Business Report of DeHavilland's Falling Comet Risk Management

Business Report of DeHavilland's Falling Comet Risk Management Executive Summary DeHavilland is the manufacturer of the pioneer jet-powered aircraft known as the Comet. The innovation failed to assure passengers and crew safety after three of its aircrafts crashed mid air within the first year of its release. The large window shapes, structures of the wing, and structure designs were cited as the cause of the accidents.

Boeing and DC-8 took up the technology and successfully launched jet-powered commercial aircrafts that provided maximum safety to passengers and crew.

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The two companies had studied DeHavelland, and the manner it handled the risks associated with the Comet. Both Boeing and DC-8 are presently the market leaders in the technology while the Comet is grounded. DeHavilland failed to initiate risk management strategies which would have helped it to address the problems with its aircrafts strategically and sort them out. The company suffered financial risk because the technological innovation was expensive and it required additional external funding.

The British government and the British Overseas Airways Corporation, abbreviated as BOAC, advanced the additional funding. Huge technical and commercial risks were also suffered as a result of the company’s excessive costs incurred in research and development, and the advantages its consumers had anticipated sharing, as a result.

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1.0 Introduction Business entities and companies have integrated the management of risk into their operations as a way of mitigating the dangers that they face by virtue of their activities. High risk has the potential of ruining business and rendering the organisation inert, especially if measures are not put in place to manage the surrounding risks. When an organisation pioneers a new technology, it faces a high risk mainly because there have not been previous incidences that provide an insight on how the risk can be handled effectively. This report details on the aspect of risk management with particular reference to DeHavilland’s pioneer jet-powered Comet airplane which was first released in 1952. Failure to appropriately manage the risk related with the Comet technology has since rendered the airplanes grounded and, instead, DeHavillands main competitor at the time, mainly Boeing, enjoys market leadership with the same technology.

2.0 Risk Types Related to the Comet Case 2.1 Technical risk Commercial aircrafts mainly manage to grow in their popularity by virtue of their consideration on critical issues such as maintaining high safety standards for passengers and crew. The Comet failed particularly in this area after the technology it employed in the manufacture of the first jet-powered aircraft failed to assure passengers and crew of their safety. Although the commercial jetliner technology was first introduced by DeHavilland through its Comet aircrafts, it was abound with technical problems that led to a series of fatal accidents within the first year of its introduction into the market.

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The allure of pioneering the aircraft market with a unique technology caused DeHavilland to marginalise on safety factors, a decision that in the end resulted in very dangerous quality trade-offs in the Comet (Artto 1997, p. 45). The design of large windows was discovered to be the reason behind the series of accidents that were involving the aircraft. The windows’ large shapes were causing stress cracks to form in the corners due to rapid pressurization, as well as cabin depressurization. These cracks would result in a catastrophic blow out once the cabins were pressurised and thus, leading to a gyroscopic moment. The comet’s wings also had low fatigue resistance, were prone to damage when rapidly fueling, and also had leaking fuel lines (Hoefer & Ahmed, 2010, p. 117).

2.2 Financial risk The Comet was a technology that particularly forced DeHavilland to get into very high financial risk as it sought to finance the project and make it a success (Sages & Grable 2010, p. 57). The British government had to chip in and support DeHavilland.

BOAC, which was to become the pioneer consumer of the Comet, offered huge financial assistance to DeHavelland after the entire costs of production were discovered to be too high to be managed single-handedly by the manufacturer. After the series of accidents had occurred and scared away potential consumers and buyers, DeHavilland was left with unsaleable aircraft and other useless tools and jigs which, altogether, had a cost value of £15 million. The military together with the civil producer were stared with towering bankruptcy as a result of the loss suffered.

The government ordered a total of eighteen modified Comet Twos in March 1955 for its Royal Airforce and advanced money to the company to help in further

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development. A further £6.5 million was awarded by the government in direct assistance so as to ease the cash flow crisis that had already built up at the company. In total, the government granted DeHavilland procurement contracts and loans worth £10 million (Hayward 1983, p. 20).

