GlobalAircraftManufacturing2002-2011

5-312-505

February 26, 2016

J E N N I F E R B R O W N A N D C R A I G G A R T H W A I T E

Global Aircraft Manufacturing, 2002–2011

On October 26, 2011, an All Nippon Airways (ANA) jet landed in Hong Kong after a four-hour flight from Tokyo. This was no ordinary flight—it was the maiden commercial voyage of the Boeing 787 “Dreamliner” aircraft. Calling the event “the long-awaited day,” ANA president and CEO Shinichiro Ito described the aircraft as a “game-changer.” “For Asia, we are convinced this aircraft will become the mainstay of our fleet.”1

The flight was the culmination of nearly 10 years of work and numerous delays as Boeing changed many of its processes for design, production, and financing. Vice president and general manager Scott Fancher said, “It’s been a difficult journey.” Looking at his boarding pass, he added, “I can’t tell you how much I’ve been waiting to hold this in my hand.”2

The first decade of the 21st century was noteworthy for the rest of the global aircraft industry as well: Airbus was selling the superjumbo A380, a plane that carried more passengers than any other in history; the Asia-Pacific region and other emerging economies were growing and spawning demand for more aircraft; new airline trends were creating opportunities for new products; and new entrants were positioning themselves to compete against industry heavyweights Boeing and Airbus.

Commercial Aircraft Industry

Global revenue for commercial aircraft manufacturing in 2009 was $127 billion.3 The industry’s products were sold directly to airlines as well as to companies that leased products to airlines. Commercial aircraft were expensive ($30 million to $200 million per plane) and extremely complex—a Boeing 747 was made up of millions of parts and nearly 200 miles of wires and tubing.4 Designing aircraft was correspondingly time-intensive: the process from initial research to flight test could take up to 10 years. It was also extremely capital-intensive: although the actual costs

©2016 by the Kellogg School of Management at Northwestern University. This case was developed with support from the December 2009 graduates of the Executive MBA Program (EMP-76). This case was initally prepared by Susan Crowe and then revised by Charlotte Snyder and Greg Merkley ’84, under the supervision of Professors Jennifer Brown and Craig Garthwaite. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847.491.5400 or e-mail cases@kellogg.northwestern.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing.

This document is authorized for use by Ted Delicath, from 06/09/2025 to 08/31/2025 in the course:

STRTX-431-0 Cohort 141: Foundations for Strategy Formulation - Hubbard (Spring 2025), Northwestern University Any unauthorized use or reproduction of this document is strictly prohibited.

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

of producing a new aircraft were closely guarded, Boeing chief financial officer Greg Smith acknowledged that the company had spent $13.2 billion through June 2012 building its 787 Dreamliners,5 and total development costs for the Airbus A380 were estimated at around $13 billion in 2006.6

Once designed, airplanes were labor-intensive to manufacture. The workforces of both Boeing and Airbus were heavily unionized, and both periodically experienced labor-related work stoppages. Boeing had suffered five machinist strikes since 1977, the most recent of which occurred in 2008 and lasted 58 days.7 Airbus, which employed workers who were members of multiple unions, experienced a strike in 2007 when it tried to implement cost control measures.8 However, there were signs that the influence of unions on aircraft manufacturing might change in an age of capital mobility. Although all previous Boeing aircraft had been assembled in the Seattle, Washington, area, in 2009 the company opened a Dreamliner plant in South Carolina—a “right-to-work” state.* Similarly, Airbus decided to open a plant in Alabama, a state that also had a “right-to-work” law.9

Historically, the largest single procured cost for an aircraft was engines. An aircraft manufacturer typically approved two or three different engines for each model, and the customer made the final engine choice. All aircraft manufacturers had development agreements with multiple engine makers, which collaborated to cultivate relationships with customers. The leading engine manufacturers were Pratt & Whitney, Rolls-Royce, and General Electric; these players had also joined with smaller companies to form joint ventures such as CFM International, International Aero Engine, and Engine Alliance.10

In 2012 four environmental and customer trends had particular potential to influence aircraft manufacturers’ profitability: demand for air travel, airline route structure, airline purchasing objectives, and government regulation.

Demand for Air Travel

Although the growth in world air travel had varied considerably year to year since the 1970s, it averaged about 5 percent annually, a rate about twice the growth of world GDP.11 Despite this overall expansion of demand, there were many years in which the global airline industry operated at a loss (see Exhibit 1). Between 1978 and 2011, nearly 200 airlines in the United States alone filed for bankruptcy protection, although many ultimately were able to emerge from it.12

The economic growth of developing countries in the early 21st century created opportunities to open a number of potentially profitable new airline routes. For example, international routes between China and other countries offered tremendous potential. However, international routes were not the only opportunities—intra-country routes were also expanding. For example, the market potential for point-to-point service within China was larger than in Europe and North America due to the large number of populous Chinese cities (see Exhibit 2). By 2011, China was building 150 new airports in parts of the country that had previously had no air service, bringing the total number of Chinese airports to 325. By comparison, the United States had 1,000 airports that could accommodate commercial jets and another 4,000 that could handle propeller planes and small corporate jets.13

• “Right-to-work” laws allow employees to decide whether or not they want to join a union, thereby preventing compulsory union membership. In the United States, there were 23 states with such statutes in 2012.

2 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Airline Route Structure

Passenger volume was the primary factor that determined whether an airline could serve a route profitably. In order to consolidate passengers flying into or out of small cities, many airlines used hub-and-spoke route systems, with major cities serving as “hubs” to connect smaller routes, or “spokes.” For example, a traveler flying from Hartford, Connecticut, to Kansas City, Missouri, could fly from Hartford to an airline hub in Chicago, Cincinnati, or Charlotte and then connect to a second flight to get to Kansas City. Hub-and-spoke systems were also used internationally; for example, travelers on Emirates Airlines flew from London to Dubai and then on to Riyadh, rather than directly from London to Riyadh.

By 2011, the hub-and-spoke system had been the predominant model for decades, but recent trends suggested the rise of an alternate system: point-to-point routing. Travelers typically preferred nonstop flights, and airlines such as Southwest Airlines successfully appealed to this preference by building point-to-point route networks. “We focus on nonstop traffic,” said Southwest CEO Gary Kelly in 2005. “We’d prefer fewer connections. It’s what customers want least. It raises the bar. It is extra work for no more money. It’s a lot cheaper for us to fly you nonstop.”14

Though Southwest operated entirely in the United States, airlines such as EasyJet and Ryanair in Europe and AirAsia in Asia did the same with short-haul international flights. Worldwide, the number of routes served by nonstop flights grew from just under 6,000 in 1985 to more than 10,000 in 2005.15

Airline Purchasing

An airline considering an aircraft purchase had to consider multiple factors, not least of which was the size and range of a given airplane. In 2012 there were four categories of commercial jet aircraft based on passenger capacity and flight range:

• Regional jets (less than 100 seats) for short-haul routes*
• Narrow-body or single-aisle jets (100+ seats) for short- to medium-haul routes
• Wide-body or twin-aisle jets (100+ seats) for medium- to long-haul routes
• Very large, jumbo, or superjumbo jets (400+ seats) for long-haul routes

Airport and runway design could limit which aircraft an airline could use on a particular route. For example, San Diego International Airport could not accommodate nonstop service to Asia until Boeing’s 787 was produced because its runway was too short for other long-haul jets taking off into Pacific headwinds.16 Los Angeles International Airport (LAX) spent $50 million for taxiway improvements and $50 million updating two gates in the international terminal in order to accommodate the Airbus A380. Even with these improvements, however, LAX reported that service vehicles had to be moved off taxiways and runways to accommodate the huge jet, which needed “an official escort of operations vehicles.”17 The plane was so large that it had the potential to interfere with the airport’s instrument landing system; as a result, air traffic controllers ensured that the plane had priority and moved in and out as efficiently as possible. Gridlock was projected if multiple international carriers tried to use the jets at the airport more frequently.18 Other airports

• Definitions of route length vary, but for the purposes of this case, a short-haul flight took less than three hours; a medium- haul route took between three and six hours; and a long-haul route took more than six hours.

