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E 2 - Ensuring Success: B787 Enhancing Sustainability. Karmen Chan – Airplane Programs Jonathan Loh – Commercial Sales Berton Lim – Engineering, Operations & Tech. Andy Neo – Finance . The Current Market Outlook. Outsourced Manufacturing – Growing Trend. Refocusing: High Value,

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E2 - Ensuring Success: B787

Enhancing Sustainability

Karmen Chan – Airplane Programs

Jonathan Loh – Commercial Sales

Berton Lim – Engineering, Operations & Tech.

Andy Neo – Finance

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The Current Market Outlook

Outsourced Manufacturing – Growing Trend

Refocusing: High Value,

Core Competence

Emerging Markets,

Emerging Threats

Countering Threats, Sustaining Advantage


Exogenous Events

BioFuels, Emissions Standards

Shorter Economic Boom-Bust Cycles

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E2: Ensuring & Enhancing

Strong New Ecosystem

Ensuring Success: B787

Enhancing Sustainability

Core Competence & Competitive Advantage

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Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target


Timeliness & Reliability

Communicates and convinces customers

Improved Quality


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Ensuring Vendor Performance: Tuning-Up & Providing On Time, On TargetSuppor



The Boeing Vendor Tune-Up Program

  • Align process & quality standards

  • Continuous improvement in processes

  • Every 2 months

  • Periodical refresher courses

  • Knowledge sharing

  • Focus groups with MoonShine team

  • Global MoonShine mobile teams

  • Regional Mobile team to support


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Training & Rewarding the On Time, On TargetNextGen Boeing Workforce

Key concerns


Competitive compensations

  • Existing formula with periodical changes

  • A shift to variable wage- Collective Business Performance

Long-term incentivization

Job security

  • Training program: Increase skill sets to perform higher value-adding functions


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Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target

The Boeing Vendors Tune-Up Program

Timeliness & Reliability

Communicates and convinces customers

Improved Quality

Rewarding and Training NextGen Boeing Workforce


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E On Time, On Target2: Ensuring & Enhancing

Strong New Ecosystem

Ensuring Success: B787

Enhancing Sustainability

Core Competence & Competitive Advantage



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Buy-to-Build Ratio: Are we On Time, On TargetOutsourcing too much?



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Buy-to-Build Ratio: Are we On Time, On TargetOutsourcing too much?


70% outsourcing down to approximately 60%


Built up experience & complex knowledge


Leverage on 787 experience for future

Result of purchase of Vought

Testing commenced

Steep learning curve

Leaders in Global Supply Chain Mgmt

Inevitable of the future

Establish leadership

StarShine to support outsourcing



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Emerging Threats: China at the Top On Time, On Target



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Resulting Implications of Threats On Time, On Target


Economics Influence Outsourcing


Manufacturing more Overseas - BUT


Focus on Higher Value Work

Outsourcing not for cost

Manufacturing less of an advantage tomorrow

Financial Risk Reduced

Allows Foothold in Key Markets

Allows Focus on Core Competency

Design & Systems Integration

Excel in Project Mgmt

Making it difficult to replicate



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With the Threat: Our Core Competencies On Time, On Target& Advantages will be:



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Starshine On Time, On Target

What’s next beyond 787?

  • Specialised unit focusing on Project Management Excellence


  • Enhance aircraft performance through better materials



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StarShine: Developing On Time, On TargetProject Management Excellence


  • Reach new frontiers in project management

  • Improve programs time-to-market speed



  • Support and collaborate with program teams

  • Ensure good performance in order to reduce developmental delays; keep production schedule on time



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Why StarShine? On Time, On Target



  • Assist, support program teams in project management

  • Share best practices – across industries/internally



  • Good ideas from collaboration between experts

  • Timely delivery of planes, improvements in production processes



  • Improve project management capabilities

  • Attain sustainable competitive advantage that are not easily replicated; create ecosystem of gold standards



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Nanotechnology On Time, On Target


