Transcript Delivering Additional Revenues of $xxx mm by 2014

E2 - Ensuring Success: B787
Enhancing Sustainability
Karmen Chan – Airplane Programs
Jonathan Loh – Commercial Sales
Berton Lim – Engineering, Operations & Tech.
Andy Neo – Finance
1
The Current Market Outlook
Outsourced Manufacturing
– Growing Trend
Refocusing: High Value,
Core Competence
Emerging Markets,
Emerging Threats
Countering Threats,
Sustaining Advantage
Standards
BioFuels, Emissions
Standards
Exogenous Events
Shorter Economic BoomBust Cycles
2
E2: Ensuring & Enhancing
Strong New Ecosystem
Ensuring
Success:
B787
Enhancing
Sustainability
Core Competence & Competitive Advantage
3
Managing Labor & Vendor Relationships
will Deliver the B787 On Time, On Target
Timeliness
& Reliability
?
Communicates
and convinces
customers
Improved
Quality
Ensure
4
Ensuring Vendor Performance: Tuning-Up &
Providing Suppor
OBJECTIVES
Align process &
quality standards
Continuous
improvement in
processes
Ensure
The Boeing Vendor
Tune-Up Program
Execution
Knowledge sharing
Focus groups with
MoonShine team
Every 2 months
Periodical refresher
courses
Global MoonShine
mobile teams
Regional Mobile
team to support
5
Training & Rewarding the
NextGen Boeing Workforce
Key concerns
Recommendations
Competitive
compensations
Existing formula with periodical changes
Long-term
incentivization
A shift to variable wage- Collective
Business Performance
Job security
Training program: Increase skill sets to
perform higher value-adding functions
Ensure
6
Managing Labor & Vendor Relationships
will Deliver the B787 On Time, On Target
Timeliness
& Reliability
Improved
Quality
Ensure
The Boeing
Vendors TuneUp Program
Rewarding and
Training
NextGen
Boeing
Workforce
Communicates
and convinces
customers
7
E2: Ensuring & Enhancing
Strong New Ecosystem
Ensuring
Success:
B787
Enhancing
Sustainability
Core Competence & Competitive Advantage
Ensure
Enhance
8
Buy-to-Build Ratio: Are we
Outsourcing too much?
Ensure
Enhance
9
Buy-to-Build Ratio: Are we
Outsourcing too much?
Situation:
70% outsourcing
down to
approximately
60%
1.
2.
Implication:
Built up
experience &
complex
knowledge
Result of
purchase of
Vought
Testing
commenced
Ensure
Enhance
1.
1.
Steep
learning
curve
Leaders in
Global
Supply Chain
Mgmt
Conclusion:
Leverage on
787 experience
for future
1.
Inevitable of
the future
1.
Establish
leadership
1.
StarShine to
support
outsourcing
10
Emerging Threats: China at the Top
Ensure
Enhance
11
Resulting Implications of Threats
Situation:
Economics
Influence
Outsourcing
Implication:
Manufacturing
more Overseas
- BUT
1.
Outsourcing not
for cost
1.
Financial Risk
Reduced
2.
Manufacturing
less of an
advantage
tomorrow
2.
Allows Foothold
in Key Markets
Ensure
Enhance
3.
Allows Focus on
Core
Competency
Solution:
Focus on Higher
Value Work
1.
Design &
Systems
Integration
2.
Excel in Project
Mgmt
3.
Making it difficult
to replicate
12
With the Threat: Our Core Competencies
& Advantages will be:
Gold Standard in Project Management
Higher Value Work
Foundation: Innovation
Ensure
Enhance
13
What’s next beyond 787?
Starshine
• Specialised unit
focusing on Project
Management
Excellence
Ensure
Enhance
Nanotechnology
• Enhance aircraft
performance through
better materials
14
StarShine: Developing
Project Management Excellence
Starshine
Goals
Functions
Ensure
• Reach new frontiers in project management
• Improve programs time-to-market speed
• Support and collaborate with program teams
• Ensure good performance in order to reduce
developmental delays; keep production schedule
on time
Enhance
15
Why StarShine?
