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’s ability to retain control of a global supply chain, and its strategy to address the rise of international players.
A globalized economy
International trade has “democratized” 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’s most stable and attractive segments: the single aisle market .
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 , the power has shifted to airlines and increased competitive pressure on OEMs.
Finally, Boeing’s 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 , resulted in a 3-year delay and billions of dollars lost due to a complex and difficult to manage supply chain .
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  -it just acquired Aurora Flight Services . 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 .
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 “mighty Boeing [seeking] protection behind the skirts of the U.S. Department of Commerce”  by slapping a 219% tariff on Cseries imports. Boeing’s 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:
- A surprising Airbus-Bombardier partnership in an attempt to side-step the tariffs, which strengthens Airbus’s position in the single aisle market . If it succeeds, then Boeing’s goal of protecting its domestic sales and keeping competition out has failed.
- Dissatisfied airlines and suppliers, who just lost access to an aircraft manufacturer, opposing the tariffs .
- Hostile governments in the UK and Canada where Bombardier employs thousands, potentially retaliating against Boeing by terminating military contracts .
Can Boeing stop the free-fall?
There is a path for Boeing to recover and address international trade threats:
- In the short term, the OEM needs to amend relationships with all stakeholders impacted by the tariffs to minimize consequences on its future sales, and its own global supply chain. This means allowing the Airbus/Bombardier partnership -the only way for Bombardier to keep producing and selling Cseries- to circumvent tariffs.
- In the medium term, lead a major cost reduction across its entire supply chain to achieve new levels of operational efficiencies. With the recent backlash to the tariffs, Boeing is now overpowered in the industry and will need to demonstrate superior production capabilities to remain relevant.
- In the long term, maximum automation and digitalization of the production lines and order processing for itself and its suppliers will ensure the sustainability of the global supply chain model. It will do so by reducing the risk of delays and poor integration along the supply chain by removing the human factor and ensuring suppliers can meet Boeing’s production ramp-up and takt-times. On that front, the aircraft industry has a lot to learn from companies in other industries such as Siemens, which have made great strides towards fully automated lines, or lights-out manufacturing .
In leveraging a protectionist government to protect itself from international trade threats, Boeing is now on the defensive and a new question arises: Would the tariffs have occurred under a different administration? Assuming a change of administration and global policy in the next 3-8 years, can Boeing build capabilities quickly enough to be equipped to face international trade headwinds on its own?
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