K e l l o G G S c h o o lo f M a n a G e M e n t 3

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

reported incidents of the wingtips of A380s colliding with buildings or other planes. Although travelers could board an A380 from five U.S. cities in 2011, no American carriers had purchased the plane.19

Runway and gate capacity constraints also influenced which aircraft an airline might fly into particular cities. In 2012 London Heathrow was operating at full capacity, with 1,300 flights per day.20 By 2025, 14 U.S. airports, including LAX, Hartsfield-Jackson Atlanta International, John F. Kennedy International, LaGuardia, and San Francisco International, were projected to face extreme congestion that could lead to delays throughout the country.21

In addition to selecting size and range, airlines also had to choose which manufacturer’s aircraft to buy. Airlines’ maintenance costs were higher with a fleet made up of multiple aircraft types and manufacturers because of the need to stock a greater variety of parts and train maintenance personnel, and operating costs increased because flight crews needed to be trained and certified for each aircraft.22 Despite the additional cost of flying different types of aircraft, most airlines maintained a mixed fleet either by design or as a result of mergers (see Exhibit 3). Some low-cost carriers, such as Southwest Airlines and Ryanair, flew only Boeing 737s in an attempt to avoid the added costs of fleet complexity.

Airlines focused on the total cost of ownership when purchasing aircraft: airline analysts modeled the life cycle implications of a proposed aircraft over an estimated service life of 20 years.23 Because an aircraft sale included more than just negotiating the purchase price, aircraft purchase agreements were extremely complex, often running hundreds of pages in length and addressing everything from engines and cabin interiors to operating performance and training.24

Finance companies also purchased aircraft to lease to airlines under a variety of arrangements. Traditionally, many airlines used finance leases, which allowed them to pay for planes over time with tax-deductible payments. Increasingly, airlines had been turning to operating leases under which they essentially rented the aircraft and shifted the risk of loss in its resale value to the leasing company; more than one-third of the world’s airline fleet in 2011 was rented in this manner.25 GE Capital Aviation Services was a major player in aircraft leasing, and Boeing and Airbus themselves offered lease and sale of used aircraft acquired from trades and lease returns.

Government Regulation

Aircraft manufacturers were subject to numerous and extensive safety and environmental regulations established by U.S., European, and international bodies. Most regulators based their policies on standards and recommended practices set forth by the United Nations’s International Civil Aviation Organization. Compliance was often costly and not always straightforward. For instance, the Boeing 737-700 and 737-800 models with enhanced exit doors were certified by the Federal Aviation Administration (FAA) in the United States in 1997 and validated by the European Joint Aviation Authorities (JAA) in 1998, which enabled the use of these aircraft in Europe. However, French aviation authorities rejected the JAA ruling and for the next six years required carriers to block off four passenger seats when the aircraft were used in France.26

The United States and the European community signed an agreement on trade in civil aircraft in 1992 that limited government subsidies for aircraft production. However, the United States and the European Union each filed a complaint with the World Trade Organization (WTO) in 2004 and

4 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

2005, respectively, alleging that the other had violated the agreement. In separate judgments, the WTO ruled that both had offered their major manufacturers subsidies—the European Union to Airbus, for the development of the A380, and the United States to Boeing, for the development of the 787. Compliance measures were pending in 2012.27

Major Competitors

At the beginning of the 21st century, Boeing and Airbus accounted for roughly 60 percent of the global commercial aircraft industry and shaped how planes were designed, manufactured, and marketed.28 By 2011, however, the industry was changing; Boeing and Airbus were still the only producers of very large commercial aircraft, yet several regional jet manufacturers, including Bombardier and Embraer, had expanded their portfolios to include planes with larger seating capacity. Moreover, firms in China, Russia, and Japan were developing new products to serve the growing demand for smaller jet aircraft.

Boeing

After building a successful timber company in Seattle in the early 1900s, William Boeing developed a passion for “flying machines.” Taken with the desire to “build a better airplane,” Boeing and a handful of employees designed a twin-float seaplane in Boeing’s boathouse and flew it for the first time in 1916.29 As the United States entered World War I in 1917, the new Boeing Airplane Company secured a U.S. Navy contract to build training planes. When orders of military aircraft dwindled after the war, Boeing began manufacturing mail planes and promoting commercial aviation. By 1929, the company had become a conglomerate known as United Aircraft and Transport Corp., encompassing airlines, aircraft manufacturers, engine manufacturers, and even a school for pilots and maintenance personnel. The jet age dawned in 1954 when the company introduced the Dash-80, the plane that was the prototype for the 707, the first of the famous “700” Boeing aircraft families, which had its inaugural flight in 1957.30

Between 1967 and 1970, Boeing introduced two other innovative jets: the 737 narrow-body, which was designed for smaller airports with shorter runways, and the 747 double-aisle jumbo jet. The 737 became Boeing’s best-selling airplane family of all time.31 The 747 was expected to help reduce airport congestion: it held up to 490 passengers, had more cargo space than any other aircraft, and could fly 6,000 nautical miles* without refueling.

The 747 was designed and built in only 16 months by a group at Boeing known as “The Incredibles,” but its launch was ill-timed; it was conceived during a boom in air travel but was delivered in an economic recession during which many airline seats remained empty.32 Poor sales of the jet in its early years almost bankrupted Boeing. By the late 1970s, however, economic conditions had changed, and demand from airline and freight company customers increased. Boeing eventually built 21 models of the 747, which remained the largest civil aircraft in service until the launch of the Airbus A380.33

In 1978 Boeing announced the production of two new aircraft families: the 757, a more efficient narrow-body, and the 767, a wide-body twin-engine airplane that could carry 216 to 290 passengers on long-haul routes.34 In 1985 the 767 became the first twin-engine passenger aircraft approved for

• A nautical mile is 1,852 meters (or approximately 1.15 miles).

K e l l o G G S c h o o lo f M a n a G e M e n t 5

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

long-range overseas flights.35 In the late 1980s Boeing began studies to produce a 767 with more seats, which led to the development of another new aircraft family, the 777. The 777 was designed in collaboration with airline customers, particularly United Airlines. General Electric built the GE90 engine—the most powerful jet engine of its time—exclusively for the plane.36

As Boeing introduced each new aircraft family, it refined its development and manufacturing processes. Design was done by Boeing, which provided detailed drawings and specifications to a large number of subcontractors that produced many of the parts and components. Boeing then gathered these parts in its facilities, manufactured the major components of the fuselage, and assembled the plane that rolled out on the tarmac.37

Advances in technology and customer demand for operating efficiency prompted Boeing to announce another new aircraft program in 2003: the 7E7. The “E” stood for efficient: the plane was originally intended to fly 200 to 300 passengers on routes of 3,500 to 8,000 nautical miles at the highest speeds while using 20 percent less fuel per passenger than comparably sized jets.38 A worldwide online vote to name the plane took place in 2003, and in January 2005 Boeing officially christened the new program the 787 Dreamliner.

Technological and process advances from the Dreamliner project, including advancements in fuel efficiency, lower carbon emissions, and passenger comfort, helped drive the introduction of new models in several of Boeing’s existing aircraft families. For example, the Boeing 747-8 Intercontinental and 747-8 Freighter, which were rolled out starting in 2012, claimed 13 percent lower operating costs than the previous 747 model,39 and the 737 MAX, scheduled for delivery in 2017, promised excellent fuel efficiency in the narrow-body market.40

Airbus

Airbus was created as a consortium of European aircraft manufacturers in 1967 to counter the dominance of American aircraft manufacturers Boeing, Lockheed, and McDonnell Douglas, which together accounted for 80 percent of the aircraft market.* Representatives from the governments of Germany, France, and Britain (and later, Spain and the Netherlands) agreed to combine the small aircraft manufacturers from their respective countries. Without such an agreement—and with the Boeing 747 about to enter service—Europeans risked losing hundreds of thousands of jobs and having their national airlines become wholly dependent on American suppliers for new aircraft.41

The first Airbus product was the A300, the world’s first twin-engine wide-body aircraft. Up to that point, all wide-body (two passenger aisles) aircraft had been built with three or four engines; a two-engine design reduced both the initial purchase cost and the fuel costs to operate it, which became an attractive feature during the 1970s oil crisis. The A300 carried 226 passengers in two classes and was smaller, lighter, and more fuel-efficient than its three-engine competitors, but Airbus initially had little success selling to airlines. When the sales outlook was especially bleak in the late 1970s, Airbus leased four new A300s to Eastern Airlines for six months with no requirement that they be purchased. After the test, Eastern ordered 23 A300s in 1978.42

Airbus continued to grow its family of commercial jets throughout the 1980s. In 1987 Airbus rolled out the A320, a smaller 150- to 180-seat narrow-body jet that was a direct competitor to the

• Today, Airbus is a division of the European Aeronautic Defence & Space Co. N.V., a pan-European corporation that is also parent to aerospace and defense divisions Astrium, Cassidian, and Eurocopter.