1
Engagement
• Assist, support program teams in project management
• Share best practices – across industries/internally
2
Excellence
• Good ideas from collaboration between experts
• Timely delivery of planes, improvements in production processes
3
Epitome
• Improve project management capabilities
• Attain sustainable competitive advantage that are not easily
replicated; create ecosystem of gold standards
Ensure
Enhance
16
Nanotechnology
Nanotechnology
• Open new frontiers with emerging technology
Goals
• Explore long-term potential of enhancing aircraft
performance
Source: U.S. Committee on Aeronautics Research and Technology
• Apply new composite materials to aircraft design
Functions
Ensure
• Research work with UW Centre of Nanotechnology
Enhance
17
Why Nanotechnology?
1
Impact
• Relevant to most aircraft components and systems
Source: Bax and Willems Consulting
• Eg: Airframes, windows
2
Improvement
• Better material properties that boost functional performance
• Added protection during harsh weather conditions
3
Innovation
• Build up collective suite of capabilities from investment
• Be the leading edge of innovation and material science
development
Ensure
Enhance
18
E2: Ensuring & Enhancing
Strong New Ecosystem
Ensuring
Success:
B787
Enhancing
Sustainability
Core Competence & Competitive Advantage
Ensure
Enhance
19
Financial Implications with our
Recommendations
Net Profit 2010F - 2024F
6000
Incremental Profit of
USD 3.5 Billion
In USD mil
5000
4000
3000
2000
1000
0
Incremental Net Profit
Ensure
Enhance
Financial
Current Growth Path of Net Profit
20
Reaffirmation of Our Strategy
with Positive NPV
Operating Cash Flow 2010F – 2024F
800.00
NPV
USD 3.63 Billion
Value in n USD mil
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
Ensure
Enhance
Financial
21
Financial Assumptions
& Justifications
 15 Year Time Horizon
 3 Stage Growth Model
Valuation
Assumptions
 CAGR Growth Rate of 12.96%, followed by 6%
Terminal Growth Rate of 3%
 WACC of 10.71%
 Commercial Airline to be key driver of growth
Qualitative
Assumptions
Ensure
 Assumed On Schedule Delivery of the 787
 Treating Nanotechnology as a call option
Enhance
Financial
22
Identifying the
Risks
Sensitivity Analysis
12,000.00
10,604.07
9,870.9
10,000.00
8,000.00
6,609.02
6,000.00
4,000.00
2,000.00
2,894.42
0.00
-2,000.00
-2,622.77
-4,000.00
WACC (+-2%)
Ensure
Enhance
Nanotechnology Growth (+-3%)
Financial
-3,359.94
Nanotechnolgoy Procurement (+3%)
23
Milestone & Implementation:
E2: Ensuring & Enhancing
2010
ENSURE – Tune-Up &
Global MoonShine Program
2011
2012
2013
2014
2015
2016
2017
2019
2020
2021
-- Due Diligence & Approval
-- Planning & Development
Execution & Quarterly Review
-- Union Negotiations
Execute & Quarterly Review
ENSURE – Wage
Restructuring
-- Union Negotiations
Execute & Quarterly Review
ENSURE – Training
Program
ENHANCE – StarShine Team
-- Development & Staffing
--Training & Field Trips
Execution & Quarterly Review
--Training &
Field Trips
--Training &
Field Trips
--Training &
Field Trips
Global Educational Institution Research Tie-Ups
Continuation of PhantomWorks Research & Development
Commercial Application for New Products & Variants--
ENHANCE Nanotechnology
Ensure
2018
Enhance
Financial
Milestones
24
Milestone & Implementation:
E2: Ensuring & Enhancing
2022
2023
2024
2025
2026
2027
2028
2029
2030
ENSURE – Global
Execution & Quarterly Review
MoonShine Program
ENSURE – Wage
Restructuring
Execute & Quarterly Review
ENSURE – Training
Execute & Quarterly Review
Program
Execution & Quarterly Review
ENHANCE – StarShine Team
--Training &
Field Trips
--Training &
Field Trips
--Training &
Field Trips
Global Educational Institution Research Tie-Ups
ENHANCE Nanotechnology
Ensure
Commercial Application for New Products & Variants
Enhance
Financial
Milestones
25
E2: Ensuring & Enhancing
Strong New Ecosystem
Strengthen
Vendor
capabilities –
Tune-Up
Stabilize Labor
Relations –
Satisfaction &
Productivity
StarShine
Program – Gold
Standard in
Project Mgmt
Ensuring
Success: B787
Enhancing
Sustainability
Forever New
Frontiers Nanotechnology
Core Competence & Competitive Advantage
Ensure
Enhance
Financial
Milestones
Summary
26
Question & Answer
27
Index – Presentation & Supplementary Slides
Presentation Slides
1.
