Date: October 24th, 2012
Course Number: Fire 417 Cases in Financial Management
Instructor: Dr. Manu Gupta
Group Number: 4
Group members: Peter Lee, Siravuth Punyataweekul and Stephen Woolard.
1.) In early 2003, Boeing announced plans to design and sell an airliner named the 7E7. Boeing aimed for the 7E7 to be more fuel efficient, carry between 200 and 250 passengers, able to accomplish both domestic and international flights, as well as be 10% cheaper to operate than Airbus’s A330-200 aircraft. All of these attributes were attractive to Boeing but would come at significant costs. To accomplish these attributes, Boeing proposed to construct the aircraft primarily out of carbon-reinforced material, add a more fuel-efficient engine, use of composites to reduce manufacturing costs and be assembled in 3 days. There were also some obstacles standing in Boeing’s way of making this aircraft. For this aircraft to be able to accomplish both domestic and international flights, the engineers said they would need two different planes with different wingspans. The second obstacle was Boeing’s board of directors. With the 7E7’s project costs planned to be $10 billion, there was an imminent veto threat if the project costs could not be decreased by billions. The board wanted more specifically to keep the 7E7’s development costs down to 40% and per copy costs down to 60% of the 777 aircraft costs. Boeing’s CEO and chair, Philip Condit, knew that if Boeing did not take risks, their days of being a competitor in the commercial-aircraft industry were numbered.
2.) In 2002 the large plane commercial-aircraft industry is dominated by two big competitors; Boeing and Airbus. Although Boeing had historically held the largest market share, Airbus started closing in. In 2002, Airbus received 233 commercial orders compared to Boeing’s 176. This had Airbus representing a 57% market share and an