6 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Boeing 737. A new model of the A320, the A320neo (“neo” stood for “new engine option”) included more efficient engines and reductions in noise and CO2 emissions.

Echoing Boeing’s development path for its 767 and 777 aircraft, Airbus next introduced the A330 and A340, aircraft that could fly longer routes and seat more passengers than the A320. In 2000 Airbus announced its plans to build the A380—a superjumbo jet that could carry more than 500 passengers on long-haul routes—and enter the 747’s competitive space (see Exhibit 4). Its expanding product line enabled Airbus to take market share from Boeing during the 1990s and finally surpass its American rival in 2003 (see Exhibit 5).

Since the late 1990s, Airbus had developed sales offices, training centers, design and engineering support, customer service, and spare parts supply operations through joint venture arrangements with companies and consortia in India, Russia, China, and Japan. In 2012 Airbus had operations in eight countries: France, Germany, Spain, United Kingdom, China, India, Russia, and Japan.

Manufacturing was spread among 12 Airbus facilities in five countries. (See Exhibit 6 for a depiction of the production process of one A320 aircraft.) In 2012 Airbus announced plans to build its first American factory in Mobile, Alabama. The facility was to open in 2015 and would eventually employ 1,000 people in manufacturing the A320neo. Airbus hoped the plant would reduce costs and encourage U.S. sales: “We needed to be visible in the States under the Airbus flag,” Airbus president and CEO Fabrice Bregier said.43

Bombardier

Joseph-Armand Bombardier had an early passion for innovative transportation: in 1922, at the age of 15, he built his first “snow vehicle” to transport people across winter roads in rural Québec, Canada. In 1942 Bombardier founded L’Auto-Neige Bombardier Limitée to manufacture a 12-passenger snowmobile. After the 1973 oil crisis, the company shifted its manufacturing expertise to mass transit rolling stock such as subway cars and later diversified into the aerospace sector in 1986 with the acquisition of Canadair, a Canadian manufacturer of wide-body business jets and amphibious firefighting aircraft.44

During the late 1980s and 1990s, Bombardier expanded its aerospace business with the acquisition of Short Brothers, Learjet Corporation, and Boeing’s de Havilland unit, which made it the third largest civil aircraft manufacturer in the world.45 In 1989 Bombardier launched the Canadair Regional Jet (CRJ), the world’s first 50-seat jet. A 70-seat version followed in 1997 (CRJ700), an 86-seat version in 2000 (CRJ900), and a 100-seat version in 2007 (CRJ1000 NextGen). The CRJ1000 NextGen claimed to have the “lowest operating cost per mile for operators in its market segment, while delivering extra range, exceptional reliability, and a greener footprint.”46

Launched in 1996, Bombardier’s “Q-Series” turboprops were a quieter, updated version of Boeing’s Dash 8 family, which had been acquired with de Havilland in 1992. The original Dash aircraft held 37 to 56 passengers and had proved to be a dependable short-haul plane that could take off and land on very short runways. Turboprop planes used less fuel and needed shorter runways than regional jets, but they were louder and had higher engine maintenance costs, shorter ranges, and lower cruising speeds. Turboprops lost market share to regional jets through much of the 1980s and 1990s, but when jet fuel prices spiked in the mid-2000s turboprops enjoyed renewed interest from airlines. In 2008 Bombardier launched the 74- to 80-seat Q400 NextGen turboprop,

K e l l o G G S c h o o lo f M a n a G e M e n t 7

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

which burned less fuel, generated less CO2, and cost roughly 18 percent less than 70-seat regional jets in production.47 By June 2012, Bombardier had delivered almost 1,100 Q-Series turboprops.48

Bombardier Aerospace generated revenues of $8.6 billion in 2011, predominantly from three product groups: business aircraft, commercial aircraft, and customer services. The commercial aircraft group produced Q-Series turboprop planes, CRJ regional jets, and a narrow-body jet not yet in service called the CSeries.49

Embraer

Empresa Brasileira de Aeronáutica S.A., known as Embraer, was created by the Brazilian government in 1969 with the goal of turning military research and development into engineering and industrial capacity in the production of civil aircraft. Its first product was named Bandeirante (“pioneer” in Portuguese), a 15- to 21-passenger twin-turboprop plane; it was eventually used by civil and military customers around the world.

Despite the success of the Bandeirante, by 1990 Embraer was losing money rapidly.50 After the company was declared bankrupt in 1994, the government sold a majority share to a group that included Brazilian investment banks and pension funds. However, the Brazilian government retained a seat on the board and veto power over changes in company ownership, technology transfers, and Air Force contracts.51

Embraer’s first regional jet, the 50-seat EMB 145, entered service in 1996. Continental Express, a regional airline in North America, agreed to purchase 25 of the planes. Embraer developed a family of aircraft around the EMB 145 (renamed ERJ 145, which stood for “Embraer Regional Jet,” in 199852), and in 2011 the company was the market leader for commercial jets with less than 120 seats.53

Commercial Aircraft Corporation of China

When the People’s Republic of China was established in 1949, the new government set up the Civil Aviation Administration of China (CAAC) to oversee nonmilitary aviation and operate commercial flight service in the country.* During its first decade, the CAAC built fighters, bombers, and transport aircraft with Soviet assistance and later undertook its own projects.54 CAAC’s first jet aircraft was certified and delivered to the military in 1956, and other models followed.55 Boeing and CAAC began to partner together in the more open international climate of the 1970s and 1980s: CAAC purchased Boeing 707s in 1972, and Boeing began purchasing Chinese-made parts and investing in expanding production and improving quality in Chinese suppliers.56

In 1980 the first large passenger aircraft designed and built in China (known as the Y-10) made its first flight.57 However, the Y-10 project was abandoned a few years later due to funding and other problems. The Chinese government, which was then pursuing a strategy of exchanging market access for technology, embarked on a joint project with McDonnell Douglas, but the effort produced little success.58

• Since 1987, CAAC has acted solely as a government agency. Its namesake commercial airline service was divided into six airlines: Air China, China Eastern Airlines, China Southern Airlines, China Northwest Airlines, China Northern Airlines, and China Southwest Airlines.

8 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

China’s most successful large aircraft initiatives used a system integration approach in which engines, major electronic systems, and other components were purchased from domestic and international suppliers and assembled in China.59 In 2000 the MA-60, a 50- to 60-seat regional turboprop, was put into operation.60 In 2008 the ARJ21, a 78- to 90-seat short- to medium-haul turbofan, had its first successful flight, but later encountered delays in the certification process.

The state-owned aerospace manufacturer Commercial Aircraft Corporation of China (COMAC) was established in 2008 as the successor to the Aviation Industry Corporation of China (AVIC). As part of its five-year plan for 2011–2016, China declared aviation one of “seven major strategic industries” for the next phase of the country’s growth. According to the plan, public investment in China’s future aerospace sector would be 1.5 trillion Chinese RMB, or roughly US$230 billion, a 50 percent increase compared to the previous five-year plan.61 The city of Xi’an alone employed more than 250,000 aerospace engineers and assembly workers, about eight times as many as in the Seattle area, the hub of America’s aerospace industry.62

New Commercial Aircraft Models, 2000–2011

As they responded to the evolving demand for commercial aircraft, Airbus, Boeing, and their competitors pursued new and diverse projects: Airbus designed an ultra-high-capacity plane; Boeing developed a long-haul aircraft that improved efficiency and passenger experience; regional jet manufacturers updated their product lines; and international partnerships redefined the future of aircraft manufacturing.