Current Market Outlook
2.
Overview
3.
Tuning-Up & Providing Support
4.
Training & Rewarding NextGen
5.
Therefore Ensuring Success: B787
6.
How much are we outsourcing
7.
Implications of outsourcing
8.
Emerging Threat Review: China
9.
Implications of China Threat
10.
Our Core Competence & Advantages
11.
What’s Next
12.
Starshine
13.
Why Starshine will succeed
14.
Nanotechnolgy
15.
Why Nanotechnology will succeed
16.
Pro-forma Net Profit with recommendations
17.
Positive NPV
18.
Assumptions & Justification
19.
Sensitivity Analysis
20.
Implementation
Supplementary Slides
1.
Resilience & Customer Centricity
2.
Our 787 vendors
3.
What has been done to fix 787 program
4.
Surveilance tools
5.
Do we have the right partners?
6.
Too much outsourced overseas argument
7.
Compensation packages
8.
Holistic packages
9.
What is Moonshine?
10.
BioFuels Consideration
11.
Why not a SonicCruiser?
12.
Outsourcing reasons
13.
Why not Backward Integrate with Vendors??
14.
Airbus A350XWB v. Boeing B787 specs
15.
Cargo Market
16.
Importance of designing the right plane
17.
Commercial aircraft industry analysis
18.
StarShine Structure
19.
StarShine roles
20.
Nanotechnology details
21.
DCF
22.
Pro-Forma Income Statement
23.
Delivery Schedule (1)
24.
WACC Calculations
25.
Cost of Debt Calculations
26.
Tax rate
27.
Boeing brief financial performance
28.
Profit
29.
Stability of Boeing
30.
Opportunity costs assumptions
31.
Growth rates
32.
Positive trends for nano
28
Resilience to new technologies &
Customer-centricity
Success with new technologies
– First commercial aircraft to be
designed entirely on computer via
CAD software system from Dassault
Systemes & IBM
– Success: Physical mock-up of nose
section built to verify results of
program and was successful
Customer centric Approach
– Even wider fuselage cross-section
demanded by airlines
– Fully flexible interior configurations
– Operating costs lower than any B767
• Opted for twin-engine
configuration given past design
successes
• Largest diameter turbofan
engines of any aircraft
29
Vendors for B787 Project
United States









Boeing Charleston (announced as
Vought Aircraft Industries)
Spirit Aerosystems Inc
Hamilton Sundstrand
Rockwell Collins
Honeywell
Goodrich
General Electric
Moog Inc
Toray Industries
Europe








Japan/Korea






Fuji Heavy Industries
Kawasaki Heavy Industries
Mitsubishi Heavy Industries
Panasonic
Bridgestone
Korean Airlines - Aerospace
Division
Alenia Aeronautica
GE Aviation
Messier-Dowty
Dassault Systèmes
Eaton Aerospace
Rolls-Royce
Thales
GKN Aerospace
China




Shenyang Aircraft Coporation
BHA Aero Composites
Manufacturing
Hafel Aviation, Harbin
Chendu Aircraft
30
What has been done?
• Virtual collaboration environments supporting
development activities by suppliers in multiple
countries.
– Product lifecycle management software allows for
collaboration through design and development phase in
performing all engineering tasks and capturing design
errors prior to production
– RFID and unique identification and maintenance and
inspection data conforming to industry standards
• Surveillance Tools to monitor
• Ad-hoc, short term quick fixes
Surveillance Tools to Monitor Vendors’
Performance
Source: http://www.boeingsuppliers.com
32
Do we have the right partners?
