Boeing formed strategic partnerships with 27 companies across multiple countries to build its new 787 Dreamliner aircraft. This was intended to reduce Boeing's financial risk but resulted in major delays and issues. Problems arose due to lack of coordination between partners, cultural differences, and Boeing asking suppliers to design their own parts without clear specifications. While intended to cut costs and development time, the partnerships ended up increasing Boeing's costs and led to a three year delay in delivering planes. However, Boeing is moving forward with the 787 which offers fuel efficiency advantages attractive to airlines, and has introduced larger 787 models that may lead to future profitability.

1. Running head: BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 1
Boeing’s Strategic Partnerships for the 787 Dreamliner
Joseph Feldman
Brandman University
Seminar in International Marketing
MKTU 640
November 23, 2014

2. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 2
Boeing’s Strategic Partnerships for the 787 Dreamliner
Introduction
The purpose of this paper is to identify the advantages and disadvantages of Boeing’s market
entry strategy use of strategic partners in the building of the 787 Dreamliner. Boeing had formed
a strategic partnership with 27 companies across numerous countries that resulted in a three year
delay and then had further problems as two planes had battery explosions. The strategic
partnership reduced Boeing’s financial risk as it gave greater responsibility to its tier 1 strategic
partners. Traditionally, Boeing had designed their airplanes and then contracted with suppliers to
fulfill parts orders. The Boeing 787 Dreamliner is dubbed by some researchers as the largest
project that involved numerous strategic partners. In the near term the outcome was disastrous as
Boeing’s cost went up and the delay resulted in order cancelations.
Boeing and the 787 Dreamliner
“Boeing is the world's largest aerospace company and leading manufacturer of commercial
jetliners and defense, space and security systems” (Boeing, 2014, para. 1). In 2013 the company
posted $86.6 billion in revenue of which nearly $53 billion came from their commercial airplane
division (Boeing, 2013, p. 17). The company was in a race to stay competitive with competitor
(e.g. Airbus) as they envisioned the building of the Boeing 787 Dreamliner that would be a
lighter plane, hold more passengers, and be twenty percent more fuel efficient (Huffington Post,
2011, p. 1). In an attempt to lower the production cost and save time “Boeing decided to develop
and produce the Dreamliner by using an unconventional supply chain new to the aircraft
manufacturing industry” (Tang & Zimmerman, 2009, p. 77). This ended in disaster as the Boeing
787 Dreamliner faced design and supply issues, two major malfunction battery explosions, and a
three year delay in selling the planes.

3. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 3
The Problem
Boeing encountered design and supply issues as the company created “risk sharing
partnerships” with over 27 different companies in numerous countries. The following chart
describes the major Tier 1 partnerships Boeing created in building the 787 Dreamliner (The
Sacramento Bee, 2013, para. 8):
Prior to the 787 Dreamliner, Boeing had relied on their in-house engineers to draw and
construct the components that had gone into their commercial airliners. The 787 Dreamliner
design called for replacing the body and wings from aluminum to carbon-fiber composites.
Boeing reduced the amount of components they would make to 30% and increased the amount of
parts suppliers would make to 70% (Stone & Ray, 2013, para. 6). Traditionally Boeing had
outsourced 60% of its airplane components (Epstein & Crown, 2008, para. 6). “Half a dozen

4. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 4
main suppliers were put in charge of building big sections of the plane that were to be flown,
fully completed, to Boeing’s factory in Everett, Wash., then snapped together in three days and
delivered to customers” (Stone & Ray, para. 6). According to James Allworth (2013) a major
downfall of the 787 Dreamliner is that Boeing had not solved putting all the parts of the puzzle in
creating the 787 Dreamliner, and “[a]sked the suppliers to create their own blueprints for parts”
(para. 8).
Pros and Cons
At the time Boeing thought strategic partnerships with multiple companies in numerous
countries would benefit the operation in many ways. This new role that Boeing was assuming
would transform their 787 Dreamliner operation from being a manufacture into an integrator.
Potential advantages of strategic alliances Boeing could realize includes shorter development
time, lower development costs, reduction of financial risks, increased production, expertise from
suppliers, and international companies helping with marketing in their respective countries.
“Under the 787 program, Boeing instituted a new risk sharing contract under which no strategic
suppliers will receive payment for the development cost until Boeing delivers its first 787 to its
customers” (Tang & Zimmerman, p. 78). The following chart illustrates Boeings Dreamliner
supply chain (Tang & Zimmerman, p. 77):

5. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 5
This arrangement placed an emphasis on the Tier 1 strategic partners to concentrate on “raw
material procurement and early component subassembly” (Tang & Zimmerman, p. 78). Boeing
expected all of the components to be sent to their U.S. assembly plant where the 787 Dreamliner
would be built in three days. “Relative to the 737 supply chain, this drastic reduction in cycle
time would in turn increase Boeing's production capacity without incurring additional
investments” (Tang & Zimmerman, p. 78).
Boeing faced many types of risks when they entered into strategic partnerships for the 787
Dreamliner. A few of these risks includes process, labor, management, and demand risks. In an
attempt to reduce risks Boeing implemented the use of Exostar software to track suppliers’
progress. Tim Opitz, director of 787 Production and Support Tools in Boeing Commercial
Airplanes states “[Exostar gives] the ability to have a common view with our partners of real-
time, supply chain performance reduces risk, improves cycle times and ensures compliance with
agreed processes” (Exostar, 2013, p. 2). The following describes how Exostar software could
help in Boeing’s supply chain arrangements with their strategic partners (Exostar, 2013, p. 3):
 Collaborate on planning schedules
 Issue purchase orders
 Track purchase order changes
 Exchange shipping information
 Manage returns
 Track shipments
Unfortunately for Boeing the strategic partnership did not work out as exactly as planned.
Prior to the two malfunctioned battery explosions that was previously discussed, Boeing had
issues with their supply partners. One example of a lack of transparency came when “[o]ne of the

6. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 6
Tier-1 suppliers, Vought, hired Advanced Integration Technology (AIT) as a Tier-2 supplier to
serve as a system integrator without informing Boeing” (Tang & Zimmerman, p. 79). In some
cases Tier 1 suppliers and Boeing had difficulties in responding to Tier 2 and Tier 3 suppliers in
a timely manner because of culture differences. “Due to cultural differences, some Tier-2 or
Tier-3 suppliers [did] not often enter accurate and timely information into the Exostar system”
(Tang & Zimmerman, p. 80). In another instance Boeing workers (who saw increased
outsourcing) in 2008 went out on strike as they were concerned about job security. Spirit
Aerosystems (Spirit), a key supplier of Boeing, reacted by reducing their workforce. “Spirit
anticipated that the strike at Boeing would trigger order cancellations and delivery delay of
certain Boeing aircrafts” (Tang & Zimmerman, p. 80).
The Opportunity
Despite Boeing’s setback with the 787 Dreamliner, it may benefit the company to push
forward with their strategic partnership agreements. Customers are looking for better travelling
experiences and the airline companies look towards ways that they can reduce costs. The 787
Dreamliner offers a quieter ride, more carry on space, more cabin space, larger windows, better
lighting, and a better smell. According to CNN (2011) “it is 60 percent less noisy than other
planes of its size and capability” (para. 7). In addition to high efficiency particulate air filters, the
787 Dreamliner are “equipped with gas filters designed to remove odors, ensuring that
passengers don’t have to endure the smell of unpalatable airline meals for too long” (CNN, para.
26).
Airline companies are attracted to the 787 Dreamliner’s sustainability and fuel efficiency.
There is less scrap metal as major components of the 787 Dreamliner are constructed of carbon

7. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 7
fiber composite material (Air Transport Action Group, n.d., para. 3). “Composites, which make
up 50% of the aircraft’s structure, are lighter, stronger, more resistant to impact, as well as more
resistant to corrosion and fatigue than aluminum alloys” (Air Transport Action Group, para. 4).
In addition, the 787 Dreamliner is expected to “reducing fuel consumption and greenhouse gas
emissions by 20%” (Air Transport Action Group, para. 1).
According to John Heimlich, chief economist at Airlines for America (a major airline industry
lobbying group in Washington) “fuel costs make up about 35 percent of airline operating costs”
(Yamanouchi, 2012, para. 4). It appears that during the last twenty years the total consumption of
fuel (measured in gallons) has been about the same from year to year, but the cost of fuel has
skyrocketed. The following charts illustrate the consumption of fuel in the U.S. and the costs
from 1993 through 2013 (Bureau of Transportation Statistics, 2014, para. 1):

8. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 8
This data suggests that airline companies will have a strong desire to acquire fuel efficient
commercial airplanes now and in the future. Savings from fuel costs will most likely help Airline
companies be more competitive and increase future revenues and profits.
Boeings Future and Why Strategic Partnership Makes Sense
Boeing’s main competitor is European based Airbus. According to Boeing’s forecast the
regions that are expected to see the largest demand of new airplanes is the Asia Pacific and then
followed by Europe (Boeing Commercial Planes, 2013, p. 6):
The 787 Dreamliner is very significant as the middle size airline segment is expected to
account for roughly twenty percent of sales over the next twenty years. A strategic alliance with
companies like Kawasaki, Mitsubishi, and Fuji of Japan and Rolls Royce of the United Kingdom
may prove valuable in obtaining contracts within the Asia Pacific and Europe. According to
(Cateora, Gilly, & Graham, 2013) “[t]he Japanese consumer has been the hardest to please; the
demanding customers are the reason that the highest-quality products and services often emanate
from that country” (p. 344). John Newhouse (2007) argues that Boeing’s role as “being a

9. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 9
systems integrator means shifting the financial risks to suppliers, especially those who, like the
Japanese and Italians, are subsidized by their governments” (para. 9). Newhouse also entertains
the idea that companies who have received Boeing’s proprietary technology plans in Japan could
turn around and create their own airplane building company. Newhouse dismisses this idea
because the Japanese companies “have a lower risk and more lucrative role as subcontractors to
Boeing” (Newhouse, para. 13). Intervention on behalf of Boeing is apparent when the Vice
President of Airbus aired “we have discovered that [Mitsubishi Heavy Industries] has on
occasion pressured JAL [to buy from Boeing] when its airplane was competing against us”
(Newhouse, para. 26).
Further Analysis
Boeing’s problems with the 787 Dreamliner could be seen as stepping stone to profitable
roads ahead. It is highly probable that Boeing has learned from its mistakes and has the ability to
fix the problems as they move forward with sales of the 787 Dreamliner. The company has had a
few years to address issues that includes supplier commitment levels and transparency problems
amongst Tier 1, Tier 2, and Tier 3 suppliers. Boeing has expanded upon the technology used in
the 787 Dreamliner by creating subsequent Dreamliner models. In 2014 Boeing received
approval by the U.S. Federal Aviation Administration and the European Aviation Safety Agency
for delivery of its new 787-9 Dreamliner. The 787-9 Dreamliner is a larger version of the
original 787 that has 40 more seats. Boeing Chief Executive Jim McNerney states “the larger
787-9 now accounts for 40% of Boeing's orders for the Dreamliner, with 413 reserved by
airlines, many of which have been shifting to the larger model” (Ostrower, 2014, para. 8). In
2018 Boeing is expected to unveil an even larger 787-10 Dreamliner that will seat 320
passengers (Ostrower, para. 8). The losses that Boeing faced amounted to roughly $2.9 billion of

10. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 10
which they ultimately wrote off as a tax-loss. While this appears to be a great deal of money, it
may be viewed in decades to come as a small price that Boeing paid in creating what the future
of the airline industry looks like.
Conclusion
Boeing’s strategic partnership of the 787 Dreamliner was viewed as a corporate disaster. The
company suffered losses as there was a three year delay. Part of the problem was that Boeing’s
strategic partners were ineffective at teaming together in designing a cohesive 787 Dreamliner.
Boeing stepped through the process with their partners and ultimately created a sellable 787
Dreamliner. Data shows that airline companies are seeking higher fuel efficient airplanes. Fuel
costs are considered the highest proportion of airline company expenses. The strategic
partnership has allowed Boeing to lessen its investment and has created an incentive for foreign
suppliers to promote the 787 Dreamliner as they have a direct stake in the sales. Boeing has
taken proactive measures (e.g. tracking suppliers through Exostar software) in securing quality
and timely production. It appears that Boeing is moving towards profitably as they introduced a
second Dreamliner model (787-9) and have plans to introduce a third model (787-10) by 2018).

11. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 11
Recommendations
1. Boeing may want to consider putting together a study of how many leases they sell versus
outright sales. Data suggests that airline companies have been leasing airplanes at higher levels
over the last 10-15 years. Boeing’s Dreamliner products are seen as a product that is more eco-
friendly and has higher fuel efficiency. Could this lead airline companies wanting to keep the
planes for a longer period of time by purchasing them. This could save resources (materials,
storage space, and less airplanes to build over the next 20-30 years).
2. Possible advantages of strategic alliance partners is securing a long term relationship and
securing resources. It may be to Boeing’s advantage to have a clearer understanding of who the
Tier 2 and Tier 3 suppliers are in securing resources.
3. Boeing may want to consider integrating Latin America and Middle East suppliers as “key
part suppliers” in their 787-9 and 787-10 models. Boeing’s projections illustrate that these two
markets combined will account for approximately 80% of the North America market during the
next twenty years.

12. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 12
References
Air Transport Action Group (n.d.). Boeing 787 Dreamliner. Retrieved from
http://aviationbenefits.org/case-studies/boeing-787-dreamliner/
Allworth, J. (2013, January 30). The 787’s problems run deeper than outsourcing. Retrieved
from https://hbr.org/2013/01/the-787s-problems-run-deeper-t/
Boeing (2014). About us. Retrieved from
http://www.boeing.com/boeing/companyoffices/aboutus/brief.page
Boeing Commercial Planes (2013). Current market outlook 2013-2032. Retrieved from
http://www.boeing.com/assets/pdf/commercial/cmo/pdf/Boeing_Current_Market_
Outlook_2013.pdf
Bureau of Transportation Statistics (2014, November 22). Airline fuel cost and consumption
(U.S. carriers - scheduled). Retrieved from http://www.transtats.bts.gov/fuel.asp
Cateora, P. R., Gilly, M. C., & Graham, J. L. (2013). International marketing (16th ed.). New
York, NY: McGraw-Hill/Irwin
CNN (2011, October 26). 787 Dreamliner takes flight. Retrieved from
http://travel.cnn.com/explorations/life/whats-so-special-about-Boeing-dreamliner-766616
Denning, S. (2013, January 21). What went wrong At Boeing? Retrieved from

13. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 13
http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/
Epstein, K. & Crown, J. (2008, March 12). Globalization bites Boeing. Retrieved from
http://www.businessweek.com/stories/2008-03-12/globalization-bites-boeing
Exostar (2013). Boeing 787: Global supply chain management takes flight. Retrieved from
www.exostar.com/WorkArea/DownloadAsset.aspx?id=684
Newhouse, J. (2007, March 1). Boeing versus Airbus: Flight risk, outsourcing challenges.
Retrieved from http://www.cio.com/article/2442518/outsourcing/boeing-versus-airbus—
flight-risk--outsourcing-challenges.html
Ostrower, J. (2014, June 16). Boeing's larger Dreamliner approved by U.S., European
regulators. Retrieved from http://online.wsj.com/articles/boeings-787-9-dreamliner-
approved-by-u-s-european-regulators-1402929036
Stone, B. & Ray, S. (2013, January 24). Boeing's 787 Dreamliner and the decline of innovation.
Retrieved from http://www.businessweek.com/articles/2013-01-24/boeings-787-dreamliner-
and-the-decline-of-innovation
Tang, C. S. & Zimmerman, J. D. (2009). Managing new product development and supply chain
risks: The Boeing 787 case. Retrieved from http://eng.umd.edu/~austin/ense622.d/lecture-
resources/Boeing787-Outsourcing2009.pdf

14. BOEING᾽S STRATEGIC PARTNERSHIPS FOR THE 787 14
The Huffington Post (2011, May 25). Outsourcing At Boeing: How the aerospace giant looks
abroad for key suppliers in Dreamliner. Retrieved from http://www.huffingtonpost.com/
2011/01/20/a-wing-and-a-prayer-outso_n_811498.html
The Sacramento Bee (2013, January 28). Boeing's 787: Dreamliner or nightmare? Retrieved
from http://guide.sacbee.com/2013/01/27/5683/boeing-787.html
Yamanouchi, K. (2012, March 3). Airlines keep adapting to high fuel costs. Retrieved from
http://www.ajc.com/news/business/airlines-keep-adapting-to-high-fuel-costs/nQRrf/