Airbus A380

Airbus described the A380 as the “first true wide-body double-decker” and the “solution for 30 years of overwhelming growth in the air transport industry.”63 The aircraft had its origins in design work done in 1988 for an ultra-high-capacity airliner, although the Airbus board did not announce formal development of the A380 until December 2000. It had a range of 8,300 nautical miles and a seating capacity of 555 people in three classes on two levels (or 853 in a single class).

The aircraft was scheduled to enter service in 2005, and Airbus received 50 firm orders from several airlines by the end of 2000. The largest order at the time came from Australia’s Qantas Airways, which historically had operated a Boeing fleet.64

The passenger version of the A380 was the most spacious airliner ever built. It offered wider seats, broader aisles, and 50 percent more floor space than its nearest competitor—space that could be configured to include lounges, bars, or even a casino. The plane was designed to generate 50 percent less noise during take-off, giving it the quietest interior cabin in the sky.65 The A380 also boasted fuel consumption comparable to an economical family car—about three liters of fuel per passenger per 100 kilometers.66

In Airbus’s view of the future, the A380 would address traffic congestion at busy airports by transporting more passengers per flight on long-haul, high-traffic routes at lower costs than previously had been possible. In 2011 Airbus identified 39 “mega cities” worldwide—including London, Hong Kong, New York, and Dubai—that had more than 10,000 daily passengers flying on nondomestic routes longer than 2,000 nautical miles. It forecast that population growth would

K e l l o G G S c h o o lo f M a n a G e M e n t 9

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

increase the number of mega cities to 87 by 2030 and that 91 percent of long-haul travel would be between airports in these cities, with many passengers continuing to points beyond on “spoke” routes served by single-aisle aircraft.67

The A380 was the most complex commercial jet Airbus had ever produced; for example, the A380 had 100,000 wires, far surpassing the 60,000 wires in its second-largest jet, the 360-seat A340-600.68 Thousands of engineers at 16 sites in four countries had to be coordinated to manufacture and assemble parts at Airbus and subcontractor facilities throughout Europe, following which large sections of the plane were moved by sea, river, land, and air to France for final assembly.69 Airbus maintained responsibility for most of the design, but suppliers assumed more than $3 billion in financial risk and were asked to “design and build to performance,” meaning that they had to figure out how to meet Airbus performance standards within the Airbus architecture.70

Shortly after the A380’s first test flight in 2005, Airbus executives publicly acknowledged that the plan was experiencing manufacturing problems. A six-month delay was attributed to problems with wiring for passenger entertainment systems, complexities in designing different cabin interiors for each airline, and weight issues. In June 2006 Airbus announced that deliveries would be delayed by another six months, which meant that only nine of the 25 promised aircraft were delivered by the end of the year. The announcement resulted in not only a 25 percent drop in the airline’s share price but also the resignation of both the Airbus CEO and the CEO of Airbus’s parent, European Aeronautic Defence and Space Co. (EADS).71

Singapore Airlines flew the first A380 commercial flight between Singapore and Sydney, Australia, in October 2007—18 months behind schedule. By 2012, Airbus had taken a total of 257 orders for A380s, of which 80 had been delivered.72

Boeing 787 Dreamliner

The Dreamliner was designed for long-haul, point-to-point routes with moderate passenger volume. Boeing offered two models that could carry 210 and 290 passengers, respectively; both had a range of up to 9,000 nautical miles.* The 787 cost less to operate than other planes of the same size (Boeing 767 and Airbus A330) in large part because of the use of lighter composite materials, such as carbon fiber, in the airframe and primary structure. Although these nonmetal materials had been used in other aircraft, a much greater percentage of the Dreamliner airframe was manufactured from composites (see Exhibit 7).73 Other efficiency gains came from new GE and Rolls-Royce engine technology that delivered 10 to 15 percent lower fuel consumption and lower emissions.74

Although Boeing had used composites for several components on the 777, the effect of thousands of pressurization cycles on composites as massive as the 787 skin were not known. “This is a piece of aviation history,” said Walt Gillette, Boeing’s vice president of engineering, manufacturing, and partner alignment. “Nothing like this is already in production. Boeing and our partners developed everything, including the design, tools that served as the mold, programming for the composite lay-down, and tools that moved the structure into the autoclave.”75

The Dreamliner’s design included other features to reduce costs for airlines. Maintenance needs were reduced by replacing pneumatic systems with electrical ones that required fewer parts

• Boeing originally announced a third model, the 787-3, with a larger seating capacity and shorter range. In 2010 this model was cancelled due to a lack of demand. “The End of the 787-300,” Aviation News Online, December 14, 2010.

10 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

to maintain and replace.76 In addition, the 787 engine-wing connection interface was designed to enable the engines to be removed and replaced within 24 hours. According to Boeing 787 propulsion director Ron Hinderberger, “It is not uncommon for an airplane to serve three or four carriers in its lifetime. Leased airplanes have even more operators; being able to easily transition into a new fleet is important.”77

The 787 enhanced airline revenue opportunities by offering greater cargo volume, which Boeing believed would lead to more stable revenue flow based on its forecast that air cargo would triple from 2010 to 2030.78 The aircraft also promised revenue enhancement as a result of more flying days and greater route flexibility.

The Dreamliner’s design not only addressed the needs of airlines, it also addressed the needs of passengers. The composite fuselage enabled the cabin to be kept at higher air pressure than other airplanes of the same size, which meant more oxygen and less incidence of air sickness.79 The 787 also used a powerful air filtration system that made cabin air cleaner and healthier. Other innovations included increased humidity, quieter air conditioning, less wall vibration, larger windows with passenger-controlled tinting, and new turbulence-detecting technology that reduced in-flight bumpiness.80 (Exhibit 8 shows how United Airlines describes the new passenger features of the 787 Dreamliner.)

In 2003 Boeing made a deal with a consortium of Japanese companies—Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Fuji Heavy Industries—to build the fully assembled Dreamliner wing, and the Japanese government provided aid to support the aircraft’s development.81 Thomas Pickering, Boeing’s senior vice president for international relations, commented on the arrangement: “We said, ‘let’s spread the risk and spread the benefit’ . . . they get the advantages but they [Japan] also carry the burden.”82 The first order of 50 Dreamliners was placed by All Nippon Airways in 2004, followed by another order from Japan Airlines later that year.83

The People’s Republic of China placed the next order in 2005 on behalf of Chinese airlines. Several months prior, Boeing announced that the airplane’s rudder would be made in the Chengdu plant of China’s AVIC. Mike Bair, who headed the 787 program, suggested that additional contract work would go to China through Boeing’s major subcontracting partners: “Our expectation is that there’s a fair amount of this airplane that ultimately is going to be produced in China.”84

With the 787, Boeing made significant changes to its supplier relationships and manufacturing process, which the company claimed would reduce development time by 24 months and trim costs by $4 billion.85 Boeing moved away from its traditional “build to print” process, in which it internally developed detailed plans and contracted with suppliers to build parts to exact specifications, to a “build to performance” process that required suppliers to produce components that performed to Boeing’s requirements.86

In comparison with the 737 production process, in which Boeing was the main systems manufacturer and subsystems assembler, production of the 787 relied much more heavily on partnerships with strategic suppliers (see Exhibit 9). Tier 1 suppliers served as both designers of systems and integrators that assembled different parts and subsystems produced by Tier 2 suppliers (see Exhibit 10). Large subassemblies were constructed around the world and transported to Boeing’s facility in Everett, Washington, on a “Dreamlifter,” a hollowed-out 747-400 passenger plane that reduced delivery time from one month to one day.87 Boeing hoped to assemble each Dreamliner in only three days on the Everett production line. In all, Boeing outsourced more than

K e l l o G G S c h o o lo f M a n a G e M e n t 11

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

60 percent of the Dreamliner’s production, including all 11 major subassemblies, using a web-based planning system to coordinate the activities of more than 100 suppliers in 12 countries.88

Boeing believed that this system would keep manufacturing and assembly costs low while spreading financial risk to suppliers; for example, no Tier 1 supplier would receive payment for its development costs until Boeing delivered its first 787, giving suppliers a financial stake in the successful completion of the project.89 In addition, suppliers gained experience designing and assembling large sections of a complex commercial aircraft, activities that were previously performed by Boeing engineers.

