{"id":22564,"date":"2017-11-14T17:27:36","date_gmt":"2017-11-14T22:27:36","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/trade-wars-for-aircrafts-oems-can-boeing-keep-cruising\/"},"modified":"2017-11-14T17:27:58","modified_gmt":"2017-11-14T22:27:58","slug":"trade-wars-for-aircraft-oems-can-boeing-keep-cruising","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/trade-wars-for-aircraft-oems-can-boeing-keep-cruising\/","title":{"rendered":"Trade wars for aircraft OEMs: Can Boeing keep cruising?"},"content":{"rendered":"

 <\/p>\n

Stable duopoly and healthy order books: Boeing has long held a secure position in the aviation industry. However, the rise of international trade and globalization have led to growing concerns over Boeing\u2019s ability to retain control of a global supply chain, and its strategy to address the rise of international players.<\/p>\n

A globalized economy<\/strong><\/p>\n

International trade has \u201cdemocratized\u201d the aircraft manufacturing industry, giving smaller players the opportunity to leverage a global supply chain to lower costs and compete with established power players such as Boeing. The introduction of the Cseries by Montreal-based Bombardier, as well as Chinese Russian aircrafts, has disrupted one of Boeing\u2019s most stable and attractive segments: the single aisle market [1].<\/p>\n

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Figure 1 – The narrow body aircraft market [1]<\/figcaption><\/figure>\n

International trade has also offered airlines more opportunities to source aircrafts from these new players. In an era with favorable economic conditions for the airlines industry -low oil prices, robust customer demand, and player consolidation [2], the power has shifted to airlines and increased competitive pressure on OEMs.<\/p>\n

Finally, Boeing\u2019s own attempt at leveraging the global supply chain trend backfired: their bold strategy for the 787 Dreamliner, consisting in outsourcing 70% of its production to international suppliers [3], resulted in a 3-year delay and billions of dollars lost due to a complex and difficult to manage supply chain [4].<\/p>\n

Regaining control<\/strong><\/p>\n

In an effort to control its global supply chain and retain its competitive edge in the long term, Boeing is now pursuing vertical integration into specific parts and services, particularly those with significant aftermarkets sales [5] -it just acquired Aurora Flight Services [6]. This long-term strategy allows them to regain control over their supply chain, and strengthen their relationship with their newly empowered airlines customers. For the parts they still plan to outsource, Boeing is establishing strong partnerships and investing in improving the operational excellence of its suppliers to ensure their proper integration in the Boeing value chain in the future. For instance, they have struck an agreement to improve efficiency and lower costs for Japan based Mitsubishi Heavy Industry, which produces 787 wings [7].<\/p>\n

However, their strategy to deal with international players in the immediate future has been deeply flawed at worst, short-sighted at best. Years of aggressive dissuasion techniques and pressure on Bombardier culminated this October in \u201cmighty Boeing [seeking] protection behind the skirts of the U.S. Department of Commerce\u201d [8] by slapping a 219% tariff on Cseries imports. Boeing\u2019s protectionism in response to the international trade threat was meant to keep competition out of the US and boost domestic sales. However, it has already set into action irreversible changes in the industry:<\/p>\n