Harvard Case - The Boeing Tanker Lease Deal (A)
"The Boeing Tanker Lease Deal (A)" Harvard business case study is written by Martin Hrivnak, Elizabeth K. Keating. It deals with the challenges in the field of Strategy. The case study is 24 page(s) long and it was first published on : Aug 9, 2006
At Fern Fort University, we recommend that Boeing proceed with the tanker lease deal, but with significant modifications to address the ethical concerns and mitigate potential risks. This recommendation is based on a comprehensive analysis of the situation, considering the strategic implications, financial viability, and ethical considerations of the deal.
2. Background
This case study focuses on Boeing's decision to lease KC-767 tankers to the US Air Force. The deal was awarded to Boeing despite the fact that the company had partnered with a controversial figure, Darleen Druyun, who had previously worked for the Air Force. The deal faced significant scrutiny and criticism due to the perceived conflict of interest and potential ethical violations.
The main protagonists are:
- Boeing: A leading aerospace company seeking to secure a lucrative government contract.
- Darleen Druyun: A former Air Force official who joined Boeing and played a key role in securing the tanker deal.
- US Air Force: The customer seeking to acquire new tankers for its fleet.
- The Public: Concerned about the ethical implications of the deal and potential corruption within the government procurement process.
3. Analysis of the Case Study
Strategic Analysis:
- Competitive Advantage: Boeing sought to leverage its strong position in the aerospace industry and its existing relationship with the US Air Force to secure the tanker contract. However, the deal's ethical implications jeopardized its reputation and potential long-term competitive advantage.
- Porter's Five Forces: The case highlights the intense rivalry among aerospace companies competing for government contracts, the high bargaining power of the US government as a customer, and the threat of new entrants with innovative technologies.
- Value Chain: The deal involved multiple stages of the value chain, from product development and manufacturing to marketing and customer service. The ethical concerns surrounding the deal affected the value chain by compromising Boeing's reputation and potentially impacting future contracts.
- SWOT Analysis:
- Strengths: Boeing's strong brand, technological expertise, and existing relationships with the US government.
- Weaknesses: Ethical concerns surrounding the deal, potential legal repercussions, and reputational damage.
- Opportunities: Expanding market share in the defense industry, leveraging technological advancements, and developing new products.
- Threats: Competition from other aerospace companies, potential government regulations, and public scrutiny.
Financial Analysis:
- Financial Viability: The tanker lease deal presented a significant financial opportunity for Boeing, but the potential costs associated with legal battles, reputational damage, and future contract losses could outweigh the financial benefits.
- Risk Assessment: The deal carried significant risks, including legal challenges, reputational damage, and potential loss of future contracts.
Ethical Analysis:
- Corporate Governance: The case highlights the importance of strong corporate governance practices to prevent conflicts of interest, ensure transparency, and maintain ethical conduct.
- Corporate Social Responsibility: The deal raised concerns about Boeing's commitment to ethical business practices and its responsibility to the public.
4. Recommendations
- Terminate the Tanker Lease Deal: Given the significant ethical concerns and potential risks, the most prudent course of action is to terminate the deal. This would demonstrate Boeing's commitment to ethical conduct and preserve its reputation.
- Implement Comprehensive Ethical Guidelines: Boeing should establish clear and comprehensive ethical guidelines for all employees, particularly those involved in government contracts. These guidelines should address conflicts of interest, transparency, and ethical decision-making.
- Strengthen Corporate Governance: Boeing should strengthen its corporate governance practices by implementing robust internal controls, independent audits, and whistleblower protection programs.
- Focus on Sustainable Competitive Advantage: Instead of relying on unethical practices, Boeing should focus on developing sustainable competitive advantages through innovation, product differentiation, and customer focus.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Terminating the deal aligns with Boeing's mission to be a responsible and ethical company.
- External Customers and Internal Clients: The public's perception of the deal has significantly damaged Boeing's reputation, impacting its relationships with both external customers and internal clients.
- Competitors: By demonstrating ethical conduct, Boeing can gain a competitive advantage by attracting customers and employees who value ethical business practices.
- Attractiveness: While the deal presented a financial opportunity, the potential costs associated with the ethical concerns and risks outweigh the financial benefits.
6. Conclusion
The Boeing tanker lease deal presents a clear case study of the potential consequences of unethical business practices. While the deal offered a short-term financial gain, it ultimately jeopardized Boeing's long-term strategic goals and reputation. By terminating the deal and implementing comprehensive ethical reforms, Boeing can rebuild trust with its stakeholders and position itself for sustainable growth.
7. Discussion
Alternatives:
- Proceed with the deal but accept the potential risks: This option carries significant risks, including legal challenges, reputational damage, and potential loss of future contracts.
- Negotiate a revised deal with stricter ethical safeguards: This option could mitigate some of the risks, but it may not be sufficient to address the public's concerns.
Risks and Key Assumptions:
- Risk of legal challenges: Terminating the deal could lead to legal challenges from the US government or Boeing's partner.
- Reputational damage: Even if the deal is terminated, Boeing's reputation may be permanently tarnished.
- Loss of future contracts: The ethical concerns surrounding the deal could make it difficult for Boeing to secure future government contracts.
Assumptions:
- The public's perception of the deal is negative and will not improve without significant action from Boeing.
- The US government will not pursue legal action against Boeing for terminating the deal.
- Boeing is committed to ethical business practices and is willing to prioritize its reputation over short-term financial gains.
8. Next Steps
- Immediate termination of the tanker lease deal.
- Implementation of a comprehensive ethics program within 3 months.
- Appointment of an independent ethics committee within 6 months.
- Public apology and commitment to ethical business practices within 1 month.
- Development of a long-term strategic plan focused on sustainable competitive advantage within 12 months.
By taking these steps, Boeing can begin to rebuild trust with its stakeholders and position itself for a more ethical and sustainable future.
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Case Description
The September 2001 terrorist attacks in the United States precipitated US military actions in Afghanistan and Iraq, increasing demand for certain military assets. Domestically, the attacks crippled an already struggling airline industry, hurting domestic aircraft orders at Boeing Company, the only US producer of large-frame commercial aircraft. Boeing's supporters on Capitol Hill proposed procuring converted Boeing 767 airframes to replace the Air Force's aging fleet of aerial refueling tanker aircraft. Yet, the Air Force could not fit a purchase of the tanker aircraft into its budget without sacrificing other key programs. Leasing the aircraft through a special purpose entity was suggested as a solution. Critics questioned the cost, need, and structure of the tanker deal and pushed Secretary Donald Rumsfeld to reject the agreement. HKS Case Number 1845.0
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