Unfortunately, rather than speeding up the delivery, the new process resulted in significant delays. “We gave work to people who had never really done this kind of technology before, and then we didn’t provide the oversight that was necessary,” said Boeing’s commercial aviation chief Jim Albaugh.90 Some of the parts arriving in Everett did not fit together, and late deliveries by producers of crucial sections of the plane stopped the entire assembly process. Some Tier 1 suppliers were unable to meet their output quotas, and other suppliers faced parts shortages from their subcontractors.91 As a result, Boeing was forced to reverse some of its original outsourcing decisions; for example, in 2009 it spent $1 billion in cash and credit to acquire its fuselage manufacturing partner Vought Aircraft Industries.92 At the time of the purchase, Vought’s CEO said that the firm had already invested twice what it had anticipated in its attempts to fulfill the Dreamliner orders.93

The delivery date for the 787 was delayed at least six times between 2006 and 2010 (see Exhibit 11).94 The plane was finally completed more than three years after the original delivery date—a delay that cost Boeing millions of dollars in fines and concessions to customers.95 Despite the lengthy delay, orders and excitement for the Dreamliner remained strong, and there were more than 800 planes on order at the end of 2011.96

Larger Regional Jets

In 2002 Embraer introduced a new family of four “E-Jets” with seating capacities of 70 to 120 and a maximum range of 2,200 nautical miles. E-Jets quickly became popular with regional and low-cost airlines—U.S.-based JetBlue Airways ordered 100 Embraer 190s in 2003.97

Embraer began manufacturing ERJ 145s in Harbin, China, in 2002 under a joint venture agreement with AVIC. In 2010 Embraer negotiated to extend the joint venture for an additional five years, but AVIC announced that it had developed a commercial plane with specifications similar to the E-190 that it planned to deliver to domestic carriers beginning in 2014. China agreed to purchase 20 E-190s manufactured in Brazil, and the Chinese government allowed Embraer to continue its joint venture with AVIC under the condition that the Harbin facility be converted to manufacture Embraer’s business jets.98

As it renegotiated its agreements in China, Embraer faced a rapidly strengthening currency in Brazil that put pressure on export profits. Expecting executive jet and defense jet sales to be “relatively flat,” Embraer saw commercial airline growth as the only segment with short-term profit potential,99 and company executives began considering development of a new jet capable of carrying 130 or more passengers. An aircraft of this size would allow Embraer to compete on some of the busiest short-haul routes in the world: between European capitals and the shuttle between São Paulo and Rio de Janeiro.100

12 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

In 2008 Bombardier announced it would expand its line of aircraft and build a new series of narrow-body planes. CEO Pierre Beaudoin said, “The CSeries family of aircraft will revolutionize the economics and network strategies for airline operations in the 100- to 149-seat commercial market.”101 Some industry analysts considered the CSeries risky: although it appeared there would be strong demand for fuel-efficient narrow-body aircraft in the next 10 to 20 years, it would be hard to compete with Boeing and Airbus on price.102 However, Beaudoin said the airplanes would be delivered on time—something Boeing and Airbus rarely accomplished.

“The CSeries family offers the greenest single-aisle aircraft in its class,” said Gary Scott, president of Bombardier Commercial Aircraft. “These game-changing aircraft emit up to 20 percent less CO2 and up to 50 percent less NOx, fly four times quieter, and deliver dramatic energy savings—up to 20 percent fuel burn advantage as well as up to 15 percent improved cash operating costs versus current in-production aircraft of similar size. The CSeries aircraft will set a new benchmark in the industry.”103

Planes from New Manufacturers

In 2008 COMAC announced plans to build the C919, a narrow-body jet with 160 to 190 seats (comparable to the Airbus A320 and the Boeing 737). When the company introduced plans to select suppliers of engines, airborne equipment, and materials through an international bidding process, it urged interested foreign suppliers to create partnerships with Chinese manufacturers.104 COMAC chose the LEAP-1C engine manufactured by CFM (a joint venture between GE and the French Snecma) and lined up an array of American and European suppliers, including Honeywell, Crane AE, Rockwell Collins, and Parker Aerospace (see Exhibit 12).105

The first orders for the C919 were booked in 2010; customers included China’s three largest airlines and GE Capital Aviation Services.106 In 2011 GE entered into a joint venture with AVIC to produce sophisticated avionics, the electronics for aircraft communications, navigation, cockpit displays, and controls—the same avionics used on the 787 Dreamliner.107

COMAC was also at work on a regional jet—the ARJ21, which had its first flight in 2008—but deliveries initially scheduled for 2011 were delayed due to certification troubles. Describing the ARJ21, author James Fallows said the plane had “about the same number of seats as models from Embraer or Fokker—seventy-eight in a normal configuration—but because of various inelegant aspects of design and manufacture, it weighs about ten thousand pounds more. In aviation, this is a crippling disadvantage.” 108

According to aviation expert Richard Aboulafia, “We know that this plane, the ARJ21, is completely useless . . . It amounts to a random collection of imported technologies and design features flying together in loose formation.”109 The challenges were daunting, but some competitors recognized China’s determination to succeed. Jim Albaugh, who headed Boeing’s commercial aircraft division until retiring in June 2012, said: “Whether [the C919 is] a good aeroplane I don’t know, but eventually they’ll get it right.”110

Other manufacturers of regional jets included Mitsubishi and Sukhoi. The MRJ (Mitsubishi Regional Jet) was a 70- to 90-passenger regional jet that was in final manufacturing in 2012. The first aircraft to be designed and produced in Japan since the 1960s, the MRJ was expected to complete its maiden flight in 2013.

K e l l o G G S c h o o lo f M a n a G e M e n t 13

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

Russian aircraft manufacturer Sukhoi, which in 2006 had merged with five other major aircraft makers into a single entity with substantial government control, developed the 75- to 95-seat Superjet 100 (SSJ 100). The plane undertook its first commercial flight in 2011 and was beginning to attract some interest from airlines outside of the former Soviet Union, having received 170 orders, 42 of which were from Indonesia.111 However, the first planes delivered have suffered from reliability problems, and on May 9, 2012, an SSJ 100 crashed during a demonstration flight in Indonesia, killing all on board.

Future Outlook

Expanding markets and growing demand for more efficient planes made for a positive outlook for aircraft manufacturers. Both Boeing and Airbus predicted 5 percent annual growth between 2011 and 2030, which would create demand for more than 30,000 aircraft.112 Although they disagreed about the makeup of the demand for large aircraft, they agreed that the majority of sales would be narrow-body (100 to 200 seats) and midsize (200 to 400 seats) wide-body aircraft.

Both companies expected a large share of the growth to come from the Asia-Pacific region, with China driving much of the increased demand. Boeing’s forecast included 8.8 percent annual growth in domestic Chinese air travel, which would create demand for 3,400 new aircraft by 2026, nearly quadrupling the country’s fleet.113

Despite the challenges Boeing and Airbus faced in developing and producing the 787 Dreamliner and the A380, and despite the new competitors that had begun to make a play for their share of the market, the two airlines remained optimistic about global sourcing in future aircraft development.114

14 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Exhibit 1: Airline Industry Net Profits

20.0

15.0

10.0

5.0

Net Profit ($ in billions)

0.0

• ­‐5.0
• ­‐10.0
• ­‐15.0
• ­‐20.0
• ­‐25.0
• ­‐30.0

Source: International Civil Aviation Organization.

K e l l o G G S c h o o lo f M a n a G e M e n t 15

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

Exhibit 2: Cities with Populations Exceeding 5 Million

China (20)

Beijing

Shanghai

Chongqing

Tianjin

Chengdu

Guangzhou

Harbin

Wuhan

Shenzhen North America (11)

Xi’an New York

Hangzhou Los Angeles

Nanjing Europe (8) Chicago

Shenyang Paris Toronto

Qingdao Moscow Mexico City

Zhengzhou London Washington, DC

Dongguan Essena San Francisco

Dalian St. Petersburg Philadelphia

Jinan Istanbul Boston

Hefei Madrid Detroit

Nanchang Barcelona Dallas

a Dusseldorf, Essen, and Cologne.

