Subject and Objectives
The business report discusses the technological advances undergone by Boeing 787 from a commercial perspective. In this respect, the case examines possible costs and benefits imposed by technological enhancement to meet the current commercial demands and sustain a competitive edge at the market. The considerations are regarded as necessary to strike the balance between the financial performance and the rapidly increased prices on fuel. The procedure will require several stages, including the study of previous cases connected to airline industry, the analysis of economic situation, and the consideration of the main features of Boeing 787 with regard to the current technical demands. Finally, the analysis will also involve a consideration cost-effectiveness of the introduced technological advances with regard to the current commercial demands.
Originally, Boeing 787 was designed as an improvement on its current versions of 747-400 and 767 that had started experiencing dipped sales after years of success (Boeing.com, 2011). Thus, Boeing manufacturers found it necessary to invent a revolutionary airplane that outstripped current models and other similar aircrafts in the industry, particularly those produced by its rival Airbus. Concurrently, Boeing was more concerned with increasing speed of future models and aircraft performance (Boeing.com, 2011). However, the need of financially and technologically efficient aircraft prevailed, which resulted in the introduction of Boeing 787. The analysis of structural design, efficiency and performance provides a sufficient rationale for justifying the cost-effectiveness and benefits of the technological advances.
Current Overview of External and Internal Factors
Boeing 787 aircraft is a testament of great technological strides taken place in the recent aviation industry. The hallmark characteristics of the model involve the top-notch technology on board and extremely high fuel efficiency (Reinforcedplastics.com, 2011; King, 2007). The structure of Boeing prevails significantly on other airplane models due to a much lighter composite material amounting to 50 % of all elements, presence of 20 % aluminum, 15 % steel, 10 % steel, and 5 % other elements (Boeing.com, 2011). The presented shifts contribute to greater cost-effectiveness.
The introduction of technologically new approaches to constructing the Boeing model was also been presupposed by the current competition between the two global airplane producers – Boeing and Airbus – that present completely different technological philosophies (Ibsen, 2009).
Along with the development of new Boeing 787, the introduction of Airbus A380 has also provided a solid basis for evolution of transport market (King, 2007). The model was successfully launched long before Boeing 787 and its delivering capacity was much higher as well. The introduction of Airbus A380 also approved the necessity of enhancing technologies due to the increase in oil prices. Technological shifts have delivered impressive cost savings and economic benefits to the aerospace market. Specifically, the Airbus project contributes to the value of about £ 7.5 to the airline companies in the UK (Great Britain: Parliament: House of Commons, 2005). At this point, the technical novelties provided by Boeing have much higher potential in financial terms because it meets many international requirements.
Assumptions and Methods
Discussing preliminary costs and financial results
Judging from the technical description and presented improvement in the aircraft design, Boeing 787 can gain a competitive advantage among other airline companies. Specifically, the company assures the highest assurance and low risk rates. It should be estimated that the new plane was highly beneficial due the degree of outsourced development all over the world. The company itself takes responsibility for more than 10 % by value, including final assembly and tail fin (King, 2007). The rest of production lines are delivered by other 40 partners, including Japan, France, the US, and Italy. This mass chain supply management has proved the high demand and high cost-effectiveness of the project. Specifically, 2007 was remarkable for receiving $ 100 billion from total of orders (King, 2007). In general, the partners were interested in designing specific parts that Boeing had never had before.
In order to predict and justify the cost-effectiveness of the newly introduced approaches, it is purposeful to consider the figures related to net cash flow, return on investments, and process assets. The data will enable the producers to define future perspectives and analyze the current financial situation. Specifically, the Boeing 787 presents a new technique to onboard systems. Specifically, a number of systems were changed and advanced including engine start, wing ice protection, auxiliary power unit start, hydraulic pumps, and cabin pressurization. 2009 financial report demonstrates the increase of all indices including revenues, net incomes, and operating cash flow. Specifically, revenues in 2009 were 9 % higher as compared to year 2008 (Boeing, 2011). The operating cash flow in augmented from $ 1,240 to $ 2,391, which constituted a 90 % growth (Boeing, 2011). However, the net profit has been decreased by $ 1.6 billion, which was explained by the initially promulgated 787 cost reclassification offset by tangible performance in other commercially important program (Boeing, 2011). Despite the presented decline, the Boeing 787 cost reclassification and intensified participation in many commercial programs will not prevent to get the airplane moving forward with certification of other important programs.
