Weaknesses
- I have determined the weakness in Boeing's research and development as being a slow response time. I believe that Boeing has become lackadaisical in their commercial aircraft development.
Opportunities
- The industry is very competitive and with the recent mergers, the industry has time sensitive opportunities to take market share away from other companies. Thus, the other firms in the industry pose as opportunities for the firms in the industry to be on guard to take advantage of each other whenever possible.
Threats
- The Federal Aviation Administration (FAA) has many regulations and rules that have to be followed to ensure that planes are built correctly, safe, and able to withstand reasonable stressors.
- The terrorist attacks have caused airlines to delay the purchase of new aircraft.
- The increase in the amount of telecommuting software has decreased the need for business travel.
- The biggest technological threat is falling behind the competition with technological advances. The industry has the ability to take advantage of the companies that lag behind in the implementation of new technology.
Porter’s Model
Industrial Competition
There are only a few players in the aerospace industry competition is fierce. The need for high capital drives the companies in the industry to take advantage of all possible markets. In 1997, Boeing effectively eliminated one of their competitors with the acquisition of McDonnell Douglas. European Aeronautic Defense & Space Company (EADS) is Boeing's chief rival, especially in the commercial airliner industry where Airbus has slightly more of the market share.
Suppliers Power
Supplier's becomes potentially strong competitive force when the item they provide makes up a sizable faction of the costs of an industry's product, is crucial to the industry's production process, and significantly affects the quality of the industry's products. Jet Fuel price and Pilot is a good example of this supplier.
Buyers Power
With so few major players in the aerospace industry competition becomes very important, and the buyers in the industry have considerable power. The industry provides products for commercial airlines, the military (not only planes but also missile systems), as well as NASA. Commercial Airline Companies in particular have the more favorable side of the equation. Airlines typically purchase new jets under long-term fixed price contracts. These contracts have specific delivery dates, and if these are not met there is a stiff penalty for the supplier. Another way long-term contracts favor the buyer is that if the buyer realizes it cannot afford to take delivery of a portion or all of the initial order, the buyer may elect to "defer" delivery, which prevents them from losing their deposit.
Threat of Substitutes
The competitive threat posed by substitute products is strong when the prices of substitutes are attractive, buyer's switching costs are low, and many buyers believe that the substitutes have equal or better features.
Threat of New Entrants
Obviously, any new entrant into the aerospace industry faces a very difficult task. There are many barriers that they must be overcome. There are regulations, capital requirements, a need for a skilled labor force, and the thought of a long wait to achieve a profit to worry about. However, the idea is certainly possible.
FINANCIAL ANALYSIS
Boeing's liquid ratios are not strong; each one of them is weak. A good "rule of thumb" is for the current ratio to be 2 and the acid test should be 1. In Boeing's case, the year 2000 current ratio is 1.151, and hasn't been close to 2 in at least the past three years. This means they can cover their current liabilities with their current assets1.151 times. But that includes their inventory; witch is harder to convert into cash. The acid test takes the inventory out of the equation. The acid test shows Boeing at less than half, .496, this means it will be difficult to cover just half of their current liabilities. The cash ratio seems even worse at just 5.5 percent which fell drastically from 24 percent in 1999. Boeing may be facing some financial trouble.
The leverage ratios do not look any better than the liquid ratios. Boeing continually is getting more debt to assets. They have all risen since 1998. Sales have been good for Boeing, but these ratios begin to contrast that. Almost every ratio has gotten worse from 1999 to 2000.