Source: Adapted from Randy Baseler, “787, China, and the Next 20 Years of Flying,” Randy’s Journal (blog), The Boeing Company,

February 2, 2005, http://boeingblogs.com/randy/archives/2005/02/787_china_and_the_next_20_year.html.

16 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Exhibit 3: Aircraft Fleet Mix of Largest 15 Airlines, 2012

Portion of Aircraft Fleetb

Boeing Airbus Other Fleet Average Age

Airlinea (%) (%) Manufacturers (%) (Years)

1 United Airlines 78 22 0 14

2 Delta Air Lines 77 22 3 17

3 American Airlines 67 0 33 15

4 Emirates 60 40 0 6

5 Lufthansa 26 74 0 13

6 Air France 29 71 0 10

7 British Airways 61 39 0 13

8 Southwest Airlines 100 0 0 12

9 US Airways 24 72 4 13

10 Cathay Pacific 66 34 0 10

11 China Southern Airlines 41 54 5 7

12 Singapore Airlines 59 41 0 6

13 Air China 55 45 0 7

14 Qantas Airways 78 22 0 11

15 Air Canada 24 46 30 15

a Rank by available seat kilometers, Centre for Aviation, December 2011.

b Calculated from July 2012 data for current active aircraft, http://www.planespotters.net.

K e l l o G G S c h o o lo f M a n a G e M e n t 17

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

Exhibit 4: Passenger/Range Plot for Commercial Aircraft

600 Airbus

A380

Family

550 A380

500

Maximum Passengers (Standard configuration) Boeing 747

450 Family

747-­‐400 747-­‐400ER

400 A340-­‐600

777-­‐300

Airbus

A340

350 Boeing

777 777-­‐300ER Family

Family

777-­‐200ER A340-­‐500

300

777-­‐200 A330-­‐300 787-­‐900 777-­‐200LR

A340-­‐300

250 A330-­‐200 787-­‐800

767-­‐400ER

Airbus

A330 Boeing

787

767-­‐300ER Family Family

200

A321

Airbus

A320 767-­‐200ER

C919 Family

150 CSeries A320 Boeing

767

Family

E-­‐Jet A319

100 A318

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

Range (Nautical miles)

Note: Aircraft families are connected by lines and labeled by ovals.

Source: Expanded and adapted from Jeff Hawk (director of certification, government, and environment for the 787 program), “The

Boeing 787 Dreamliner: More Than an Airplane,” Boeing presentation, May 2005.

18 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Exhibit 5: Boeing and Airbus Aircraft Deliveries and Market Share

Note: Boeing data includes McDonnell Douglas data pre-merger.

Source: “Airbus and Boeing—Graphic of the Day,” The Knowledge Effect (blog), ThomsonReuters, January 9, 2012,

http://blog.thomsonreuters.com/index.php/airbus-and-boeing-graphic-of-the-day.

K e l l o G G S c h o o lo f M a n a G e M e n t 19

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

Exhibit 6: How Airbus Built A320 Serial No. 1398 for JetBlue Airways

Nov. 14, 2000: Front fuselage flown from St.

Nov. 28:

Jan. 4, 2001: Jan. 9: Jan. 10: Jan. 23: Jan. 25: begins Fin and rudder flown from Hamburg to Toulouse (5) First flight (in Toulouse) Ferry flight to Hamburg (6) Cabin furnishing begins Ferry flight back to Toulouse (7) Painting begins

Nazaire to Toulouse (1)

Nov. 16: Rear fuselage flown from

Hamburg to Toulouse (2)

Nov. 22:

Tail flown from Madrid to Toulouse (3); wings flown from Broughton,

Wales, to Toulouse (4); assembly

Jan. 31: Painting ends

Feb. 8: Delivery to JetBlue (8)

Note: Other Airbus models follow slightly different production flows.

Source: Daniel Michaels, “Airbus’s ‘Honest Abe’ Attitude Adds Fuel to Rivalry with Boeing,” Wall Street Journal, April 3, 2001.

20 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Exhibit 7: Commercial Airplane Models over Time by Percentage of

Composites

Source: U.S. Government Accountability Office, “Aviation Safety: Status of FAA’s Actions to Oversee the Safety of Composite

Airlines,” Report GAO-11-849, September 2011, p. 5, http://www.gao.gov/assets/590/585341.pdf.

K e l l o G G S c h o o lo f M a n a G e M e n t 21

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

Exhibit 8: United Advertisement Introducing Dreamliner Features to

Customers

Source: United Airlines.

22 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Exhibit 9: Changes in Boeing’s Structure Suppliers for the 737, 747, and 787

Source: Kyle Peterson, “Special Report: A Wing and a Prayer: Outsourcing at Boeing,” Reuters, January 20, 2011.

K e l l o G G S c h o o lo f M a n a G e M e n t 23

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2– 2 0 1 1 5-31 2-505

Exhibit 10: Global Sourcing for the 787

Source: Dominic Gates, “Boeing 787: Parts from Around World Will Be Swiftly Integrated,” Seattle Times, September 11, 2005, http://seattletimes.com/news/business/boeing/787/

everett.html.

K e l l o g g S c h o o lo f M a n a g e M e n t 24

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2– 2 0 1 1 5-31 2-505

Exhibit 11: Timeline of Production Delays for the 787

Source: Kyle Peterson, “Special Report: A Wing and a Prayer: Outsourcing at Boeing,” Reuters, January 20, 2011.

K e l l o g g S c h o o lo f M a n a g e M e n t 25

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2– 2 0 1 1 5-31 2-505

Exhibit 12: Parts Suppliers for the C919

Source: “Diagram of China C919 Aircraft Parts Suppliers,” JEC Composites, April 30, 2012, http://www.jeccomposites.com/news/composites-news/diagram-china-c919-aircraft-parts-

suppliers.

K e l l o g g S c h o o lo f M a n a g e M e n t 26

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

Endnotes

1 Guy Norris, “Boeing 787 ‘Force For Change’ as ANA Inaugurates Commercial Service,” Aviation Week, October 26,

2011.

2 Ibid.

3 Aerospace Industries Association of Canada, “Global Aerospace Market Outlook and Forecast,” October 2010,

http://www.aiac.ca/uploadedFiles/Resources_and_Publications/Reference_Documents/AIAC%20Phase%203%20

Report_FINAL.pdf.

4 “747 Fun Facts,” The Boeing Company, http://www.boeing.com/commercial/747family/pf/pf_facts.html (accessed

September 1, 2012).

5 Jon Ostrower, “Boeing Forecast Climbs Amid Global Gains,” Wall Street Journal, July 25, 2012.

6 Nicola Clark, “Next Delay for A380: A Decade Before Break Even,” New York Times, October 19, 2006.

7 Steven Greenhouse and Christopher Drew, “Machinists and Boeing Reach Deal,” New York Times, November 30, 2011.

8 Associated Press, “Airbus Workers Strike to Protest Restructuring Plan,” CNBC, March 16, 2007; Laura Kemp, “Airbus

Strike Staff Return,” WalesOnline, March 25, 2007.

9 Jon Ostrower, “Untested South Carolina Outpost Is Central to Boeing’s Dreamliner Hopes,” Wall Street Journal, April

30, 2012; Nicola Clark, “EADS to Build U.S. Assembly Line for Airbus A320,” New York Times, July 2, 2012.

10 Carolina Billitteri and Giovanni Perrone, “How Do Airlines [sic] Preferences About Engines Influence the

Competition in the Commercial Aircraft Industry: An Empirical Analysis,” Proceedings of the 2011 International

Conference on Industrial Engineering and Operations Management, Kuala Lumpur, Malaysia, January 22–24, 2011,

http://www.iieom.org/ieom2011/pdfs/IEOM109.pdf.

11 MIT Global Airline Industry Program, “Airline Industry Overview,” http://web.mit.edu/airlines/analysis/

analysis_airline_industry.html (accessed September 1, 2012).

12 Joshua Freed and Scott Mayerowitz, “Why the Airlines Are Always Going Bankrupt,” The Fiscal Times, December 2,

2011.