Predicting future results
While predicting the future results, particular attention should be paid to oil price policy which has a significant impact on the revenues and net profit. The increase in percentage should be estimated to discuss how much should be spent on fuel. Despite the fact that fuel efficiency has been significantly improved due to the up-to-date design and simplified composition, the prices on fuel influence the above-presented percentages.
According to IATA (2011) data, the jet fuel price index is equal to 334, or $ 122.2/b, which is 27.5 % in comparison with the previous year. Taking into consideration the fact that fuel price average is $ 127.4/b, the impact on fuel bill will amount to $ 60 billion (IATA, 2011). Provided the average increase of prices is about 30 %, the fuel cost-efficiency introduced by 787 Boeing new technologies should be able to cover this percentage and place an emphasis on other introductions (IATA, 2011). If the revenues were doubled, the next year results could be much lower with regard to the above jet fuel price tendencies.
Scope and Boundaries
Judging from the above-presented information, certain boundaries should be established within which it is necessary to define the time limits, program plans, and performance of research and development department.
Hence, the financial statements are taken from 2009 report financial results comparing the indexes with the previous year. The emphasis is placed on considering operating cash flow, net profits, and revenues. The analysis of program involves commercial plans and defense business program (Norris and Wagner, 2009). Consequently, the predictions will be made with regard to those results and programs outcomes.
Much importance will be attained to the fluctuations of jet fuel prices that are steadily increasing. Along with fuel prices, considerations should also concern the improvement that engineers have introduced to the jet engine (Ibsen, 2009). The correlation between these two indices should also be carefully analyzed. Because jet fuel prices undergo constant change, cost-efficiency of the technological innovation will inevitably decline. In order to compensate this cost, it is purposeful to evaluate other novelties introduced to Boeing. This is of particular concern to the composite material making the model more environmentally friendly.
Cost Model and Benefits Rationale
In order to create a cost model should involve only the changes in development. Taking into account the fact that the Boeing previously resort to outsourcing, specific consideration should be given to outsourcing in Japan that produces wings for the airplane. However, export and import expenditures should be analyzed. In addition, composite materials (about 50 %) and aircraft models cost 10 times more expensive than aluminum (Boeing, 2011). The cost spent on the development of the new jumbo jet engine, a new long-range model holding up to 500 passengers, is also tangible (Plunkett, 2009). With regard to the above assumptions, the cost model will look as follows:
|Resources||Cost Model for Justifying Technological Advances (Burrow, 2008; Boeing, 2011; IATA, 2011)||Life Cycle Cost|
|Planning and design||Preliminary design and integration||Detail design and development||Manufacturing and acquisition||Operation and support|
|Composite material||Purchase||Testing||Concept development||Upgrade||Export and import costs|
|Jet engine development||Export and import costs||Testing||Research and development||Production and distribution||Personnel costs|
|Increasing fuel efficiency||Fuel costs||Testing||Research and development||Production and distribution||Maintenance costs|
|Wing design||Export and import costs||Testing||Research and development||Purchase of materials||–|
It should be noted that the system is focused on the analysis of costs with regard to technological advances. Due to the fact that the operational costs have remained the same, no new cost have been introduced, except for the primary stage of the implementation. Further development will require no testing procedures because the product has passed the verification.
The above-presented cost model has revealed a number of financial benefits from a business and technological perspective. Specifically, because the composite material has been altered, the Boeing 787 has acquired a lighter structure and, as a result, has significantly reduced weight. According to this, the material costs of the structures are the core drivers contributing to the maintenance costs. The cost and weight, as a result, are plotted against the material performance (See Figure 1). In general, the rational is strongly associated with sales and marketing objectives aimed at improving the market share and enhancing sales revenues. Financial performance is also of great concern because increase in margins, cash, and profits is also considered among the main goals.