Purpose of outsourcing
Spread risk
Seek financial
resources
Lower spending on
R&D
Gain greater
access to new
markets
Asia Pacific
Boeing & Japan
•Japan responsible for approximately
35% of designing and manufacturing
airframe structures for B787
•R&D work on new tech for Boeing,
including composites for B787
•Japanese government subsidy: up to
USD$3billion
Boeing & China
•Gain access to new markets: China will
be the world‘s second largest market for
new commercial airplanes with a
projected demand for 2,600 aircraft
valued at $213 billion over the next 20
years.
•Source: Boeing Current Market Outlook 2009
Yes, foothold in Asia Pac established, but faced with challenges from individual host
countries and Airbus
33
Do we have the right partners?
Asia Pacific
• Airbus engages in industrial offset agreements
with older Airbus models
– More difficulties faced in Japan than in China
• Boeing’s involvement in Japan: Establish
leadership position in wing design and composite
tech  Ability to deliver quality products, which is
on par with US and European manufacturers
Do we have the right partners?
However,
Supply chain problems attributed to
new revolutionary process AND
product
Same manufacturer for 777 and 787: Vought
Aircraft Industries
Vendor for 777- Aircraft Structural
Components: Nose beams, bulkheads,
longerons, edge frames
Vendor for 787- Aft Fuselage
• But, inadequate vendor capabilities
to cope with new technology required
 Boeing had to buy out Vought’s
share and follow up with changes.
Utilizing learning points to refine global
supply chain concept
• Difficult to control lower-tier vendors’
quality and process
•Not to backward integrate, but align
and standardize process and quality
standards throughout entire supplier
network
•Cascade from first-tier vendors
•Best done with Starshine
35
Too much outsourced overseas?
Supply Chain problems that ensued
•
•
•
•
•
•
•
•
•
Design Issues
Weight Issues
Engine Issues
Certification Issues
Production Issues
Travelled Work
Lay-up Rates
Ramp Up
Schedule Issues
•Parts Shortages
• Fastener Shortage
• Travelled Work
• Conformity and Quality Assurance
Issues
• Configuration Control
• Shop Floor Control
• Late Definition
• Engineering Changes
• Production Ramp-up Issues
36
Too much outsourced overseas?
EXAMPLE: Travelled Work (Production Issues)
1. Assembly work was found to be completed incorrectly only after assemblies
reached the final assembly line. Root causes are:
• Oversight not adequate for the high level of outsourcing in assembly and integration
• Qualification of low-wage, trained-on-the-job workers that had no previous aerospace
experience
2. Significant amount of change engineering work
• Inadequate supplier capabilities in design, e.g. Vought had no engineering department
when selected
• Oversight not adequate for the high level of outsourcing in detailed design
• Weight growth and subsequent weight saving changes
• Producitbility improvements
3. Late Definition
• Boeing admitted responsibility for a shortfall in wiring shipments
• Late specification indicated by supplier as root cause
Source: Boeing 787 Lessons Learnt, October 2008, Burkhard Domke, Head of Engineering Intelligence, Airbus
A need to implement more stringent selection and due diligence in checking first-tier vendor’s supplier
37
network for future projects
Compensation Packages: Learning
Points from 2008 Strikes’ Settlements
Why Boeing needs to avoid a repeat of 2008 Strikes


Estimated $685 million pretax profits lost in the Machinists’ Strike’s first 24 days
(Boeing’s third quarter earnings, 2008)
Adding in extra expenses incurred to recover to pre-strike rates of production
 Paying suppliers for overtime
 Expedited shipping etc
Source: The Seattle Times, Boeing, IAM
(http://seattletimes.nwsource.com/html/boeingaerospace/2008319765_machinists28.html)
Key concerns of workforce
“Leadership at the International Association of Machinists and Aerospace Workers had said
Boeing's offer fell short in areas such as job-security commitments, cost of living
adjustment rates and medical-plan expenses.”
38
Compensation Packages: Learning Points from 2008
Strikes’ Settlements
BEFORE
AFTER
General
Wages
Increase
Raises of a total 11 percent over the life of the
contract.
Raises of a total 15 percent over the four years
of the contract.
Min wage
Raised $2.28.
Raised $2.28. In addition, recent hires get a
supplemental raise to boost them past the
entry level for new hires.
Pension
A basic monthly pension of $70 per year of
contract
A basic monthly pension of $81 per year of
service for the first three years, $83 in the
fourth year
Lump-sum
Bonus
The greater of either $2,500 or 6 percent of
gross pay including overtime, paid in the first
year of the contract.