13 James Fallows, China Airborne (New York: Pantheon Books, 2012), 34.

14 Perry Flint, “Southwest Keeps It Simple,” ATWOnline, April 1, 2005, http://atwonline.com/it-distribution/article/

southwest-keeps-it-simple-0309.

15 “The Trend of Future Air Travel: Frequencies and Nonstops Continue To Grow,” Point-to-Point (newsletter), The Boeing

Company, December 2005, http://www.boeing.com/commercial/P2P/pdf/p2p_newsletter_12-05.pdf.

16 Guy Norris, “GE-Powered 787 Certification Imminent as New Routes Develop,” Aviation Week, March 19, 2012.

17 Dan Weikel, “Airbus A380 Is a Mixed Blessing for LAX,” Los Angeles Times, January 25, 2009.

18 Ibid.

19 Charisse Jones, “Will the A380 Fly for U.S. Airlines?” USA Today, July 11, 2011.

20 David Stringer, Associated Press, “Cameron: Britain to Review Its Airport Capacity,” September 5, 2012.

21 U.S. Government Accountability Office, “National Airspace System: Regional Airport Planning Could Help Address

Congestion If Plans Were Integrated with FAA and Airport Decision Making,” Report GAO-10-120, December 2009,

http://www.gao.gov/assets/300/299910.html.

22 Glennon J. Harrison, “Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for Competitiveness,”

Congressional Research Service, July 25, 2011, p. 8, http://www.fas.org/sgp/crs/misc/R41925.pdf.

23 Susan Avery, “Purchasing Role Critical in American Airlines Deal,” My Purchasing Center, July 20, 2011.

24 Daniel Michaels, “The Secret Price of a Jet Airliner,” Wall Street Journal, July 9, 2012.

25 “Aircraft Leasing: Buy or Rent?” The Economist, January 21, 2012.

26 U.S. Department of Commerce, International Trade Administration, “The U.S. Jet Transport Industry: Competition,

Regulation, and Global Market Factors Affecting U.S. Producers,” March 2005, http://www.trade.gov/mas/

manufacturing/oaai/build/groups/public/@tg_oaai/documents/webcontent/tg_oaai_003737.pdf.

K e l l o G G S c h o o lo f M a n a G e M e n t 27

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

27 World Trade Organization, “European Communities—Measures Affecting Trade in Large Civil Aircraft,” Dispute

Settlement: Dispute DS316, April 13, 2012, http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds316_e.htm;

World Trade Organization, “United States—Measures Affecting Trade in Large Civil Aircraft—Second Complaint,”

Dispute Settlement: Dispute DS353, March 23, 2012, http://www.wto.org/english/tratop_e/dispu_e/cases_e/

ds353_e.htm#bkmk353abr.

28 Aerospace Industries Association of Canada, “Global Aerospace Market Outlook and Forecast.”

29 “The Boeing Airplane Co. . . . First Flight,” The Boeing Company, http://www.boeing.com/history/narrative/

n003boe.html (accessed September 1, 2012).

30 “Model 367-80—The Dash 80,” The Boeing Company, http://www.boeing.com/history/boeing/dash80.html

(accessed September 1, 2012).

31 “Boeing Delivers the 7,000th 737,” press release, December 16, 2011, http://boeing.mediaroom.com/index.php?s=

43&item=2081.

32 Ilan Kroo and Richard Shevell, “Aircraft Design: Synthesis and Analysis,” 2001, http://www.ultraligero.net/Cursos/

diseno/Diseno_de_aviones_sintesis_y_analisis.pdf.

33 “747 Model Summary,” The Boeing Company, http://active.boeing.com/commercial/orders/displaystandardreport.cfm?

cboCurrentModel=747&optReportType=AllModels&cboAllModel=747&ViewReportF=View+Report (accessed

September 1, 2012).

34 “757 Commercial Transport,” The Boeing Company, http://www.boeing.com/history/boeing/757.html (accessed

September 1, 2012); “767 Commercial Transport,” The Boeing Company, http://www.boeing.com/history/boeing/

767.html (accessed September 1, 2012).

35 Brad Bachtel, “ETOPS, Extended Operations, and En Route Alternate Airports,” FAA/AAAE Basic Airport

Safety & Operations Specialists School, October 22, 2003, http://www.boeing.com/commercial/airports/faqs/

etopseropsenroutealt.pdf.

36 “Biggest Jet Engine,” Popular Mechanics, December 7, 2004.

37 Dick Nolan, “Is Boeing’s 787 Dreamliner a Triumph or a Folly?” Harvard Business Review Blog Network, December 23,

2009, http://blogs.hbr.org/cs/2009/12/is_boeings_787_dreamliner_a_tr.html.

38 “Model GE90-115B,” GE Aviation, http://www.geaviation.com/engines/commercial/ge90/ge90-115b.html (accessed

September 1, 2012).

39 “The Boeing 747-8 Family: A Proud Tradition of Value Continues,” The Boeing Company, http://www.boeing.com/

commercial/747family/747-8_background.html (accessed September 1, 2012).

40 “The New Boeing 737 MAX Family—Efficiency, Reliability, Passenger Appeal,” The Boeing Company,

http://www.boeing.com/commercial/737family/737max.html (accessed September 1, 2012).

41 “Early Days (1967–1969),” Airbus S.A.S., http://www.airbus.com/company/history/the-narrative/early-

days-1967-1969 (accessed September 1, 2012).

42 “Champagne . . . and Drought (1973–1977),” Airbus S.A.S., http://www.airbus.com/company/history/the-narrative/

champagneand-drought-1973-1977 (accessed September 1, 2012).

43 Melissa Nelson Gabriel, “Airbus to Build 1st US Assembly Plant in Alabama,” Businessweek, July 2, 2012.

44 “History,” Bombardier USA, http://us.bombardier.com/us/history.htm (accessed September 1, 2012).

45 Ibid.

46 “CRJ NextGen Family of Regional Jets,” press release, June 2011, http://press.commercialaircraft.bombardier.com/

pdf/CRJ_backgrounder_en.pdf.

47 Coco Masters, “Giving Props to the New Turbos,” Time, August 23, 2007; Bombardier, “Q400 NextGen Brochure,” June

2012, http://media.bombardiercms.com/q400/medias/q400/galleries/q400_path_large_en_41a983.pdf.

48 “Program Status Reports,” Bombardier, http://www.bombardier.com/en/aerospace/media-centre/

program-status-reports?docID=0901260d8001f590 (accessed September 1, 2012).

49 Annual Financial Report 2011, Bombardier, http://www2.bombardier.com/en/7_0/7_6.html (accessed September 1,

2012).

50 “Our History,” Embraer S.A., http://www.centrohistoricoembraer.com.br/sites/timeline/en-US (accessed September

1, 2012).

51 Jonathan Kandell, “Is Brazil’s Embraer Ready to Take on Boeing,” Institutional Investor, July 25, 2011.

52 Ibid.

28 K e l l o G G S c h o o lo f M a n a G e M e n t

5-312-505 G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 11

53 “Tradition & Background,” Embraer S.A., http://www.embraer.com/en-US/ConhecaEmbraer/tradicaohistoria

(accessed September 1, 2012).

54 Phillip C. Saunders and Joshua K. Wiseman, “Buy, Build, or Steal: China’s Quest for Advanced Military Aviation

Technologies,” Institute for National Strategic Studies, December 2011, http://www.ndu.edu/press/lib/pdf/

china-perspectives/ChinaPerspectives-4.pdf.

55 “History of AVIC,” Aviation Industry Corporation of China, http://www.avic.com.cn/cn/EnglishVersion/

Introduction/History/index.shtml (accessed September 1, 2012).

56 Stanley Holmes, “Boeing’s Investment in China Increasing as Production Rises,” Seattle Times, October 17, 1997.

57 “History of AVIC.”

58 Knowledge@Wharton, “China’s Large Aircraft Readying for Take-Off,” Forbes, April 25, 2007.

59 Ibid.

60 “MA60,” AVIC International, http://www.ma60.com.

61 Fallows, China Airborne, 28–29.

62 “Birds’-Eye View: A Review of James Fallows’ Book on China’s Aviation Industry,” China Economic Review, August 23,

2012.