2.3 Commercial risk Owing to the fact that the Comet was developing a new technology which targeted to revolutionise the air transport with fast and highly reliable innovations, leading airline companies were angling to acquire the new aircrafts. This would help them build on their competitive advantages. The British Overseas Airways Company entered into a pact with the manufacturer that saw the airline company award financial assistance to DeHavilland in order to speed up the development, and roll out plans. The airline was full of hopes that the acquisition of the jet-powered aircraft would result in increased market performance and profitability, which would in turn enhance customer satisfaction.

The series of accidents that followed immediately after the Comet was released to the market, however, killed all the commercial interest that had been created by the technology. Consumers stopped ordering other aircrafts, and other airlines that had anticipated acquiring the dream jet-powered aircrafts for commercial purposes also put on hold such plans. These commercial risks put DeHavilland in a difficult situation as it could not create the necessary cash flow to meet its cost of production in the first instance (Cox 2008, p. 54).

2.4 Qualitative risk matrix Technical Risk

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The technical risk exposure, RE, is calculated thus; RE= P x L The RE represents Risk exposure while P and L represent the risk probability and loss respectively. Assuming the probabilities on the vertical margin range from 0.1 (rare) to 0.9 (certain), and the probabilities on the horizontal margin range from 0.25 (catastrophic) to 1.0 (negligible), the risk exposure for each case can be determined as follows: 1.0

0.75

0.50

0.25

(Negligible)

(Marginal)

(Critical)

(Catastrophic)

0.9

0.9

0.675

0.45

0.225

(Certain)

(High)

(High)

(Extreme)

(Extreme)

0.7

0.7

0.525

0.35

0.175

(Likely)

(Moderate)

(High)

(High)

(Extreme)

0.5

0.5

0.375

0.25

0.125

(Possible)

(Low)

(Moderate)

(High)

(Extreme)

0.3

0.3

0.225

0.15

0.075

(Unlikely)

(Low)

(Low)

(Moderate)

(Moderate)

0.1

0.1

0.075

0.05

0.025

(Rare)

(Low)

(Low)

(Moderate)

(Low)

Table 1 Financial Risk The financial risk exposure, RE, is calculated thus; RE= P x L

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The RE represents Risk exposure while P and L represent the risk probability and loss respectively. Assuming the probabilities on the vertical margin range from 0.1 (rare) to 0.9 (certain), and the probabilities on the horizontal margin range from 0.25 (negligible) to 1.0 (catastrophic), the risk exposure for each case can be determined as follows: 0.25

0.50

0.75

1.0

(Negligible)

(Marginal)

(Critical)

(Catastrophic)

0.9

0.225

0.45

0.675

0.9

(Certain)

(Low)

(Moderate)

(Moderate)

Extreme

0.7

0.175

0.35

0.525

0.7

(Likely)

(Low)

(Moderate)

(Moderate)

Extreme

0.5

0.125

0.25

0.375

0.5

(Possible)

(Low)

(Low)

(Moderate)

(Moderate)

0.3

0.075

0.15

0.225

0.3

(Unlikely)

(Low)

(Low)

(Low)

(Low)

0.1

0.025

0.05

0.0075

0.1

(Rare)

(Low)

(Low)

(Low)

(Low)

Table 2 Commercial Risk The commercial risk exposure, RE, is calculated thus; RE= P x L The RE represents Risk exposure while P and L represent the risk probability and loss respectively. Assuming the probabilities on the vertical margin range from

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0.1 (rare) to 0.9 (certain), and the probabilities on the horizontal margin range from 0.25 (catastrophic) to 1.0 (negligible), the risk exposure for each case can be determined as follows: 0.25

0.50

0.75

1.0

(Negligible)

(Marginal)

(Critical)

(Catastrophic)

0.9

0.225

0.45

0.675

0.9

(Certain)

(Low)

(Moderate)

(Moderate)

Extreme

0.7

0.175

0.35

0.525

0.7

(Likely)

