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Boeing New 787 Dreamliner Developing Problems

In: Business and Management

Submitted By jplarach
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Individual assignment - Boeing DQ7.

In April 2004, Boeing launched the new 787 Dreamliner with 50 firm orders from All Nippon Airways of Japan. Boeing aimed to secure 200 firm orders by December. However, by December 2004, Boeing had only 52 orders. Then Airbus introduced the A350, a derivative of the existing A330, enhanced with a new wing, more fuel efficient engines, and other new technologies. Airbus's Chief Commercial Officer, John Leahy, predicted that the A350 would draw Boeing customers and so “put a hole in Boeing's Christmas stocking”. (Source: “350: Airbus's counter-attack”, Flight International, January 25, 2005.)
a) Draw a timeline to mark when a manufacturer incurs the costs of development and production.

As you can see in the image value obtained from an another Commercial aircraft manufacturer, the development process takes about 6 years before the first aircraft its delivered. Development and production costs are incurred long before the delivery and test of the aircraft.
Ex: of developing

b) How would the costs of developing the 787 Dreamliner vary with the total quantity manufactured?
The production of the 787 have both fix a variable cost, where fix cost doesn’t depend on the quantity produced. For example the non-recurrent cost of development or R&D is fixed or sunk cost independent from the quantity produced. Since average cost is the result of dividing the total cost by the quantity produced, as much unit of 787 are produced as cheaper will be the unit cost.

c) Referring to Figure 7.5 (page 137), compare Boeing's average cost with cumulative production of 50 and of 200 units. (Note that, in Figure 7.5, the average cost is not absolute but rather indexed to 100 with production of the first unit.)

Units produced Aprox average cost
50 28
200 18

d) Suppose that the price of a Boeing 787 is $120 million and that...

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