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UVA-F-1017

THE BOEING 777 The Boeing 777 will set a new standard for aircraft around the world. With the introduction of the 777, we will be able to offer our airline customers a complete family of Boeing airplanes that meets any seating requirement fromapproximately 100 to 500 passengers. We believe the 777 will allow us to offer the right product for the changing market requirements of the 1990s and beyond.1 Shrontz says his mission is raising Boeing’s return on equity from the recent average of about 12%. Although Boeing makes money while its main competitors don’t, Shrontz isn’t satisfied. “We’ve got to enhance our earnings,” he says.2 It takes alot of courage to launch an industrial program in this uncertain economic environment.3 In October 1990, Frank Shrontz officially announced the launch of the latest addition to the Boeing family, the 777. This plane would fit in a market niche of medium-to-large passenger airframes and would carry 350 to 390 passengers up to 7,600 nautical miles (14,000 kilometers; for instance, from Sydney toTokyo or Los Angeles to Frankfurt). The first planes were expected to be delivered in May 1995 to United Airlines, which had announced firm orders for the 777 on October 15, 1990. No other orders had as yet been received. Industry analysts had mixed views on Boeing's decision to go ahead with the 777. Pessimists noted that Airbus Industrie and McDonnell Douglas both had already announced aircrafttargeted for this niche and had sizable head starts on firm orders. This competition, they believed, would drive down prices for the aircraft. Furthermore, research-and-development expenditures on the 777— estimated at $4 billion to $5 billion—would be more than twice as high as for the 757 and 767
Frank Shrontz, chief executive officer, The Boeing Company, October 29, 1990. Dorin Jones Yang, “ToFrank Shrontz, the Blue Yonder is Anything but Wild,” Business Week (9 July 1990): 49. 3 A quotation of Howard A. Rubel, airline industry analyst with C. J. Lawrence, Morgan Grenfell, Inc., in “It’s Fat and Snazzy—And Worth Billions to Boeing,” Business Week (29 October 1990): 32.
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This case was written by Dena Gollish, Henrik Clausen, Niels Koggersvol, Peter Christey, and Robert F. Bruner asa basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. The financial support of the Citicorp Global Scholars Program is gratefully acknowledged. Copyright © 1992 by the University of Virginia Darden School Foundation, Charlottesville, VA. and INSEAD, Fontainebleau, France. All rights reserved. To order copies, send...