The greater of either $5,000 or 10 percent of
gross pay including overtime, paid in the first
year of the contract.
Company
incentivepay Plan
As of 2010: 10 days' extra pay for reaching
profit and productivity targets and up to 20
days' pay for exceeding them.
Machinists not included
Medical
Plan
changes
•In the traditional plan with zero monthly
premium, out-of-pocket maximums would rise
50 percent for families.
•Monthly premiums for the HMO plan would
drop 24 percent.
No increases to employees’ costs
39
Holistic Compensation
• Kerr (1975) recognized the existence of a divergence of goals and
motives among members of the organization which led to nonsimilar outcomes. Often, subordinates respond to reward systems
by displaying behavior they perceive as rewarding.
The need for aligned performance and reward cultures with Boeing’ corporate
growth strategies
•Go further than simply telling workforce, but to genuinely understand why
these objectives mattered to the business.
•Launch compensation program and refine based on workforce's experiences
and inputs
40
Boeing: Moonshine Shop
WHAT IS THE MOONSHINE SHOP?
• A lean manufacturing team that uses fast and inexpensive prototyping
to develop and prove a concept, prior to full implementation
• Purpose: “to be creative, to solve problems, be creative with solutions”
• Combined:
–
–
–
–
Lean manufacturing principles
Cross-disciplinary teamwork
Iterative, prototyping approach to new product and process design
Changes to existing products and processes
Brainstorming
Try-storming
41
Boeing: Moonshine Shop
SUCCESS?
• Hay Loader on the
Assembly Line
• The old crane &
container process took
one day-shift crew of 15
people & one night-shift
crew of 15, with a total of
16 hours to install one
set of passenger seats
 Cost and time savings: Took
4 people 28-32 minutes to
install a full set of seats
42
BioFuels: The Complication of Delivery
• Relies on cooperation of multiple parties –
engine makers, airlines, energy co, aircraft
manufacturers, airport operators,
regulatory bodies
• Infrastructure to implement it requires
investment and commitment
• BUT we recognize it diversifies source of
fuels, green and responsible
43
BioFuels
• Future is already present – nothing
groundbreaking, successful test flights
aplenty
• BUT standards yet to be decided, testing,
regulatory approval all in process
• GTL the most feasible near term alternative
conventional fuel – BUT not environmentally
friendly
• Summary: Continue focus on developing and
ensuring leadership in 2nd Gen BioFuels that
can be used in aviation
44
Why not revive the SonicCruiser?
• Developed for speed, timeliness, and range
• Example for a Sydney-NYC Mission, it shaves 3hours per flight in a
usual 21hr long flight
• The range of 9000nm, possibly 10,000 is demanded most premium
customers ceteris paribus
• Cost despite mass production volumes of jetliners will increase from
increase fuel consumption -- 15-20% more fuel burn- counter
intuitive @ this point in time
• shorter economic boom-bust cycles make sonic cruisers @ this
point in time a risk airlines not willing to take
• But possible in medium term
– Fuel technology for biofuels/alternatives/conventional fuel stablises to
some new standard for aviation industry
– Material costs for largely composite frame deflated - moore's law
– Enough demand from consumers for speed, timeliness, willing to pay for
airlines to order
45
Reasons for Outsourcing
• Subsidies in developmental costs flowing
from host country governments – indirectly
subsidizing the development costs
• Partnership, alliance, equity alliance with
local partners to enable deals to flow through
(esp. Japan, China)
• Manufacturing no longer sustainable
competitive advantage
• Focus is now on systems integration, design
and other higher value chain work
46
Why not Backward Integration?