  • Open new frontiers with emerging technology

  • Explore long-term potential of enhancing aircraft performanceSource: U.S. Committee on Aeronautics Research and Technology


  • Apply new composite materials to aircraft design

  • Research work with UW Centre of Nanotechnology




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Why Nanotechnology? On Time, On Target



  • Relevant to most aircraft components and systemsSource: Bax and Willems Consulting

  • Eg: Airframes, windows



  • Better material properties that boost functional performance

  • Added protection during harsh weather conditions



  • Build up collective suite of capabilities from investment

  • Be the leading edge of innovation and material science development



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E On Time, On Target2: Ensuring & Enhancing

Strong New Ecosystem

Ensuring Success: B787

Enhancing Sustainability

Core Competence & Competitive Advantage



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Financial Implications with our Recommendations On Time, On Target

Incremental Profit of

USD 3.5 Billion




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Reaffirmation of Our Strategy On Time, On Targetwith Positive NPV


USD 3.63 Billion




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Financial Assumptions On Time, On Target& Justifications

Valuation Assumptions

  • 15 Year Time Horizon

  • 3 Stage Growth Model

  • CAGR Growth Rate of 12.96%, followed by 6%

  • Terminal Growth Rate of 3%

  • WACC of 10.71%

Qualitative Assumptions

  • Commercial Airline to be key driver of growth

  • Assumed On Schedule Delivery of the 787

  • Treating Nanotechnology as a call option




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Identifying the On Time, On TargetRisks










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Milestone & Implementation: On Time, On TargetE2: Ensuring & Enhancing

-- Due Diligence & Approval

-- Planning & Development

Execution & Quarterly Review

-- Union Negotiations

Execute & Quarterly Review

-- Union Negotiations

Execute & Quarterly Review

-- Development & Staffing

--Training & Field Trips

Execution & Quarterly Review

--Training &

Field Trips

--Training &

Field Trips

--Training &

Field Trips

Global Educational Institution Research Tie-Ups

Continuation of PhantomWorks Research & Development

Commercial Application for New Products & Variants--





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Milestone & Implementation: On Time, On TargetE2: Ensuring & Enhancing

Execution & Quarterly Review

Execute & Quarterly Review

Execute & Quarterly Review

Execution & Quarterly Review

--Training &

Field Trips

--Training &

Field Trips

--Training &

Field Trips

Global Educational Institution Research Tie-Ups

Commercial Application for New Products & Variants





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E On Time, On Target2: Ensuring & Enhancing

Strong New Ecosystem

Ensuring Success: B787

Enhancing Sustainability

Strengthen Vendor capabilities – Tune-Up

StarShine Program – Gold Standard in Project Mgmt

Stabilize Labor Relations – Satisfaction & Productivity

Forever New Frontiers - Nanotechnology

Core Competence & Competitive Advantage






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Question & Answer On Time, On Target

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Index – Presentation & Supplementary Slides On Time, On Target

Presentation Slides

  • Current Market Outlook

  • Overview

  • Tuning-Up & Providing Support

  • Training & Rewarding NextGen

  • Therefore Ensuring Success: B787

  • How much are we outsourcing

  • Implications of outsourcing

  • Emerging Threat Review: China

  • Implications of China Threat

  • Our Core Competence & Advantages

  • What’s Next

  • Starshine

  • Why Starshine will succeed

  • Nanotechnolgy

  • Why Nanotechnology will succeed

  • Pro-forma Net Profit with recommendations

  • Positive NPV

  • Assumptions & Justification

  • Sensitivity Analysis

  • Implementation

Supplementary Slides

  • Resilience & Customer Centricity

  • Our 787 vendors

  • What has been done to fix 787 program

  • Surveilance tools

  • Do we have the right partners?

  • Too much outsourced overseas argument

  • Compensation packages

  • Holistic packages

  • What is Moonshine?

  • BioFuels Consideration

  • Why not a SonicCruiser?

  • Outsourcing reasons

  • Why not Backward Integrate with Vendors??

