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Posts Tagged ‘Boeing’

Next hurdle for Bombardier’s C Series: cutthroat prices

December 7th, 2010 Comments off

Photo credit: Caleb Howell at Flickr

Bombardier is a Canadian company.  They used to be involved in recreational equipment such as Ski-Doo snowmobiles and Sea-Doo watercraft and their Transportation division is involved in light-rail transit including here in the Twin Cities.

Their Aerospace division, however, is probably their best known operating segment and is known as a leading manufacturer of commuter jets (most notably the CRJ series that many of you may have flown on) containing 50-100 seats.

As Bombardier attempts to expand its aircraft product line into medium-sized aircraft (100-149 seats), it is entering space that is getting very close to the market segment dominated by industry giants, Boeing and Airbus.  While those companies tend to focus on even larger aircraft, they may want to protect themselves by defending against Bombardier in the medium-sized aircraft segment because left unchecked, Bombardier could later expand into the lucrative large-aircraft segment.

Bombardier’s $3.4-billion bet on the market for narrow-bodied aircraft faces a potential threat: a price war instigated by Boeing Co. and Airbus SAS.

I think this could be very interesting.  In general, price wars often create only losers but this could be a case where pricing power may be a big enough weapon for Boeing and Airbus to use.  In doing so, they would be hoping to establish a barrier that would keep Bombardier from becoming a thread in the market for larger planes.  It also doesn’t hurt that Boeing and Airbus are “one-stop-shops” for the increasingly larger airlines that are often looking to do more business with fewer vendors.

“The full family of airplanes offered by Airbus and Boeing give them the ability to price the A319 and 737-700 as loss leaders (should they choose to) or to wrap discounts into larger models and … twin-aisle airplanes,” AirInsight noted.

Read more at Next hurdle for Bombardier’s C Series: cutthroat prices – The Globe and Mail and stay tuned in the months and years ahead.  Perhaps we’ll forget about this foray by Bombardier into medium-sized aircraft or maybe we’ll look back and say this was the strategic move that started something big.

Southwest Airlines to Acquire AirTran

September 27th, 2010 Comments off

Spreading Low Fares Farther | Southwest Airlines to Acquire AirTran Holdings, Inc..

See the link above for the official website related to the buyout of AirTran by Southwest.  There are numerous news reports as well that you can read elsewhere.

Photo credit: Brenden Schaaf taken September 29, 2010 at MSP using a BlackBerry Bold

Probably the biggest way this story relates to our class is in the value chain discussion with Southwest obviously feeling that they needed expand to remain competitive.  Specifically, news reports I have read and heard have indicated that Southwest had a desire to expand and/or enter the Atlanta, New York City, Orlando, and Milwaukee markets.  A year ago, Southwest was seen a suitor for Midwest Airlines but they lost out in that attempt to expand to Frontier Airlines.

Mega-mergers are the pattern in the airline industry these days following tie-ups by Delta/Northwest and United/Continental.  It will be very interesting to watch how Southwest proceeds as they try to avoid the negative aspects of mergers that have plagued many companies including other airlines (such as America West and US Airways).  Southwest probably has the most unique culture of all airlines with a playful, fun way of dealing with customers.  Anyone that has ever flown Southwest can tell you that you will not mistake it for a legacy carrier.  Culture clash is a common reason for merger failures…Southwest will have to be careful to avoid the traps associated with this as they proceed.

Another challenge will be how Southwest integrates aircraft and frequent flier programs at AirTran into the Southwest fleet and system.  Southwest is known for flying only Boeing 737 aircraft to make maintenance and other issues easier, while AirTran flies Boeing 717 aircraft in addition to 737s.  Perhaps this is a strategy for Southwest to branch out to different, but related, types of aircraft.

Another issue that will be interesting is how Southwest configures the AirTran aircraft post-acquisition.  AirTran has a small First Class cabin on most (all?) planes and they likely attract a certain segment of the business traveler population that is accustomed to the additional services provided.  Will Southwest risk alienating business travelers by going to the “cattle call” seating that they have today once they acquire AirTran and enter markets like Atlanta where there is a loyal business traveler following?  Will business travelers defect to Delta, which is also based in Atlanta?  Perhaps they already have?

Stay tuned to this situation in the months to come.  There will be lots of examples in the news related to what we discuss in class.

Other links to news about this story:

Vertical Integration is Back in Style

August 8th, 2010 Comments off
monopoly-outsource

Courtesy of Scott Ingram Photography on Flickr

I’ve written before about companies like Boeing and Pepsi that have sought more control over their products with the result being that they have purchased other value chain members.  Credit goes to a current (for another week) student, Kevin Hoese, for pointing out an article in today’s Star Tribune that focuses make vs. buy and vertical integration opportunities at Minnesota companies like Arctic Cat, 3M, and Toro.