(Low)

(Moderate)

(Moderate)

Extreme

0.5

0.125

0.25

0.375

0.5

(Possible)

(Low)

(Low)

(Moderate)

(Moderate)

0.3

0.075

0.15

0.225

0.3

(Unlikely)

(Low)

(Low)

(Low)

(Low)

0.1

0.025

0.05

0.0075

0.1

(Rare)

(Low)

(Low)

(Low)

(Low)

Table 3 3.0 Possible Benefits that would have been realised as a Result of Integrating Risk Management 3.1 Strategic business planning Risk management would have assisted DeHavilland in drawing up strategic business planning prior to the release of the Comet. A strategic business plan would have helped the company to position itself in such a way that it would have effectively competed with its industry rivals. At present, the Comet is grounded even after it

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pioneered a unique technology in the powering of aircrafts that had never been seen before. Although the integration of jet-powered commercial aircraft was the first of its kind at the time, DeHavilland failed to build on the strategic advantage by instituting risk management. Risk management at the company would have assisted in establishing a series of plans to cater for different possible business situations and scenarios. For instance, an alternative plan would have helped in restructuring the design as it emerged that the aircrafts were unsafe due to their design. The new design would ensure that safety for passengers and crew members is maximised. In this regard, therefore, the aircraft would have still existed even today but with very different and highly reliable safety measures in place (Dooley, Fowler & Miller 1996, p. 293).

3.2 Effective resources’ use When DeHavilland first announced success in the release of the new jet-powered commercial aircraft, it was a clear indicator of the company’s effective use of its creative ability, with the help of its engineers and other technical employees. The lack of risk management, however, has witnessed a failure on the part of the company in reutilising its resources so as to come up with new inventions and ideas. Although the Comet has since been grounded due to its failure in addressing safety, other resources owned by DeHavilland, such as knowledge and skill of its manpower, would have eventually been put into use in order to sustain the company’s operations.

3.3 Promoting continuous improvement The main reason that has resulted in the grounding of the Comet is not the numerous accidents the model was involved in soon after its release into the market, but rather the failure of its manufacturers to institute improvements on the initial model.

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Risk management would have aided in the elimination of risk through the promotion of new continuous improvements. After the first accident of the Comet occurred, a risk management strategy would have ensured that the company determines exactly what caused the accident. The rightful answers to such questions would have led to a gradual improvement of the risk factor until after the Comet would have been declared safe for use by passengers. However, these continuous improvements did not take place; instead, it was the British Civil Aviation Board, BCAB, which took the initiative to analyse the cause of the accidents. Even after the BCAB engineers gave out a verdict on the causes of the accidents, DeHavilland did not respond by putting in place continuous improvement efforts (Lam 2011, p. 131).

3.4 Reassuring stakeholders Immediately after the Comet was involved in a series of mid-air accidents, its main stakeholders at the time, including the British Overseas Airways Corporation, BOAC, withdrew the aircrafts after they were convinced that its services were not sufficiently safe. A risk management strategy by DeHavelland, however, would have ensured that the company moved with speed to reassure the stakeholders that all was well. This could only have been attained through evaluating the risks involved as a result of the aircraft’s dismal performance, and consequently putting mitigation efforts to curb any further accidents (Verzone 2009, p. 62). DeHavilland did not in any way attempt to restore the confidence of its stakeholders even after a recertification effort by BOAC saw services by the aircrafts reinstated.

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3.5 Limited unwelcome surprises and shocks A lack of risk management strategy at DeHavilland saw a lot of uncontrolled surprises and shocks emanate from the performance of the Comet. Although the company knew it had made a breakthrough that would for years play a significant role in enhancing its business performance, the technical problems on the Comet shocked the management with the series of accidents. Thus, risk management would have provided an avenue for the company to mitigate the unwelcome surprises as much as possible and save its image and performance track record in turn.