  • Airbus A350XWB v. Boeing B787 specs

  • Cargo Market

  • Importance of designing the right plane

  • Commercial aircraft industry analysis

  • StarShine Structure

  • StarShine roles

  • Nanotechnology details

  • DCF

  • Pro-Forma Income Statement

  • Delivery Schedule (1)

  • WACC Calculations

  • Cost of Debt Calculations

  • Tax rate

  • Boeing brief financial performance

  • Profit

  • Stability of Boeing

  • Opportunity costs assumptions

  • Growth rates

  • Positive trends for nano

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Resilience to new technologies & On Time, On TargetCustomer-centricity

Success with new technologies

  • First commercial aircraft to be designed entirely on computer via CAD software system from DassaultSystemes & IBM

  • Success: Physical mock-up of nose section built to verify results of program and was successful

  • Even wider fuselage cross-section demanded by airlines

  • Fully flexible interior configurations

  • Operating costs lower than any B767

    • Opted for twin-engine configuration given past design successes

    • Largest diameter turbofan engines of any aircraft

Customer centric Approach

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Vendors for B787 Project On Time, On Target

United States




Boeing Charleston (announced as Vought Aircraft Industries)

Spirit Aerosystems Inc

Hamilton Sundstrand

Rockwell Collins



General Electric

Moog Inc

Toray Industries

Fuji Heavy Industries

Kawasaki Heavy Industries

Mitsubishi Heavy Industries



Korean Airlines - Aerospace Division

Shenyang Aircraft Coporation

BHA Aero Composites Manufacturing

Hafel Aviation, Harbin

Chendu Aircraft


GE Aviation



Eaton Aerospace



GKN Aerospace

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What has been done? On Time, On Target

  • Virtual collaboration environments supporting development activities by suppliers in multiple countries.

    • Product lifecycle management software allows for collaboration through design and development phase in performing all engineering tasks and capturing design errors prior to production

    • RFID and unique identification and maintenance and inspection data conforming to industry standards

  • Surveillance Tools to monitor

  • Ad-hoc, short term quick fixes

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Surveillance Tools to Monitor Vendors’ Performance On Time, On Target


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Do we have the right partners? On Time, On Target

  • Purpose of outsourcing

  • Asia Pacific

  • Boeing & Japan

    • Japan responsible for approximately 35% of designing and manufacturing airframe structures for B787

    • R&D work on new tech for Boeing, including composites for B787

    • Japanese government subsidy: up to USD$3billion

  • Boeing & China

  • Gain access to new markets: China will be the world‘s second largest market for new commercial airplanes with a projected demand for 2,600 aircraft valued at $213 billion over the next 20 years.

  • Source: Boeing Current Market Outlook 2009

Yes, foothold in Asia Pac established, but faced with challenges from individual host countries and Airbus

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Do we have the right partners? On Time, On Target

  • Asia Pacific

  • Airbus engages in industrial offset agreements with older Airbus models

    • More difficulties faced in Japan than in China

  • Boeing’s involvement in Japan: Establish leadership position in wing design and composite tech  Ability to deliver quality products, which is on par with US and European manufacturers

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Do we have the right partners? On Time, On Target

  • However,

  • Utilizing learning points to refine global supply chain concept

  • Difficult to control lower-tier vendors’ quality and process

  • Not to backward integrate, but align and standardize process and quality standards throughout entire supplier network

    • Cascade from first-tier vendors

    • Best done with Starshine

  • Supply chain problems attributed to new revolutionary process AND product

  • Same manufacturer for 777 and 787: Vought Aircraft Industries

  • Vendor for 777- Aircraft Structural Components: Nose beams, bulkheads, longerons, edge frames

  • Vendor for 787- Aft Fuselage

    • But, inadequate vendor capabilities to cope with new technology required  Boeing had to buy out Vought’s share and follow up with changes.