• Integration time of at least 2-3 years
disruptive to production focus on 787
• Current critical issues resolved, thus
enabling testing and certification process
to begin
• Cultural and organization integration
issues that will complicate integration
• Countries like Japan, China have foreign
ownership restrictions on local companies
47
A350XWB v. B787
48
Cargo Airline: A Tight Market
Rising Fuel
Costs
Yields low due
to Competitors
No Customer
Volume
Overcapacity
Tough Conditions
Shine Wears Off Cargo Market
49
Importance of
building
right plane for
airline industry
50
Commercial Aircraft Industry Analysis
51
StarShine Structure
Airplane
Prog (2)
Prod Dev (2)
SCM (4)
BD (2)
Starshine
Sales (2)
Engin (4)
Commercial
Av Service (2)
Finance (2)
52
StarShine Tasks
 Support strategic project processes
 Offer recommendations on implementation plans
 Collaborate closely with project directors to help them develop
good project proposals
 Provide assistance & support on the quality assessment,
monitoring and evaluation of projects
 Undertake training programmes to build up skills in project
management and capacity building
 Research latest trends in project management
53
Nanotechnology Areas
Airframes and
components
Coatings and
paints
• Anti-scratch, anti-glare etc
• Corrosion and thermal
by depositing nanopowder
protection
based thin layers onto glass
• Nanoscale silver particles
in filtration systems for
higher air quality
• Nanostructured coatings
to prevent ice formation
Avionics and
other systems
• Carbon nanofibres proven
to reduce the weight of
wires by close to 4 times
• Cost efficiency
54
The DCF Valuation
Valuation ChartSheet (In USD mil)
2010F 2011F 2012F 2013F
Net Profit
2014F
2015F
2016F
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
424.03
98.58
90.36
79.21
65.38
59.40
50.63
39.39
27.43
15.30
40.48
522.82
586.56
654.76
727.74
Plus: Depreciation &
Amortization
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Minus: Increase in Working
Capital
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Minus: Capital Expenditure
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
424.03
98.58
90.36
79.21
65.38
59.40
50.63
39.39
27.43
15.30
40.48
522.82
586.56
654.76
727.74
Operating Cash Flow
Terminal Value
Discount Factor @ 10.71%
Discounted Cash Flows
NPV
9,438.96
0.90
0.82
0.74
0.67
0.60
0.54
0.49
0.44
0.40
0.36
0.33
0.29
0.27
0.24
0.22
383.01
80.43
66.59
52.73
39.31
32.26
24.84
17.46
10.98
5.53
13.22
154.21
156.27
2,429.04
158.19
3,624.07
55
The Pro-Forma Income Statement
Prognosis (In USD Mil)
Description
2010F
2011F
2012F
2013F
2014F
2015F
2016F
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
Revenue
Commerical Airplanes
32,703.54
34,665.75
36,745.70
38,950.44
41,287.47 43,764.71 46,390.60 49,174.03 52,124.47 55,251.94 58,567.06 62,081.08 65,805.95
69,754.30 73,939.56
Integrated Defense Systems and
Boeing Capital
33,804.81
34,122.57
34,443.32
34,767.09
35,093.90 35,423.78 35,756.77 36,092.88 36,432.15 36,774.62 37,120.30 37,469.23 37,821.44
38,176.96 38,535.82
Total Revenue
66,508.35
68,788.32
71,189.02 73,717.53
76,381.37 79,188.50 82,147.36 85,266.91 88,556.63 92,026.56 95,687.36 99,550.31103,627.39 107,931.27 112,475.39
Cost of Products
45,797.65
47,367.64
49,020.76
50,761.89
52,596.21 54,529.20 56,566.67 58,714.80 60,980.09 63,369.49 65,890.31 68,550.34 71,357.82
74,321.47 77,450.55
Cost of Services
8,639.43
8,935.60
9,247.45
9,575.91
9,921.94 10,286.59 10,670.94 11,076.17 11,503.51 11,954.25 12,429.79 12,931.59 13,461.20
14,020.27 14,610.55
292.64
302.67
313.23
324.36
336.08
348.43
361.45
375.17
389.65
404.92
421.02
438.02
455.96
474.90
494.89
Equity in Income
-208.81
-226.52
-240.99
-241.12
-244.09
-257.90
-269.47
-279.49
-288.37
-299.40
-312.41
-325.18
-338.22
-351.96
-366.89
General/Admin.
