The Decision to Build the 777x Essay

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Boeing 777X is an aircraft currently under development. The aircraft is based in part on technology that was developed for the 787 Dreamliner. The company intends this project to be the "largest and most efficient twin-engine jet in the world," and also expects it to have enhanced cabin features that will improve upon the in-flight experience. The jet is intended as a competitor for the Airbus A350, which entered service at the beginning of 2015. Boeing hopes that the 777X will be ready for production in 2017. This paper will outline the process by which Boeing determined to proceed with this project.

Problem Identification

The commercial jet business is global in nature. The market for long-haul jets is basically a duopoly, with Boeing and France-based Airbus. The market for smaller jets is dominated by Bombardier (Canada) and Embraer (Brazil). The only other player in the long-haul jet market is Moscow-based Tupolev, which mainly sells in ex-USSR countries. In a duopoly, firms respond to each other's moves, and this is the case with Airbus and Boeing, who are perpetually trying to leapfrog one another in terms of technology. The fixed costs associated with manufacturing long-haul jets are tremendous, and as such both of these companies seek to ensure capacity maximization by developing jets that appeal to the world's leading airlines. Leading airlines are the key market, because they buy new jets. These airlines are predominantly flag carriers in the developed world, major developing nations and the Gulf States.

The airline industry is in a growth trajectory, and is characterized by intense competition. The best margins are at the high end, so many airlines specifically compete to attract first-class and business-class customers. The competition in the industry has constrained price growth for economy class seats. What this means for airlines is that they want modern planes that help them attract customers, but they also want fuel efficiency to help them control costs. Fuel costs fluctuate wildly, and airlines can only partially hedge their exposure. Combine this with carbon taxes -- or the threat thereof -- and airlines are seeking to reduce their fuel usage to help them manage their margins better.

For Boeing and Airbus, this has meant a move towards lighter aircraft. The 787 Dreamliner was a technological leap for Boeing, being significantly lighter and more fuel efficient than previous aircraft, and offering a quieter cabin as an added bonus. The Dreamliner allows airlines to run intercontinental routes with fewer seats, giving airlines greater flexibility to build out intercontinental route networks. As an example, United has used the Dreamliner to upgrade its Houston-Sao Paulo service, and add a new route from LAX to Melbourne and several routes to Asia (Mutzabaugh, 2015). ANA added a Haneda-Vancouver route because of the 787, and there are many other examples of new possibilities created by the new aircraft. Airbus's response, the A350, is providing similar opportunities, evidence that this model is the future for the aircraft industry. For Boeing, the problem was how to follow up the Dreamliner and create the next generation of lightweight, quiet jets for long-haul travel, to maintain its competitive edge and ensure that it operates at 100% capacity for the next decade or more.

Analyze Situation

The 777X builds on the 787 ideas, but with improvements. There are different classes of aircraft, based on both the range and the number of seats. The Dreamliner does intercontinental travel with a relatively small number of seats, compared with more classic intercontinental jets like the 747 and A380. For Boeing, as soon as it identified that the Dreamliner technology filled specific needs for its major customers, it knew that it needed to follow-up, building on those technologies to deliver jets in other range and capacity classes. The only real decision was to determine what class was best to target. The 777-series jets have a capacity, depending on layout, from 314 to 451 passengers and have intercontinental range. This is a higher passenger count than the 787, as the 777 series was designed to replace the 747s. Thus, the choice was made to pursue a class of aircraft that is slightly larger than the Dreamliner, and continue with the focus on intercontinental jets.

This was likely the right choice. The Dreamliner is among the smaller of Boeing's products. While the 777 series has been successful, its technology is now outdated, as the 787 made many of the features of the original 777s obsolete.

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The 777 series was a commercial success, but would struggle to remain so with obsolete technology. Thus, updating the 777 series made the most sense from a business perspective. Furthermore, the duopoly situation comes into play, as the A350 specifically targeted the 777 series, but is a much newer, more technologically-advanced aircraft. Airbus had leapfrogged Boeing, and Boeing would need to leapfrog back in order to maintain production capacity utilization.

Develop Options

Boeing had to look at a number of options for the 787 follow-up. The 777 was a highly-successful series, but was vulnerable in the marketplace. Other aircraft were seen as less at risk. Most other aircraft in the company's line are old -- the 737 and 747 have been in production since the 1960s. Thus, they were seen as less vulnerable, their markets well-established and mature, whereas the 777 was a strong producer for Boeing that was relatively new, and its obsolescence was rightly deemed a bigger threat to Boeing's growth going forward. Thus, while the company had other options, such as revamping a different brand, or a stay-the-course plan with the 777, it chose the third option, which is to upgrade the 777 using modern technology, to keep that highly-successful brand's momentum positive.

Evaluate Alternatives

The do-nothing alternative would not have hurt the company immediately. Boeing typically has a production backlog, in particular at its Everett facility. This backlog is anywhere from 1-3 years, which provides the company a cushion. However, development lead times are long, and with the A350 slated to leapfrog the 777 in 2015, Boeing had a lot to lose with the do-nothing option. It could have revitalized a different brand, such as the 747. That plane is so iconic, it would have made some business sense. However, the 777 brand has been an exception success for Boeing, and it was under the most direct threat from the A350, so there was greater logic in using the 777X brand for the new aircraft, rather than some other line. This was not a difficult choice.

Select Preferred Alternative

The only reasonable choice was to use modern technology in a new aircraft, and the company's breadwinner, the 777 series, was the most at risk from the technological changes in the industry. Strategically, defending against the technological shift was necessary, and the most money at stake was in this class of aircraft.

Action Decision

There are two main action decisions once the choice to build the 777X is made. First, Boeing needs to target the desired features of the new aircraft. It knows it can make the aircraft lighter by building on the 787's technological innovations, and it knows it can make the new aircraft more fuel efficient. It would still need to target a specific range and passenger capacity. Boeing works closely with its largest customers to make such decisions. The companies that order dozens of new aircraft are instrumental in helping Boeing make these decisions. With the 787, it was United. With the 777X, the major lead customers are Emirates, Qatar and Etihad, all rapidly-growing Gulf State airlines, with a further 50 aircraft from Cathay Pacific as well. Emirates, with an order size of 100-150 aircraft, will have a lot of influence over interior configuration and final aircraft capabilities (Johnsson, Rothman & Catts, 2013).

The other major action decisions are on the production side. Boeing needs to determine its supply chain partners, and where it will assemble the jets. They tapped GE to make a new engine for the aircraft (Patterson, 2015) and reached a deal on tax breaks, and with the union to assemble the jet in Washington State (Wilhelm, 2014). These decisions now made, the aircraft is on schedule to begin production in 2017. The company has also initiated the use of robotics to help to produce some components, a new generation of machines for production in the industry (Gates, 2015).

Evaluate Decision

There are several criteria by which this decision should be evaluated. The first is with the interest from the airlines, as measured by pre-orders. The pre-orders from the Gulf airlines has been strong enough to justify the decision, but there is not enough geographic diversification in that for Boeing to feel successful. Instead, it needs to ensure that there are sufficient pre-orders for 2-3 years of backlog, and from around the world.

Aside from preorders, most of the evaluation will come.....

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