63 Jesus Morales, “The A380 Transport Project and Logistics,” 13th Colloquium in Aviation, University of Darmstadt,

Germany, January 18, 2006, http://www.akl.tu-darmstadt.de/media/arbeitskreis_luftverkehr/downloads_6/

kolloquien/13kolloquium/05druckvorlage_morales.pdf.

64 Associated Press, “The Casino in the Sky,” Wired, December 19, 2000.

65 “A380 Family,” Airbus S.A.S., http://www.airbus.com/en/aircraftfamilies/a380/index2.html (accessed September 1,

2012).

66 “The A380: The Future of Flying,” Airbus S.A.S., http://web.archive.org/web/20071214144443/

http://www.airbus.com/en/myairbus/airbusview/the_a380_the_future_of_flying.html (accessed September 1,

2012).

67 “Delivering the Future: Global Market Forecast 2011–2030,” Airbus S.A.S., September 2011, http://www.airbus.com/

company/market/forecast/passenger-aircraft-market-forecast.

68 Nicola Clark, “The Airbus Saga: Crossed Wires and a Multibillion-Euro Delay,” International Herald Tribune, December

11, 2006.

69 Morales, “The A380 Transport Project and Logistics.”

70 Satish Nambisan and Mohanbir S. Sawhney, The Global Brain: Your Roadmap for Innovating Faster and Smarter in a

Networked World (Upper Saddle River, NJ: Prentice Hall, 2008), 97–98.

71 “Embattled EADS Sacks CEOs, Shuffles Top-Level Reporting,” Defense Industry Daily, July 5, 2006.

72 “Orders & Deliveries,” Airbus S.A.S., http://www.airbus.com/company/market/orders-deliveries (accessed

September 1, 2012).

73 U.S. Government Accountability Office, “Aviation Safety: Status of FAA’s Actions to Oversee the Safety of Composite

Airlines,” Report GAO-11-849, September 2011, http://www.gao.gov/assets/590/585341.pdf.

74 “Boeing’s New Airplane—787 Dreamliner,” The Boeing Company, http://www.newairplane.com/787 (accessed

September 1, 2012).

75 “Boeing Completes First 7E7 Composite Fuselage Section,” press release, January 11, 2005, http://www.boeing.com/

news/releases/2005/q1/nr_050111g.html.

76 Ibid.

77 Ian Goold, “Boeing Still Hasn’t Solved Engine Swap ‘Challenges,’” Aviation International News, June 13, 2007.

78 “World Air Cargo Forecast 2010–2011,” The Boeing Company, http://www.boeing.com/commercial/cargo/

01_01.html (accessed September 1, 2012).

79 Junaid Ali, “What’s Unique about the Boeing 787 Dreamliner?” Decoded Science, February 14, 2012.

80 “Boeing’s New Airplane—Design Highlights,” The Boeing Company, http://www.newairplane.com/787/

design_highlights/#/passenger-experience (accessed September 1, 2012).

81 “Going Japanese: How Japan Learned to Fly,” TheEconomist, June 23, 2005.

82 Nambisan and Sawhney, The Global Brain, 88.

K e l l o G G S c h o o lo f M a n a G e M e n t 29

G l o b a l a i r c r a f t M a n u f a c t u r i n G, 2 0 0 2 – 2 0 1 1 5-312-505

83 James Wallace, “Boeing Gets 30 More 7E7 Orders from Japan,” Seattle Post-Intelligencer, December 21, 2004.

84 Dominic Gates, “Boeing to Fly High in China with Sale of 60 Wide-Body Jets,” Seattle Times, January 29, 2005. 85 Christopher S. Tang and Joshua D. Zimmerman, “Managing New Product Development and Supply Chain Risks: The Boeing 787 Case,” Supply Chain Forum 10, no. 2 (2009): 77.

Richard L. Nolan and Suresh Kotha, “Boeing 787: The Dreamliner,” Case #9-305-101 (Harvard Business School Press, 86

April 22, 2005).

87 “Boeing 747 Dreamlifter Fact Sheet,” The Boeing Company, http://www.boeing.com/commercial/787family/ dreamlifter_fact.html (accessed September 1, 2012).

88 Aaron Shenhar and Yao Zhao, “Learning from Boeing’s Pain—Is Build-to-Performance Equal to Big-Iron-Pot?” Strategic Project Leadership, http://www.splwin.com/resources/opinions/787%20Lessons%20AW%20On-Line.pdf (accessed September 1, 2012).

89 Tang and Zimmerman, “Managing New Product Development and Supply Chain Risks: The Boeing 787 Case,” 74–87. 90 Ibid.

91 Michael Hiltzik, “787 Dreamliner Teaches Boeing Costly Lesson on Outsourcing,” Los Angeles Times, February 15, 2011.

Ibid. 92

93 Christopher Drew, “Boeing Buys Plant That Makes Crucial Part of Dreamliner,” New York Times, July 7, 2009. 94 Peter Sanders and Doug Cameron, “Boeing Sees Long-Delayed 787 Deliveries Starting in Third Quarter,” Wall Street Journal, January 19, 2011.

95 Drew, “Boeing Buys Plant That Makes Crucial Part of Dreamliner.”

96 “Boeing, Etihad Airways Announce Order for 10 787-9 Dreamliners,” press release, December 12, 2011, http://boeing.mediaroom.com/index.php?s=43&item=2066.

97 “JetBlue Airways Orders 100 Embraer 190 Jet Aircraft, with Options for an Additional 100,” press release, June 10, 2003, http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=420630.

98 Kandell, “Is Brazil’s Embraer Ready to Take on Boeing.”

99 Kenneth Rapoza, “Brazilian Jet Maker Embraer: Maybe Next Year,” Forbes, March 25, 2011.

100 Kandell, “Is Brazil’s Embraer Ready to Take on Boeing.”

101 “Bombardier Launches CSeries Aircraft Program,” July 13, 2008, press release, http://www.bombardier.ca/en/ aerospace/media-centre/press-releases/details?docID=0901260d800326db.

102 Max Kingsley-Jones, “Can New Entrants Take on Airbus and Boeing,” Flightglobal, March 22, 2011.

103 “Bombadier Launches CSeries Aircraft Program,” press release, July 13, 2008, http://www.bombardier.ca/en/ aerospace/media-centre/press-releases/details?docID=0901260d800326db.

104 “China Names First Jumbo Jet C919, To Take Off in 8 Years,” Chinaview, March 6, 2009, http://news.xinhuanet.com/ english/2009-03/06/content_10959526.htm.

105 “Diagram of China C919 Aircraft Parts Suppliers,” JEC Composites, April 30, 2012, http://www.jeccomposites.com/ news/composites-news/diagram-china-c919-aircraft-parts-suppliers.

106 “China Wins First Orders for Plane, Breaking Airbus-Boeing Grip,” Bloomberg News, November 16, 2010.

107 David Barboza, Christopher Drew, and Steve Lohr, “G.E. to Share Jet Technology with China in New Joint Venture,” New York Times, January 17, 2011.

108 Fallows, China Airborne, 158.

109 Ibid.

110 Andrew Parker, “Aerospace: A Dogfight for the Duopoly,” Financial Times, August 6, 2012.

111 “Duelling the Duopolies: New Entrants to the World Jetliner Market Struggle to Take Off,” The Economist, May 19, 2012. 112 “Current Market Outlook 2012–2031,” The Boeing Company, http://www.boeing.com/commercial/cmo (accessed September 1, 2012); “Global Market Forecast 2011–2030,” Airbus S.A.S., http://www.airbus.com/company/market/ forecast/passenger-aircraft-market-forecast (accessed September 1, 2012).

113 Randy Tinseth, “China Forecast: Hot,” Randy’s Journal (blog), The Boeing Company, September 19, 2007, http://boeingblogs.com/randy/archives/2007/09/china_cmo.html.

114 Serguei Netessine, “Supply Chain Networks,” in The Network Challenge: Strategy, Profit, and Risk in an Interlinked World, eds. Paul R. Kleindorfer and Yoram (Jerry) Wind (Upper Saddle River, NJ: Wharton School Publishing, 2009).

30 K e l l o G G S c h o o lo f M a n a G e M e n t