Ironically, while the number of defense aircraft purchased by the DOD continues to fall, demand for commercial airplanes has been increasing steadily to meet the needs of the growing world economy. The number of worldwide passenger flights between 1992 and 1995 grew at approximately 6.5 percent per year.3 If unabated, this trend towards increased travel will result in a worldwide demand of about 16,000 new airplanes over the next 20 years, worth a total of more than $1 trillion in 1995 dollars.4 Despite its glowing sales projections, however, the commercial aircraft sector is facing pressures of its own. The two major players in the market, Boeing and Airbus, are fiercely vying against one another for sales contracts around the world.
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The U.S. aircraft industry is going through a process of rapid and fundamental transformation on many levels. Drastic changes in both the level and composition of customer demand for commercial as well as military aircraft, a frenzy of consolidations
in the industry, the emergence of lean manufacturing, and the “globalization” of supplier networks are making the aerospace sector very different from what it used to be. But the new realities of the industry go further than merely redefining the role of the
independent aircraft company in its changing environment; they are also reshaping the very boundaries of each firm in the aircraft sector. It is therefore crucial for managers in the industry to understand one of the principal mechanisms by which a company
controls the scope of its in-house activities: make-buy decisions.
This thesis approaches the topic of make-buy decisions in the U.S. aircraft industry in four ways. One, it offers insight into the circumstances and criteria behind make-buy decisions in the industry by examining two case studies involving commercial and
defense products, respectively. The case studies focus as well on the vertical relationships among the companies examined, and how these relationships are realigned as a result of the prime’s make-buy decisions. Two, this thesis proposes a framework
that explains ex post how managers in the industry decide to make or buy a particular component or process, and that provides guidelines for approaching future make-buy decisions. The framework concentrates on two major factors that play key roles in the aircraft sector’s make-buy judgments: the degree of technological maturity of the component or process, and the relative competitive market position of a firm with respect to the particular technology underlying the component or process. Three, this thesis recommends a make and buy strategy that large companies in the industry should consider for securing and maintaining a leading role in their respective core competencies. Four, it addresses the principal ways in which the aircraft industry’s make-buy decisions may be affected by or may eventually lead to changes in the policies of the U.S. government.