The Boeing 7E7 Case Solution
Background of the company
Boeing has been one of the largest commercial jetliners, space, and defense and security system. The company also manufactures, commercial and military aircraft, weapons, satellites, performance-based logistics and training and electronic information and communication systems.
Since, the company was continuously doing well which led the company to extend its services and product lines. The tradition of being leader in aerospace leadership, business and innovation and technology has given the company the advantage over rivals. The main capabilities includes creating new and more integrating military platforms, efficient commercial airplane, and defense systems through network-enabled solutions.
Boeing Company was diversified into two business units: Boeing Defense, Space & Security and Boeing Commercial Airplanes. These two segments of the business were supported by three small units which are Share Services Group and Boeing Engineering, Operations & Technology and Boeing Capital Corporation.
Boeing Business Units
One of the main business units were Boeing Commercial Airplanes. This airplane was the leader in commercial aviation Boeing Commercial offerings and that with services that were based on character of premium quality design, value of the customer and efficiency. The idea begun in 1916, when Boeing aviation came into being by owner, William Boeing. From the very start the Boeing defined the new ways for the modern jetliners and jet fighters.
Nowadays, Boeing Commercial jetliners, is being led by James (Jim) F. Albaugh, and Boeing now offer a variety of fully new and modern airplanes, the series 737, 747, 767 and 777 families of airplanes and they have seats of around 500 and can boast the longest range, at more than 9,300 nautical miles. The headquarters of the company was in Renton, Washington. The company Boeing was constantly developing new ideas to enhance and increase the productivity and profitability of the company. A next era jet that will set the standard for fuel-efficiency and passenger comfort.
Boeing Defense, Space & Security
The other major business segment of the company was Boeing Defense, Space & Security (BDS) which provides large scale systems that enhance land, sea, air and space-based programs to facilitate for global military, government and commercial customers. BDS believes in delivering the right solution at the right time and the right cost.
In addition to designing, modifying, producing and supporting fighters, rotorcraft, bombers, transports, missiles, munitions and spacecraft for military, aerial refuels, civil and commercial use, BDS also develops enhanced capabilities through network-enabled solutions, communication and intelligence, surveillance and reconnaissance technologies.
In order to increase the execution, efficiency and capabilities of the company, the business has been prearranged into five portions: missiles, unmanned airborne systems, Boeing Military Aircraft (which is in charge of different tactical and airlift aircraft and surveillance and engagement programs), Network & Space Systems (provides information solutions, strategic missile and defense systems), Global Services & Support, satellites and other space and intelligence systems; and space exploration activities), Phantom Works (responsible for developing capabilities and capture advanced and modern programs in support of the three Boeing Defense, Space & Security businesses), network and tactical systems and Joint Ventures.
Boeing Capital Corporation
The Boeing Corporation has its own financing option, and it also provides financing solutions to others as well. The company arranges different structures and provide financing solutions in order to facilitate the production, sale, delivery and after sale services of Boeing commercial and military aircraft, satellites and launch vehicles.
Engineering, Operations & Technology (EO&T)
The basic function of the segment is to support the company business units by delivering comparatively high-quality, and on the other side, marginally low-cost technical services in research and technology, information technology and test and evaluation; integrated enterprise strategies, operations and supplier management support and highly disciplined and efficient engineering that ensures program’s success. Besides, EO&T also enhances the growth and productivity and on the same side increase in the profitability of the company by driving technical and functional excellence across the enterprise.
Soon after the highly successful expansion program namely Boeing 777 with United Airlines in June 1995, the company has qualified with a drought of novel of commercial aircraft for the next several years. For the reason stated above, the company has cancelled 747X and Sonic Cruiser projects because of insufficient market interest. So, after that incident, the company has announced the project of 7E7 project in January 2003. The team leader of the 7E7 project was Michael Bair………………….
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In 2003, Boeing announced plans to build a new “super-efficient” commercial airplane called “7E7” or “Dreamliner”. It was a “bet the farm” speculation Boeing, similar in size before the introduction of the 747 and 777 aircraft. Technological superiority of the new airframe, and the fact that it will enter the fast-growing segment of the market argue for project approval. On the other hand, the current market for commercial aircraft was depressed, reflecting the risk of terrorism, war and SARS, a contagious disease as a result of global travel warnings. Boeing board of directors must weigh these considerations in granting final approval to initiate a project goal for students is to evaluate the 7E7 project to combat the financial standards required return investors . cases gives the internal rate of return (IRR) for the 7E7 project under the base case and alternative projections. Students must evaluate the weighted average cost of capital (WACC) for Boeing commercial aircraft business segment in order to evaluate these IRR. in this analysis to identify students “key value drivers” and distinguish, on a qualitative basis, the key gambling Boeing does. The main goal of this case is the implementation of students’ skills in the assessment of the weighted average cost of capital and cost of capital. The need for students to evaluate segment WACC draws out their ability to criticize various estimates, beta and beta-lever handle formulas. Boeing competes in the commercial aviation and defense business, so as to obtain the appropriate WACC benchmark for the 7E7 project requires the allocation of the commercial component of the overall corporate aircraft WACC Boeing. The students involved in the concept of value additivity.
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by Robert F. Bruner, James Tompkins Source: Darden School of Business 25 pages. Publication Date: July 29, 2004. Prod. #: UV0281-PDF-ENG
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