Case #16 - the Boeing 7e7

Cody Heim

Cases in Financial Management

2/19/2012

Case #16 – The Boeing 7E7

Executive Summary:

Boeing is one of two dominant companies in the commercial-aircraft industry. Boeing announced plans for a new aircraft named the 7E7 or the “Dreamliner” in early 2003. Market conditions had been unsettled due to events such as, the terrorist attacks of September 11, 2001, the Iraq war, and travel warnings resulting from the outbreak of the fatal disease SARS. The result of these events was that the airline industry had seen their profits decline to levels that were the worst that had been seen in several years. Despite this in June of 2003, Michael Bair, the head of the 7E7 project, informed audience members at the Paris Air Show that development of this new aircraft was going great and that the likelihood of board approval was good. As Bair’s statement suggested the 7E7 project could not get off the ground unless the board of directors approved this new project. If the project was approved by the board then the 7E7 could begin transporting passengers as early as 2008.

It had been almost ten years since Boeing had introduced a new commercial aircraft. Its last commercial aircraft had been the very successful 777 in 1994. In the time between the introduction of the 777 and the origins of the idea for the 7E7, Boeing had unsuccessfully developed two commercial-aircraft programs. One of these being the project named the “Sonic Cruiser.” This aircraft was to fly 15% to 20% faster than any other commercial aircraft at that time. Unfortunately for Boeing customers were not willing to pay a premium for a faster aircraft. The 7E7 plans were to have this new aircraft use 20% less fuel and have less operating costs compared to its competitors. The operating costs were estimated to be 10% less than Boeing’s primary competitor Airbus’ A330-200. Another innovative feature of the plans for the 7E7 was that the body of this aircraft was to be composed of carbon...