The Boeing 7e7 Case

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  • Topic: Boeing Commercial Airplanes, Airbus A350, United Airlines
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  • Published : September 18, 2012
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THE BOEING 7E7

We still have a lot to get done as we move toward authority to offer the 7E7 to our customers. The team is making great progress-understanding what our customer wants, developing an airplane that meets their needs, and defining a case that will demonstrate the value of the program.

-Michael

Bair, Boeing Senior Vice President'

In early 2003, Boeing announced plans to design and sell a new, "super-effrcient" jet dubbed the 787, subsequently called the "Dreamliner." However, news over the next six months depressed the market for aircrafts, which were already in sharp contraction. The United States went to war against kaq, spasms of global terrorism offered shocking headlines, and a deadly illness called SARS resulted in global travel warnings. For those and other reasons, airline profits were the worst seen in a generation. This seemed like an incredible environment in which to launch a major new airframe project. Nevertheless, on June 16, 2003, at the prestigious Paris Air Show, Michael Bair, the leader of the 7E7 project, announced that Boeing was making "excellent progress on the development of the 7E7 and continues to be on track to seek authority to offer the airplane."z ln order to proceed with the project, Bair sought a firm commitment from Boeing's board of directors in early 2004. If the board approved the plan, he could start collecting orders from airlines and expect passengers to start flying on the new jets in 2008. Between now and his recommendation to the board, he would need to complete a valuation of the 7E7 project and gain the support of Boeing's CEO, Philip Condit, and the other senior managers. Would the financial analysis show that this project would be profitable for Boeing's shareholders?

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"Bair Provides Update on Boeing 787 Drearlner," Le Bourget, l6 June 2003. Provides Uodate.

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This case was prepared by Professors James Tompkins and Robert Bruner using public information. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright @ 2004 by the University of Vtginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. iy'o port of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or tronsmitted in any form or by any means-electronic, mechanical, photocopying, recording, or otherwise-without the permission of the Darden School Foundation.

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Origins of the 7E7 Project Boeing had not introduced a new commercial aircraft. since it rolled out the highly successful 777 in 1994. Later in the 1990s, however, Boeing announced and then cancelled two new commercial-aircraft programs. The most prominent of those was the "Sonic Cruiser," which promised to fly l5oh to 20Yo faster than any commercial aircraft and bragged of a sleek and futuristic design. Unfortunately, after two years of developing the Sonic Cruiser, Boeing's potential customers were sending the message that passengers were not willing to pay a premium price for a faster ride. Boeing was now long overdue to develop a product that would pull it out of its financial slump, as well as help it regain the commercial-afuuaft sales that the company had lost over the years to Airbus, its chief rival.

With the 787, an Airbus executive argued that Boeing seemed to be promising

a

"salesperson's dream and engineer's nightmare."' The 7E7, while carrying between 200 and 250 passengers, would be capable of both short, domestic flights as well as long, international hauls. It would use 20o/o less fuel than existing planes of its projected size and be 10Yo cheaper to operate than Airbus's 4330-200. At a time when major airlines were struggling to turn a profit, less fuel, cheaper operating costs, and...
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