Case Study - the Boeing 7e7

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Case Study – The Boeing 7E7
In early 2003, Boeing announced its “Dreamliner” plan to design and sell a new, “super-efficient” jet -- “7E7”. However, the overall market for aircrafts was negatively affected by several shock news: the United States went to war against Iraq, a deadly illness called SARS resulted in global travel warnings. These negative news made airline profits the worst seen in a generation. Michael Bair, the leader of the 7E7 project, announced that Boeing was making “excellent progress on the development of the 7E7 and continues to be on track to seek authority to offer the airplane.” on June 16, 2003, at the prestigious Paris Air Show. In order to proceed with the project, Bair sought a firm commitment from Boeing’s board of directors in early 2004. If the board approved the plan, he could start collecting orders from airlines and expect passengers to start flying on the new jets in 2008. Between now and his recommendation to the board, he would need to complete a valuation of the 7E7 project and gain the support of Boeing’s CEO, Philip Condit, and the other senior managers. Two aspects should be considered to solve the problem. The first aspect is whether this project can bring strategic advantage to the company. The second aspect is whether the cost of capital is less than the estimated rate of return. 7E7 is twin-aisle aircraft. Exhibit 4 shows aircraft distribution forecast of Boeing and Airbus (Boeing and Airbus almost occupies the global commercial aircraft market). As the data shows, Boeing forecasts that twin-aisle aircraft occupies 45% of the future 20-year market share, while Airbus gives a 35% forecast. This shows that twin-aisle aircraft has a great market in the foreseeable future. Boeing needs to have a competitive product to win the market. The 7E7, while carrying between 200 and 250 passengers, would be capable of both short,…...

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