3,695.71
3,673.42
3,804.67
3,982.62
4,203.33 4,298.92
4,438.80 4,618.23 4,809.22 5,002.85 5,189.18 5,397.55
5,622.44
5,857.99
6,103.91
Research/Development
4,258.45
4,575.30
4,866.57
5,141.11
5,004.58 5,289.97
5,534.37 5,759.29 5,967.12 6,158.41 6,430.51 6,698.12
6,970.63
7,254.16
7,555.73
Dispositions
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Settlement with US Department
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Expenses
Capital Corp Int Exp
Goodwill Impairment
-
-
-
-
-
1,968.00
2,376.00
2,640.00
2,556.00
64,443.07
67,004.11
2,065.28
1,784.22
1,537.33
1,616.77
543.17
469.25
404.32
425.21
1,522.11
1,314.97
1,133.01
1,191.56
-
-
-
Special Program
Penalities Owed to Airlines
Total Operating Expense
Operating Profit
Minus Taxes
Net Profit
69,651.69 72,100.76
1,692.00
828.00
0.00
73,510.04 75,323.20 77,302.76 80,264.18 83,361.22 86,590.52 90,048.40 93,690.44 97,529.83 101,576.82 105,848.75
2,871.32 3,865.30
755.16
1016.57
2,116.17 2,848.73
4,844.60 5,002.74 5,195.40 5,436.04 5,638.95 5,859.87
6,097.55
6,354.44
6,626.64
1274.13 1315.72 1366.39
1541.15
1603.66
1671.22
1742.81
3,570.47 3,687.02 3,829.01 4,006.36 4,155.91 4,318.73
4,493.90
4,683.22
4,883.83
1429.68
1483.04
56
Delivery Schedule(1)
Number of Deliveries for Planes
2005
Matured Planes
Model 717
Model 737
Model 747
Model 757
Model 767
Model 777
Total Number of Matured Deliveries
Unit Cost of Matured Deliveries
New Development
Model 787 (Delivered)
Orginal Deliveries
Cumulative Penalized Planes
Number of Penatly Months
Penalty
Total Penalty Incurred
13
212
13
2
10
40
290
73.67
2006
5
302
14
12
65
398
71.52
2007
330
16
12
83
441
76.59
2008
290
14
10
61
375
78.55
37
37
12
0.5
222
2009
372
8
13
88
481
72.33
75
112
12
0.5
672
2010F
2011F
2012F
2013F
387
8
402
8
418
8
434
8
14
91
500
13
94
517
13
97
536
13
100
555
132
244
12
0.5
1,464
80
164
328
12
0.5
1,968
96
164
396
12
0.5
2,376
120
164
440
12
0.5
2,640
Assumes 6
Planes
Each Month
Assumes 8 Assumes
Planes
10 Planes
Each
Each
Month
Month
57
The Flight Delivery Schedule(2)
Number of Deliveries for Planes
2014F
2015F
2016F
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
Matured Planes
Model 717
-
-
-
-
-
-
-
-
-
-
-
Model 737
451
469
487
506
526
546
567
589
612
636
660
Model 747
8
8
8
8
8
8
8
8
8
8
8
Model 757
Model 767
13
13
13
13
13
13
13
13
13
13
13
Model 777
103
107
111
115
119
123
127
131
135
140
145
575
597
619
642
666
690
715
741
768
797
826
Model 787 (Delivered)
144
144
144
138
100
100
100
100
100
100
100
Orginal Deliveries
130
0
0
0
0
0
0
0
0
0
0
Cumulative Penalized Planes
426
282
138
0
0
0
0
0
0
0
0
Number of Penatly Months
12
12
12
12
12
12
12
12
12
12
12
Penalty
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
2,556
1,692
828
0
0
0
0
0
0
0
0
Total Number of Matured Deliveries
Unit Cost of Matured Deliveries
New Development
Total Penalty Incurred
Assumes Assumes Assumes
12 Planes 12 Planes 12 Planes
Each
Each
Each
Month
Month
Month
58
Calculating the WACC
I.
II.
III.
Cost of Debt
(Kd):
Estimated All-In Cost for Company
Effective Tax Rate
(a)
Kd = 5.9% * (1- 26.0%) =
Cost of Preferred (Kp):
Estimated All-In Cost for Company (b)
Cost of Equity
(Ke):
Risk Free Rate (20-year T-Bond Yield)
Target Beta (c)
Beta-Up
Beta-- Down
Market Return
Market Risk Premium (d) = (b) - (a)
Small Stock Premium (e)
Country Risk Premium
Target Ke
IV.