Business Impacts: Cash Flow Statement
Judging from the above-stipulated tendencies, financial report results, and cost predictions, it is purposeful to provide a table framework summarizing the future benefits and net costs (Burrow, 2008). Importantly, the results depend on a complex mix of factors and nuances that constantly vary. Therefore, the majority of the admitted indices will involve uncertainty. In addition, the starting cash flow will be taken as $ 100 to make further calculations more explicit and easier to understand.
|Scenario: Cash Flow Summary||Year 1||Year 2||Year 3||Total|
|Benefits (Cash Input)||$ 100||$ 109||$ 119||$ 321|
|Net Profit (Cash Output)||$ 100||$ 190||$ 380||$ 670|
|Net Cash Flow||$ 100||$ 150||$ 300||$ 550|
Analysis and results
The considerations of cash operating flows, cost models, and benefit rationale show that the technological introductions are fully justified in financial terms. The Boeing 787 was designed to solve the problem with fuel consumption and deficiency of natural resources (Boeing, 2011). In particular, great jet fuel efficiency contributes to both reducing costs and creating an environmentally friendly technology. In addition, the reduced weight of the airplane also contributes to greater cost effectiveness (King, 2007). Importantly, the newly introduced changes have high potential for future development.
Sensitivity and Risk Analysis
Though the above-proposed scheme is financially beneficial, much attention should be paid to the analysis of possible risks. This is of particular concern to jet fuel price control. Specifically, the producer should take into account this issue while introducing further changes to the construction design (Norris and Wagner, 2009).
Excessive participation in different programs and dependence on outsourcing activities can also create a risky situation. Specifically, supply chain management should be taken under greater control to prevent any lapses in the production line (Burrow, 2008). While comparing the presented practice with other similar programs, it can be stated that the Boeing 787 does not cede its positions to other aircraft companies.
It should also be stressed that net cash flow decline is explained by the active participation in programs that require sufficient financing. However, the program outcomes can become an effective marketing strategy for the airplane company.
Contingencies and dependencies
While carrying out a market research, specific emphasis should be placed on the consideration of prices on fuel and the composite material that can be significantly raised in future. In this respect, the producers should work out effective schemes allowing to predict possible problems and contingencies (Burrow, 2008). For instance, they should create a solid financial basis for future research in the sphere of composite materials for aircraft to define perfect ratio of metals. In addition, it is also possible to find out cheaper alternatives to jet fuel. Finally, there is also a possibility to conduct a market research analyzing other competing marketing segments.
The Boeing 787 has been designed not only for the purpose of technological improvement leading to creating not only to an environmentally friendly image, but to making the project more commercially competitive (Norris and Wagner, 2009). The marketing competition is closely connected with the parallel development of other airplanes, including Airbus. Because airspace industry embraces a small segment of market, larger fragmentation enables the company to keep abreast with all marketing changes.
Conclusions and Recommendations
A careful examination of all aspects of technological changes, it can be stated that technological advances introduced to Boeing 787 are financially and commercially justified due to many reasons. First, the model has become cost-efficient in terms of fuel consumption. Second, though the composite material is very expensive, the trade-offer between weight and cost has also been justified. However, certain aspects have certain biases as far as jet fuel price is concerned. Due to the fact that the cost model was calculated for a shot period, the benefit rational will still be approved.
Boeing, 2011. 787 Dreamliner. Boeing. Web.
Boeing.com., 2011. 787 Dreamliner. Web.
Burrow, J.L., 2008. Marketing. London: Cengage Learning.
Great Britain: Parliament: House of Commons, 2005. The UK Aerospace Industry: Fifteenth Report of Session 2004-2005. UK: The Stationary Office.
IATA, 2011. Jet Fuel Price Monitor. IATA Economics. Web.
Ibsen, A., 2009. The politics of airplane production: The emergence of two technological frames in the competition between Boeing and Airbus. Technology in Society, 31: 342–349.
King, J., 2007. The Airbus 380 and Boeing 787: A role in the recovery of the airline transport market. Journal of Air Transport Management 13: 16–22.
Norris, G., and Wagner, M. 2009. Boeing 787 Dreamliner. US: Zenith Imprint.
Plankett, J.W., 2009. Plunkett’s Transportation, Supply Chain and Logistics Industry Almanac 2009: Transportation, Supply Chain and Logistic Industry Market Research, Statistics and Leading Companies.
Reinforcedplastics.com. 2011. Boeing takes off. Web.