2/23/2005

Boeing Losing Some Weight

Boeing sold two its commercial aircraft plants in Wichita, Kansas and another facility in Oklahoma today. This move was made in order to focus its energy on design and final assembly. That is a huge step for America's largest aircraft producer. This breaks down to very simple economics- managing scarce resources. Boeing must believe that their managerial talent and time is scarce and would be more beneficial if it were focused on fewer objectives. Are there other economic reasons that Boeing would make such a huge business change?

6 comments:

rico said...
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rico said...

Boeing could have sold these plants for many reasons. For one, the airline industry has to sell discounted tickets just to compete with each other. The rising fuel prices also add cost to its business. If the airlines don't have much money to spend on new planes, plane manufacturers are going to have to cut costs as well. I believe that is what boeing is doing.

Jones said...

I'd be interested to know more about this industry in order to know more about this decision of Boeing's. Who is their competitors? Is Boeing really losing a lot of money from rising fuel prices and discounting tickets? Either way, focusing on one aspect of your company is a smart move and can go a long way financially for any company these days. I think Boeing will be better off focusing on one aspect such as design and specializing in that area no matter what their financial situation is.

June said...

Boeing could be trying to counteract decreasing returns to scale. Perhaps the company has simply grown too large. It could be that management is decreasing the size of the company in order to increase the return on the scale of its production.

heather said...

I think a major factor could be the way the airline industry has changed the last few years. There are so many low cost leaders out there with Jetblue, Song, and Ryanair, who provide comfortable and affordable alternatives to other airlines. I may be incorrect, but I believe Boeing does more of its business with those airlines who are struggling to keep afloat, such as American and United. Maybe Boeing is just rethinking how it can remain relevant.

Dr. Tufte said...

This is all about competition. Boeing has traditionally sold big planes to big carriers. They are losing that market to Airbus (perhaps due to subsidization of Airbus).