to have first access to important market information in order to produce aircrafts ahead of competitors Assemble team research with key airline customers Research commercial air travel with a broader scope using our combined expertise Boeing keeps an internal database of findings Researchers collaborate with internal engineers and designers to create the next aircraft or service Manufacture and produce aircraft or service according to future market needs and demands

30. Aviation First gives Boeing first access to information on industry trends and changing customer needs to develop innovate accordingly Key benefits Aviation First More intimate learning and understanding of our customers’ needs Information ahead of competitors Accuracy in design specification to meet needs Innovate and produce ahead of competitors First in the industry to innovate and engineer the aircraft or service Predetermined customers with needs for new aircraft or service

31. Aviation First Collaborative market research with our key customers First access to valuable industry projections Boeing has can be proactive in meeting future market needs ahead of competitors

32. Recommended a set of solutions for the short term Short-term supply chain solutions Injecting Expertise Enhance GoldCare

33. Recommended a set of solutions for the longer term Ensuring long-term competitive advantage Leveraging core competencies for competitive advantages Aviation First

34. Thank you!

36. 851 airplanes sold to over 56 customers Cancellations of over 90 aircrafts up to Dec 2009 Global coverage of delays have negatively affected our stakeholders

37. Condensed SWOT analysis • Strengths • Fexible engine types *differentiation • World first of composite materials • Everett: 20-year tax break for aerospace companies • - Greater economies • Greater market potential than airbus • Weaknesses • Reputation damage for delays • Managing partners’ responsibilities • Ability to completely defend IP • Testing revealed discrepancy between projected specs and actual • No transparency of competitor knowledge and plans • - Trial and error: testing uncovers new probs • Overlap of new costs to design wingbox (should have been partners job)   • Threats • - exposing our competitive advantage: IP etc • - Degree of outsourcing (35% now vs 30% industry) • - IP lose and future competitor at Wichita • - Partners today become competitors tomorrow • Kawaski aerospace unit and Japan • China foray into industry: cheaper costs, govt funding • Airbus: govt funding, design, future retaliation aircraft • -industry questions Boe’s commitment to commercial aircraft • Increase variable costs in airline industry • further delay from partners • contractors with no industry experience • Press: industry reviews • Opportunities • - Entire world’s eyes on 787 • - Success of 787 makes Boeing market leader • - Marketable benefits: PR • Alternative sized 787 model: small, or big • Boeing trying to cater to smaller size to fit comp pricing industry

38. Boeing’s core competencies for Injecting Expertise Benefit Experience -Vought example experience, proven - Global business competency - Experienced pool of Boeing staff - Human interface personal - Overcome certain communication barriers - Reduce intermediate communication delays

39. Supply chain strategy 1 - Implementation details Identify at risk companies Identify key risks at partner company On-site improvements and improving processes Deploy Boeing staff with relevant skills or experience Ongoing feedback with Boeing for resources and skills On-time progress monitoring and updates with Boeing HQ HQ decision making for further assistance for high risk partners Reflect on progress and additional assistance if needed Production to specifics with onsite reviews Future relationships maintained

40. Supply chain strategy 1 - At-risk identification criteria Firm selection criteria Aeronautical production expertise • Level of completion • Boeing skills required • Supplier track record • Strategic importance • Date of completion

41. Outsourcing in the future has many benefits • Established partners • Experience in collaborative problem solving • Global partner portfolio • Learning experience from partners Boeing • Outsourcing to specialised companies allow economies of scale • Shared R&D reduces risk of investment • Allows for more collaborative innovation • Lean enterprise allow effective distribution of asset

42. Supply chain strategy 1 – Financials 1

43. Supply chain strategy 1 – Financials 2

44. Union strategy – Financials 1

45. Union strategy – Financials 2

46. Justification for Q1 key issues and risks

47. Alternative recommendations considered for Q1

48. What is GoldCare? A system of tools Airplane Health Management Monitors the health of an airplane in flight and relays that information to airline personnel on the ground Maintenance Performance Toolbox Serves as a single location for operator maintenance and repair data. Electronic Flight Bag Digitally stores all documentation and forms, including paper log books that pilots typically carry onto airplanes Maintenance & Engineering Management Allows dynamic planning and re-planning of maintenance tasks to optimize efficiency and keep airplanes in the air • Uses existing network of employees as well as partnerships with other support providing functions. • Boeings attempt to capitalize on the attractive $60 billion commercial aviation service industry

49. Enhance GoldCare: Focus on core competencies Source: Bickers. C., “Good as GoldCare”

50. Enhance GoldCare: Simplifies aircraft ownership Source: “GoldCare Enhances 787 Lifecycle Value”, http://www.boeingcapital.com/p2p/archive/09.2006/r1v5y2006_11.htm Traditional costs of maintenance can be unpredictable, though the GoldCare program these costs can be made predictable for airlines. Thus the costs involved with ownership of planes are reduced.