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Too much outsourced overseas? On Time, On Target

  • Supply Chain problems that ensued

  • Design Issues

  • Weight Issues

  • Engine Issues

  • Certification Issues

  • Production Issues

  • Travelled Work

  • Lay-up Rates

  • Ramp Up

  • Schedule Issues

  • Parts Shortages

  • • Fastener Shortage

  • • Travelled Work

  • • Conformity and Quality Assurance Issues

  • • Configuration Control

  • • Shop Floor Control

  • • Late Definition

  • • Engineering Changes

  • • Production Ramp-up Issues

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Too much outsourced overseas? On Time, On Target

  • EXAMPLE: Travelled Work (Production Issues)

1. Assembly work was found to be completed incorrectly only after assemblies reached the final assembly line. Root causes are:

• Oversight not adequate for the high level of outsourcing in assembly and integration

• Qualification of low-wage, trained-on-the-job workers that had no previous aerospace


2. Significant amount of change engineering work

• Inadequate supplier capabilities in design, e.g. Vought had no engineering department

when selected

• Oversight not adequate for the high level of outsourcing in detailed design

• Weight growth and subsequent weight saving changes

• Producitbility improvements

3. Late Definition

• Boeing admitted responsibility for a shortfall in wiring shipments

• Late specification indicated by supplier as root cause

Source: Boeing 787 Lessons Learnt, October 2008, BurkhardDomke, Head of Engineering Intelligence, Airbus

A need to implement more stringent selection and due diligence in checking first-tier vendor’s supplier network for future projects

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Compensation Packages: Learning Points from 2008 Strikes’ Settlements

  • Estimated $685 million pretax profits lost in the Machinists’ Strike’s first 24 days (Boeing’s third quarter earnings, 2008)

  • Adding in extra expenses incurred to recover to pre-strike rates of production

    • Paying suppliers for overtime

    • Expedited shipping etc

  • Why Boeing needs to avoid a repeat of 2008 Strikes

Source: The Seattle Times, Boeing, IAM


  • Key concerns of workforce

“Leadership at the International Association of Machinists and Aerospace Workers had said Boeing's offer fell short in areas such as job-security commitments, cost of living adjustment rates and medical-plan expenses.”

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Holistic Compensation Settlements

  • Kerr (1975) recognized the existence of a divergence of goals and motives among members of the organization which led to non-similar outcomes. Often, subordinates respond to reward systems by displaying behavior they perceive as rewarding.

The need for aligned performance and reward cultures with Boeing’ corporate growth strategies

  • Go further than simply telling workforce, but to genuinely understand why these objectives mattered to the business.

  • Launch compensation program and refine based on workforce's experiences and inputs

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Boeing: Moonshine Shop Settlements


  • A lean manufacturing team that uses fast and inexpensive prototyping to develop and prove a concept, prior to full implementation

  • Purpose: “to be creative, to solve problems, be creative with solutions”

    • Combined:

    • Lean manufacturing principles

    • Cross-disciplinary teamwork

    • Iterative, prototyping approach to new product and process design

    • Changes to existing products and processes



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Boeing: Moonshine Shop Settlements


  • Hay Loader on the Assembly Line

    • The old crane & container process took one day-shift crew of 15 people & one night-shift crew of 15, with a total of 16 hours to install one set of passenger seats

       Cost and time savings: Took 4 people 28-32 minutes to install a full set of seats

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BioFuels Settlements: The Complication of Delivery

  • Relies on cooperation of multiple parties – engine makers, airlines, energy co, aircraft manufacturers, airport operators, regulatory bodies

  • Infrastructure to implement it requires investment and commitment

  • BUT we recognize it diversifies source of fuels, green and responsible

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BioFuels Settlements

  • Future is already present – nothing groundbreaking, successful test flights aplenty

  • BUT standards yet to be decided, testing, regulatory approval all in process

  • GTL the most feasible near term alternative conventional fuel – BUT not environmentally friendly

  • Summary: Continue focus on developing and ensuring leadership in 2nd Gen BioFuels that can be used in aviation

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Why not revive the SettlementsSonicCruiser?

