In 1990 Boeing was set to introduce the 777, the world’s largest and longest haul twin-bodied jet at the time. The 777 would serve the medium and long haul markets like the expanding Asian market. Boeing’s main competitors, Airbus Industries and McDonnell Douglas, had already announced plans to produce airliners that would compete directly with the 777. Analysts believed that the intense competition between the manufacturers would serve to depress prices for the airliners. Lower prices for aircraft would mean lower earnings.
As Boeing’s CEO, Frank Shrontz promised to increase earnings and return on equity. Boeing had a history of making money when its competitors did not, but Mr. Shrontz wanted higher returns. The airline industry was characterized by large cash outflows for R&D and manufacturing and long payback periods over long life cycles for each new airframe design. Companies had to have deep pockets to keep the operation going while waiting for a return on their investments. If Mr. Shrontz could increase the return on equity for Boeing, it would increase the likelihood of Boeing’s continued success well into the future.
The 777 would be manufactured differently than previous Boeing aircraft. Various efforts would be undertaken to increase demand and reduce manufacturing costs of the 777 in an attempt to create positive cash flows sooner. To increase demand, the 777 would be the first fly-by-wire Boeing aircraft, a feature Boeing’s competitors already added to their aircraft. Boeing also made an effort to get their large customers involved in the design process from the beginning in an effort to increase its competitive advantage and long-term demand for the 777. As a cost saving measure, the design and manufacturing teams would work togeth ...