Arctic has manufactured ATVs since 1995, but has been making the engines in Minnesota for only about four years and at the St. Cloud plant since 2007. The previous supplier, Suzuki Motor Corp., still makes Arctic’s snowmobile engines, but that too is about to change. Arctic has plans to move production of those engines, now built in Japan, to St. Cloud as well — a move that will add a still undisclosed number of jobs to the plant’s roster of 35 workers.

That control is even more difficult when plants are in far-flung corners of the world. “In a volatile economy like this one it is hard to be flexible when you’re sourcing things from half a world away,” Zimmerman said.

That was the case for Bloomington-based Toro Co., which used to buy wheels and tires for its snow throwers and mowers from a Chinese supplier but now produces them at a Toro facility in El Paso, Texas. “Over the past two years, with demand fluctuating down and then up, we need suppliers that are flexible and responsive in shorter windows,” said Judy Altmaier, vice president of operations. “Some of our off-shore suppliers are capable of supplying us with quality products at a competitive price, and are flexible in meeting our changing schedules. Others are not,”

Factors range from quality concerns to flexibility issues to rising costs of transportation, but whatever the reason, it seems that too many companies overestimated the ease with which they could outsource work to the other side of the globe.  Chances are that they overestimated the cost savings as well.  It will be interesting to watch the economy to see how much of this continues to happen in the next few years.  There certainly are skilled laborers in the United States that are looking for work and perhaps “onshoring” will be part of the answer to the high unemployment figures we see right now.

Of course there are some local companies that are hurt when their customers move some work in-house.  So the fact that more companies are doing work themselves isn’t the cure-all for everyone:

The move by manufacturers to do more work in-house has hurt some businesses that have been suppliers. Permac Industries, a Burnsville-based company that makes precision-machined parts for a variety of industries, saw its sales fall about 40 percent in 2009 partly because customers were doing more of that work themselves, said CEO Darlene Miller. She said she knows of other precision parts makers that experienced the same drop-off in business.

Still, for all the reasons we talk about when we discuss make or buy decisions it is important to weigh all of the factors before making business decisions about where to locate work.  For each company that has outsourced only to find that it isn’t working I suspect that there is a company doing something in-house that they really aren’t doing that well.  Sometimes it is better to focus on core competencies and let others do whatever falls outside that boundary.

Read more at:

In a shift, more companies deciding to make, not buy: Many manufacturers are reversing the decades-old outsourcing trend, preferring to build more parts in-house. Susan Feyder. McClatchy – Tribune Business News. Washington: Aug 8, 2010.

Boeing Takes Control of Dreamliner Plant – WSJ.com

December 25th, 2009 Comments off

boeing_logoI wrote about Boeing before with respect to the increased control they were seeking (and efforts they were making to acquire it) when it comes to their suppliers.  The Wall Street Journal once again had a piece the other day about another supplier that Boeing was buying.

Corporate News: Boeing Takes Control of Plant. Peter Sanders. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 23, 2009. pg. B.2

Boeing Buys Main Supplier

July 12th, 2009 Comments off

Fitting in with the Value Chain material is an article published last week in The Wall Street Journal about Boeing buying one of their main suppliers for the new Dreamliner plane.  I receive a weekly email with WSJ articles that relate to accounting along with some discussion questions and this article was included in the latest email.  Rather than rehash what is said here, I’ll include the email in its entirety including some provided discussion questions that are good things to think about.

Boeing Sets Deal to Buy a Dreamliner Plant
by Peter Sanders
Jul 02, 2009
Click here to view the full article on WSJ.com

TOPICS: Accounting Information Systems, Managerial Accounting, Supply Chains

SUMMARY: “Boeing Co. is in negotiations to purchase operations from one of its main suppliers as part of an effort to gain more control over the supply chain of its troubled 787 Dreamliner program….It will buy a facility from Vought Aircraft Industries that makes sections of the 787 fuselage….” Boeing had planned to have components of the Dreamliner manufactured by suppliers all over the world, but the company “…quickly discovered that keeping track of the different suppliers…was more difficult than it had anticipated….The plane is now two years behind schedule.”

CLASSROOM APPLICATION: The article is good for introducing the concept of a supply chain and supply chain management.

QUESTIONS:
1. (Introductory) Define the terms supply chain, supply chain management system, and value chain.

2. (Introductory) How did the Boeing Corporation initially plan to rely on its supply chain when initiating production of the 787 Dreamliner?

3. (Advanced) What specific supply chain issues did Boeing face with this production plan? How is a supply chain management system supposed to avoid these problems? Of the problems initially listed, which are unlikely to be avoided because of a good supply chain management system?

4. (Advanced) Do you think that Boeing’s acquisition of Vought Aircraft Industries converts the fuselage manufacturing activities from a supply chain to a value chain activity? Support your answer.

Reviewed By: Judy Beckman, University of Rhode Island