  • Developed for speed, timeliness, and range

  • Example for a Sydney-NYC Mission, it shaves 3hours per flight in a usual 21hr long flight

  • The range of 9000nm, possibly 10,000 is demanded most premium customers ceteris paribus

  • Cost despite mass production volumes of jetliners will increase from increase fuel consumption -- 15-20% more fuel burn- counter intuitive @ this point in time

  • shorter economic boom-bust cycles make sonic cruisers @ this point in time a risk airlines not willing to take

  • But possible in medium term

    • Fuel technology for biofuels/alternatives/conventional fuel stablises to some new standard for aviation industry

    • Material costs for largely composite frame deflated - moore's law

    • Enough demand from consumers for speed, timeliness, willing to pay for airlines to order

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Reasons for Outsourcing Settlements

  • Subsidies in developmental costs flowing from host country governments – indirectly subsidizing the development costs

  • Partnership, alliance, equity alliance with local partners to enable deals to flow through (esp. Japan, China)

  • Manufacturing no longer sustainable competitive advantage

  • Focus is now on systems integration, design and other higher value chain work

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Why not Backward Integration? Settlements

  • Integration time of at least 2-3 years disruptive to production focus on 787

  • Current critical issues resolved, thus enabling testing and certification process to begin

  • Cultural and organization integration issues that will complicate integration

  • Countries like Japan, China have foreign ownership restrictions on local companies

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A350XWB Settlementsv. B787

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Cargo Airline: A Tight Market Settlements

Rising Fuel Costs

Yields low due to Competitors

No Customer Volume


Tough Conditions

Shine Wears Off Cargo Market

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Importance of Settlementsbuilding right plane for airline industry

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StarShine Structure Settlements


Prog (2)

BD (2)


Av Service (2)

Prod Dev (2)


Engin (4)

SCM (4)

Sales (2)

Finance (2)

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StarShine Tasks Settlements

  • Support strategic project processes

  • Offer recommendations on implementation plans

  • Collaborate closely with project directors to help them develop good project proposals

  • Provide assistance & support on the quality assessment, monitoring and evaluation of projects

  • Undertake training programmes to build up skills in project management and capacity building

  • Research latest trends in project management

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Airframes and components Settlements

Nanotechnology Areas

Coatings and paints

Avionics and other systems

  • Anti-scratch, anti-glare etc by depositing nanopowder based thin layers onto glass

  • Nanoscale silver particles in filtration systems for higher air quality

  • Corrosion and thermal protection

  • Nanostructured coatings to prevent ice formation

  • Carbon nanofibres proven to reduce the weight of wires by close to 4 times

  • Cost efficiency

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The DCF Valuation Settlements

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Effective Tax Rate Settlements

Source: Boeing Annual Reports

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Overview of Boeing Settlements

Source: OneSource

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Stability of Boeing Settlements

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Key Assumption 1: Opportunity Cost of USD 500 Mil a Year Settlements

Source: The Seattle Times

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GROWTH RATES Settlements

Key Assumption 2: Growth Rates

Source: Reuters

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Key Assumption 3: Positive Trends for Nanotechnology Settlements

Increased Commercial Testing

Increased Filing of Patents

Significant Developments

Aviation technology takes offUsing nanotechnology techniques to improve surfaces, making them resistant to ice accumulation. Margaret Blohm, advanced technology program leader, demonstrated how surfaces could be engineered to resist water and other liquids, making them "superhydrophobic," she said. She is also exploring ways to reduce ice adhesion, potentially preventing ice building on aircraft surfaces.

A comprehensive worldwide database of consumer products incorporating Nanotechnology has been constructed and is being constantly updated by the Wilson Center’s “Project on Emerging Nanotechnologies”.3 In the period from March 2006 to May 2007, the number of products listed on the database more than doubled, from 212 to 475 and this growth seems set to continue.

Source:Hoizon Scanning Intelligence Group

Anti-Icing System Succeeds in Test Conditions

One immediate use for Battelle’s innovative technology is coating unmanned aerial vehicles (UAVs). The vast majority don’t have anti-icing systems, which leads to cancelled missions—studies show about 12 percent—or sometimes even a crash after the wings become icy.