BOEING INTERNATIONAL EXPANSION

Boeing International Expansion

Boeing International Expansion

Boeing Producing an international Jet

As Airbus continued its ascendancy in the world market, the domestic U.S. market proceeded on its own evolutionary path with the merger between Boeing and McDonnell Douglas. The merger announcement did not come as a surprise in the industry. Although there were still thousands of McDonnell Douglas aircraft flying commercially, its sales of new aircraft were steadily declining and had fallen to almost zero. Furthermore, mergers among McDonnell Douglas's main competitors in the defense arena underscored McDonnell Douglas's need for additional financial and political clout. A merger with Boeing would satisfy that need nicely.

Result

Boeing embarked on an ambitious four-year restructuring program in the mid-1990s and had hoped that, by adopting lean production techniques and otherwise reengineering its production processes, it would be able to produce planes more rapidly and at 25 percent less cost by the end of 1998. However, because demand for new aircraft was soaring, and Boeing was reluctant to see its market share slip, it attempted to gear up production rates to record levels at a time when its assembly lines and other processes were still being transformed. The company was unprepared and ill equipped to handle the additional work, and numerous production problems ensued. Antiquated computer systems, parts shortages, inexperienced workers, work being done out of proper sequence, and other inefficiencies led to severe production bottlenecks.

The merger with McDonnell Douglas only compounded these problems. The meshing of corporate cultures did not go as smoothly as hoped, and power struggles in the upper ranks of management detracted from the drive to streamline the firm's operations. Indecisiveness with regard to how best to use the new resources coming into the firm eroded employee morale. Moreover, Boeing's assemblers have complained that production goals have increasingly come from the top down, without proper concern as to whether those goals could be achieved. The problems were so great that in the fall of 1997 Boeing even had to shut down its assembly lines for several weeks in an attempt to sort out the chaos.

Although two years have passed since the merger with McDonnell Douglas, the cost savings anticipated by Boeing as a result of the merger have yet to materialize. On the contrary, Boeing continues to be plagued with production problems that have forced it to take large write-offs and resulted in its first operating loss in fifty years. Although Boeing officials have asserted that the worst of these problems is behind them, the company has been paying fines for late delivery of aircraft, and some disgruntled customers have turned to Airbus. As Boeing pursues its restructuring program, it is likely that many of the expected synergies and efficiencies will appear. However, labor strife, top-heavy management, and difficulties with the melding of corporate cultures will continue to be major obstacles in the near term.

Boeing's problems have been exacerbated by the fact that for the past several years Boeing and Airbus have engaged in vicious price competition, with ...