Boeing 767 Essay

8460 Words Sep 29th, 2010 34 Pages
Harvard Business School

9-688-040
Rev. April 1, 1991

The Boeing 767: From Concept to Production (A)
In August 1981, eleven months before the first scheduled delivery of Boeing’s new airplane, the 767, Dean Thornton, the program’s vice president-general manager, faced a critical decision. For several years, Boeing had lobbied the Federal Aviation Administration (FAA) for permission to build wide-bodied aircraft with two-, rather than three-person cockpits. Permission had been granted late in July. Unfortunately, the 767 had originally been designed with a three-person cockpit, and 30 of those planes were already in various stages of production. Thornton knew that the planes had to be converted to models with two-person cockpits. But
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Side bets—actual wagers between manufacturers and airlines regarding airplane performance, features, or delivery dates—occasionally accompanied purchase negotiations. The odds against a successful new product were large. According to one industry expert, in the past thirty years only two new plane programs, the Boeing 707 and 727, actually made money.2 (According to Boeing, the 737 and 747 programs have also been profitable.) If a new program were successful, however, the potential returns were enormous. A successful new plane could lock up its chosen market segment for as long as 20 years, producing sales of $25-45 billion and huge profits. It was also likely to bring great prestige, power, and influence to the company and managers that created it. Success required a long-term view. Competitive pricing was essential. Pricing practices, however, contributed risks of their own. New plane prices were based not on the cost of producing the first airplane, but on the average cost of 300 to 400 planes, when required labor hours had declined because of learning. This effect, the so-called learning curve, was hardly unique to airframe manufacturing. But small annual volumes and long manufacturing cycles—even during peak periods Boeing planned to build only eight 767s per month—meant that break-even points stretched further into the future in airframe manufacturing than was typical of

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