3.6 Quick grasp of opportunities The opportunity to benefit from the introduction of a new technology, the jetpowered commercial aircraft, missed out to be utilised and effectively enjoyed by DeHavilland as a result of failing to have a risk management strategy. Even though the opportunity started off on a bad footing following the occurrence of mid-air accidents within short intervals, a risk management strategy would have assured DeHavilland of an opportunity to build up on the underlying opportunity through the rectification of serious flaws that formed part of the Comet’s design. Presently, Comet’s main rival, Boeing, is enjoying the numerous opportunities that come with the technology. Risk management would have seen DeHavilland quickly change the design of the windows in order to reduce cracking, and consequently address the effects of the alternate cabin pressurisation and depressurisation. The resistance to fatigue by the aircraft’s wings and the leaking of fuel lines could have been subsequently addressed in order to enable the aircraft to become highly sufficient, and optimise fully on the opportunity that the jetpowered technology had initiated.

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The new Comet 4 which was a later release by DeHavilland, particularly, underlines the importance of grasping opportunities, which can only be realised after undertaking risk management. The company has since emulated the structure and characteristics of the Boeing and reproduced the Comet 4. The more reliable aircrafts have eliminated all the safety failures that were contained in the previous Comet designs, and consequently replaced them with security and safety features contained in the Boeing. The Comet 4 has already won confidence from many consumers, including the Royal Airforce, which uses them purposely as anti-submarine warfare aircrafts.

4.0 Critical Error Committed by DeHavilland in the Development of the Comet The Comet was designed in a way that fatigue cracks on its wide windows resulted in explosive propagation in the pressure cabin. Although almost all pressurised aircrafts experience fatigue cracking at some point in time, Comet’s main reason for getting involved in accidents was the fact that cracks on it particularly developed in high stress areas which was also unrelieved. In this context, after a short development of the cracks on a slow and progressive manner, the cracks got to a stage where additional propagation would result in a rapid and disastrous effect.

The third disintegration involving a Comet aircraft in May 1953 near Culcutta, India, was also occasioned by fatigue cracks in the aircraft’s fulsage. In particular, although the cracks continued expansion was the reason behind the failure, it was the flight loads which also played a contributory role, rather than the pressure loads. If the cracks had resulted due to high pressure differential experienced between the atmosphere, on the one hand, and the cabin interior on the other, the disasters could be blamed squarely on the uncertain design step taken by the manufacturer. The design of

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the Comet fulsage at the time was too complex to be understood. A significant amount of experience in the design of pressure cabin actually existed in the United States of America at the time. The experience and knowledge would have helped the Comet prevent the disasters it faced soon after release had DeHagilland taken the initiative to borrow and learn.

As opposed to the practise that the Americans were employing, the design of the Comet raised pressure differential to almost twice the service figures that were being observed at the time. Additionally, Comet’s designers opted for a less thick skin at any point, in comparison to what contemporary American aircrafts were using in all their critical areas. This resulted in the application of larger loads on the structure of the aircrafts which, unfortunately, could not bear the weight involved. Historically, DeHavilland brands of aircrafts characteristically bore weaker structures, which explain the unimpressive record about the company. Of the eight different series of aircraft bearing the DH numbers exceeding 100 which have ever flown, there have been at least four instances of the series experiencing in-flight disintegrations. In all these instances, the passengers and crew on board perished as a result of the accidents.

The Heron, which is a fifth series of the aircrafts, missed the same fate suffered by the earlier series mainly because of high vigilance by a Butler Airlines ground engineer. Had the fuselage of the Comet 1 not caused problems then, the wing structure of the aircrafts would have resulted in serious difficulties due to fatigue. Overly, analysing the above facts points to one critical error that was committed by the company during the design process of its aircrafts; DeHavilland did not evaluate its

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technology and style against other popular practices that were being used by competitors at the time. Compared to the new Comet 4, it is clear that DeHavilland has addressed all structural issues that touched on its previous series. It is quite striking that the new Comet 4 has quite a particularly close relationship with Boeing 707, sparing no expense and trouble to ensure the new aircraft is free from all the previous structural troubles that affected its earlier designs (Gunn 1988, p. 130).

