A SWOT ANALYSIS OF BOEING: (Second Century of glorious flying)
Things went great for Boeing in 2015. However, 2016 was a bit less great as Boeing saw some decline in performance. The aerospace giant is the market leader in twin aisle airplane programs. Boeing preserved its global market share lead till 2015 by delivering 762 commercial airplanes. It generated record revenue of $66 billion from the sales of commercial airplanes. It also made a record delivery of 380 ‘787’ commercial airplanes. 787’s high demand is fuelled by its strong game changing capabilities. The plane is equipped with an unprecedented combination of range and fuel efficiency. However, the fall in 2016 was mainly because of the weakened cargo demand.
Boeing captured an order of 768 net new airplanes that are valued at $57 billion. With this, the backlog of Boeing has reached 5800 units that is worth around $432 billion and will mean 7 years of production at its current rate. In 2015, Boeing’s revenues touched $96 billion whereas it expects it to fall in the range of $93 to $95 billion this year. Despite the fall, all is not lost for Boeing and the situation may rebound any time. There are several reasons behind the revenue fall in the year 2016 and one of them is the reduced production of some of the aircrafts. Boeing has entered its second century and aspires to be the best aerospace company in the world. The best thing is that Boeing has been through a decade of restoration and is now healthier and more competitive than ever.
- A SWOT analysis of Boeing
- Global presence
- Large market share
- Financial performance
- Airplane models with strong capabilities and fuel efficiency
- Wide variety of models (Commercial aircrafts to military aircrafts)
- Large number of suppliers
Boeing is the largest maker of airplanes with a global presence. Its closest competitor is Airbus. By 2014 its market share globally had improved to 45% which stood at just 31% in 2008. It delivered a record number of airplanes in 2015. Out of the 762 airplanes it delivered, 380 were 787 commercial airplanes. The 787’s are in high demand because of their strong inbuilt capabilities. They are better both in terms of range and fuel efficiency. Its rate of delivery has almost doubled in just 6 or 7 years.
The number of planes Boeing delivered in 2014 was double that of 2008. The financial performance of Boeing over these years has also kept improving. It generated a record $96 billion in the year 2015. However, a slight fall is expected this year in the total revenue. The total revenue for 2016 is expected to fall in the range of $93 – $95 billion. Boeing makes a wide variety of models that includes both commercial planes and military aircrafts.
In the coming years, Boeing also plans to raise the production rate of its 737 and 787 models. The company’s performance might have dipped slightly in the year 2016 but its outlook is still bright. There is a reason that Boeing’s revenue has fallen in the year. It is mainly because of the reduced production of some of the models like 747-8 and F/A-18 and C-17 programs. Apart from it, the reason behind this decline is the planned transition to the 737 max. Boeing’s production system is also supported by a large network of suppliers. Apart from it Boeing is a leader in several areas that include “design, development, manufacture, sale, service and support of commercial jetliners,
- Huge expenditure on research and development
- Substantial expenditure on pensions and other post-retirement benefits
- Operational issues
Boeing incurs a heavy expenditure on research and development. Behind the development of these great planes, there is also a tall expenditure on R&D involved. Boeing is focused at producing models that are more efficient than the existing ones then it is because it invests in a number of things. Product development, experimentation, design and many more related tests are there that require quiet large investments. These expenditures are a major part of Boeing’s annual investment. However, on the one hand you can consider it a weakness, on the other such investments in R&D also produce great results that have helped Boeing grab a larger share in the market.
Apart from it, Boeing’s expenditure on a number of other things is higher. These expenditures include pensions and other post-retirement benefits. Boeing has a substantial pension and post-retirement benefits obligation. This burden is quite large and has a material impact on Boeing’s earnings, shareholder equity and cash flows. In the future the impact could grow and become more severe. Crises of other sorts can also impact Boeing’s operations and profits. Moreover, the kind of risks that Boeing is exposed to in the course of its operations cannot be fully covered by its insurance.
- A strong backlog
- Increased opportunities in defense.
- Increased opportunities in space and security markets (demand for satellites and weapon systems).
- Ramping up commercial airplanes production
Boeing has a strong backlog of 5800 airplanes, valued at $432 Billion. This backlog is a very good sign and shows that Boeing’s business will continue to grow in the coming years. Its defense, space and security backlog is worth $58 billion. Boeing has additional opportunities in the other areas it serves. The demand in network and space systems has increased.
This segment produces several useful products like electronics and information solutions, satellites and commercial launch vehicles. Boeing is investing in programs including strategic missile and defense systems. The opportunities in space and security markets have grown manifold which is a brilliant opportunity for Boeing. It can also make the best of the available opportunities by ramping up its production of the commercial airplanes.
- Increased competitive pressures
- Regulatory pressures
- Unique risks arising out of operations
- Risks related to conducting business in other countries
- Risks of business disruption
The environment Boeing operates in is full of unique risks and threats. The competitive pressure in the industry has risen. The aerospace market is an attractive market that draws powerful players. There are international competitors ever-intent on increasing their market share who create significant pressure. Airbus, Embraer and Bombardier are some of the major challengers of Boeing. There are other entrants from China, Russia, and Japan too that are adding to the competitive pressure on the brand.
Changing economic and geopolitical tides are also a threat to the company’s business. In most of the markets, the aerospace division is a highly regulated one that means regulatory pressures. All the markets are not as open to the airlines industry as US and therefore the challenge of regulatory affairs becomes a serious threat. There are several risks that are unique to the aerospace industry. Market conditions can have a deep impact on the demand for the commercial aircrafts. The airlines industry is mainly driven by long term trends in passenger and air-cargo traffic.
Operational challenges can cause reduction in production, delays and then lead to losses. The performance and reliability requirements for commercial airplanes are also high and failing them means additional costs or lower revenues. Conducting business in international markets is also risky based on laws and regulations. Any kind of service or operational disruption can be a threat to Boeing’s business. Service disruption from suppliers’ side due to any adverse condition can prove a threat and turn into losses.
Similar business disruptions like threats to physical security, information security or natural disruptions or even other type of crises including public health crises can be damaging for Boeing’s business. These disruptions affect Boeing’s ability to deliver its product and services in a timely manner to its customers. Boeing’s business is full of risks. Apart from performance and security related threats, government contracts and a number of other financial issues can be significantly risky.
Boeing’s business has continued to grow better since 2008. The slight decline in 2016 is like a small break that Boeing has used to twist its strategy. However, the aerospace giant is focused on the future. It spends a lot on R&D which has brought great results in the more of more efficient planes and a big fat backlog. There are a few weaknesses that Boeing itself can manage. However, the environment it operates in is highly risky and subject to a number of risk factors that are to a large extent outside Boeing control.
There are also regulatory and environment related risks. However, Boeing is also seeing a growth in the number of opportunities that it could pretty well exploit. Particularly, ramping up commercial plane production will be profitable for the brand. Apart from it satellites’ and weapon systems’ demand too is growing and that will be beneficial for Boeing.
[‘SWOT’ is an acronym for Strengths, weaknesses, opportunities and threats. It is a powerful strategic management tool that can help to know one’s important strengths and weaknesses and to exploit the opportunities. It can also help counter the threats. Strengths and weaknesses are internal factors and opportunities and threats external. So basically, SWOT is a tool designed to help you reduce your weaknesses and counter the threats. This can improve the business’ chances of success. Companies conduct a SWOT before they embark on a new strategy or before they make an important business move like investing in a new project.]