5.0 The Technological Advancement Cost of Failure The world of business has transformed a great deal such that every player seeks to integrate technology into their operations as a way of building competitive advantage, and accurately satisfying customers wishes and expectations. As such, every business enterprise is spending enormous amounts of resources to determine unique technologies that can enable it occupy the pole position in as far as competition and performance is concerned. New technologies that are unique, and which provide very high opportunities and potentials of competitive advantage also have very high risk chances. Thus, when a company discovers or invents a unique, high potential technology, there are higher probabilities as well that the company might fail terribly in utilising the same for its own advantage.

This is because a new technology that is unique in the market often does not have past experiences and knowledge to give its users a chance to handle the technology effectively during hard or challenging times. Despite the huge spending on the technology, including research and development and acquisition of the right expertise, the technology may fail to deliver as intended and, therefore, remain useless to its initiator. However, other competitors and rivals in the industry watch out carefully

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how the initiator attempts to manage it and carefully take note of the mistakes committed, as a result. Once the initiator pulls out due to the high costs involved in new technologies, the rival firms quickly take it up and transform it into a business opportunity.

DeHavilland failed to manage the related risks of the innovation appropriately after utilising its resources to the maximum, and making tangible progress with the jetpowered commercial aircraft. The commercial aircrafts were involved in a series of accidents, but the company did not take the right planning and procedure to handle the situation. Its main competitors, the Boeing and DC-8, carefully took up the technology but avoided committing the same results that its pioneer, Comet, committed. The Comet has since been grounded, while Boeing is today the market leader with a lot of its business opportunities resulting from the jet-powered technology that was pioneered by DeHavilland’s Comet.

6.0 Conclusion DeHavilland was the first aircraft manufacturing company to announce a radical breakthrough in the manufacture of jet-powered commercial aircraft soon after the Second World War in 1952. DeHavilland pioneered the innovation, although the company was in stiff competition with American manufacturers Boeing to introduce the new technology. Today, however, all the Comet aircrafts that were manufactured by DeHavelland have been grounded while Boeing continues to register market leadership with the technology. Poor risk management resulted in the poor performance after Comet was released into the market. DeHavilland failed to address the critical areas that were causing its aircrafts to cause mid-air accidents, particularly on the structure of

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the aircraft that could not bear the load. As a result, its main competitors Boeing and DC-8 watched carefully at the mistakes that DeHavilland committed and avoided them as they pursued with their own plans. In the context of technological innovation, the Comet particularly paid a huge price for its failures even though it pioneered the jetpowered technology whose opportunities are currently enjoyed by market leaders Boeing and DC-8.

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54-79 Dooley, R, Fowler, D, & Miller, A 1996, 'The benefits of strategic homogeneity and strategic heterogeneity: Theoretical and empirical evidence resolving past differences', Strategic Management Journal, vol. 17, no. 4, pp. 293-305 Gunn, J 1988, High corridors: Qantas, 1954-1970, University of Queensland Press, Queensland Hayward, K 1993, Government and British Civil Aerospace: A case study in post-war technology policy, Manchester University Press, Manchester Hoefer, M, & Ahmed, S 2010, 'Risk response allocation model: A linear approach using perceived and technical risk', Information Knowledge Systems Management, vol. 9, no.

2, pp. 117-125 Lam, M 2011, 'The joint effect of performance evaluation windows and project risk on continuous improvement initiatives: Evidence from the balanced scorecard', Journal Of Organizational Culture, Communications & Conflict, vol. 15, no. 1, pp. 131-145 Sages, R, & Grable, J 2010, 'Financial numeracy, net worth, and financial management skills: Client characteristics that differ based on financial risk tolerance', Journal of Financial Service Professionals, vol. 64, no. 6, pp. 57-65 Verzone, RD 2009, 'Reassuring clients that all is not lost', Best's Review, vol. 110, no. 5, p. 62

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