Weighted Average Cost of Capital
(K):
D/V
P/V
E/V
Target WACC
5.88%
26.03%
4.35%
0.00%
No Preferred Debt
3.40%
1.28
Source: U.S. Department of Treasury
1.66
0.90
8.52%
5.12%
0.00%
2.00%
11.95%
^ Rationale: A latent risk due to High
Deficits
16.33%
0.00%
83.67%
10.71%
59
Calculation of the Cost of Debt
Corporate Bonds Issued by Boeing
Maturity Amount (In
Credit
Name
Date
USD Mil)
Quality
Boeing Cap 5.8%
01/15/201
600High
3
Boeing Cap 4.7%
10/27/201
500High
9
Boeing Cap 3.25%
10/27/201
500High
4
Boeing 6.875%
03/15/203
500High
9
Boeing 3.75%
11/20/201
500High
6
Boeing 5.875%
02/15/204
450High
0
Boeing 6.125%
02/15/203
400High
3
Boeing 8.75%
08/15/202
400High
1
Mcdonnell Douglas
4/1/2012
350High
9.75%
Boeing 7.95%
Boeing 6.625%
Boeing 8.75%
Boeing 7.25%
08/15/202
4
02/15/203
8
09/15/203
1
06/15/202
5
109.7
Coupon Type
Yield to
Callable Rule 144A
(Fixed/Floating)
Maturity
5.8Fixed
Yes
No
2.13
101.1
4.7Fixed
Yes
No
4.56
101.2
3.25Fixed
Yes
No
2.96
116.1
6.875Fixed
Yes
No
5.73
99.5
3.75Fixed
Yes
No
3.83
101.7
5.875Fixed
Yes
No
5.76
99.8
6.125Fixed
Yes
No
6.14
130.5
8.75Fixed
No
No
5.16
110.9
9.75Fixed
No
No
3.9
300High
123.5
7.95Fixed
Yes
No
5.55
300High
107.5
6.625Fixed
Yes
No
6.06
250High
125.4
8.75Fixed
No
No
6.53
247High
113.6
7.25Fixed
No
No
5.88
Price
Coupon %
Source: Morning Star
60
Effective Tax Rate
Calculation of the Effective Tax Rate
Description
2005
2006
2007
2008
2009
Net Income Before Taxes
2819
3194
6118
3995
1731
Net Income After Taxes
2562
2206
4058
2654
1335
9.12%
30.93%
33.67%
33.57%
22.88%
Effective Tax Rate
Average Effective Tax Rate
26.03%
Source: Boeing Annual Reports
61
Overview of Boeing
Re-Based Monthly Closing Price: S&P 500 and The Boeing Company
Apr-2005 to Mar-2010
BA
S&P 500
A…
M…
J…
J…
A…
S…
O…
N…
D…
J…
F…
M…
A…
M…
J…
J…
A…
S…
O…
N…
D…
J…
F…
M…
A…
M…
J…
J…
A…
S…
O…
N…
D…
J…
F…
M…
A…
M…
J…
J…
A…
S…
O…
N…
D…
J…
F…
M…
A…
M…
J…
J…
A…
S…
O…
N…
D…
J…
F…
M…
200
180
160
140
120
100
80
60
40
20
0
COMPANY SNAPSHOT
Latest 12 Months(31-Mar-2010)
Sales ($mm) Last 12 Months
68,281.0
Total Assets ($mm)
62,053.0
Return on Equity
320.14%
Return on Assets
2.31%
Current Data(26-Mar-2010)
Price
Shares Outstanding
(mm)
$72.59
Market Value ($mm)
54,867.44
Price/Earnings Ratio
39.7
Price/Book Value Ratio
Dividend Yield
Primary Earnings Per Share (LTM)
Source: OneSource
755.85
25.8
2.31%
$1.83
62
Profitability of Boeing
%
$mm
80,000
7.0
80,000
1.40
70,000
6.0
70,000
1.20
Profit Margin
$mm
60,000
5.0
Asset Turnover
60,000
1.00
50,000
50,000
0.80
4.0
40,000
40,000
3.0
30,000
20,000
10,000
0
2004
2005
$mm
2006
2007
2008
0.60
30,000
2.0
20,000
1.0
10,000
0.0
0
Total
2009
0.00
2005
$mm
70,000
8.00
60,000
6.00
50,000
4.00
40,000
2.00
30,000
0.00
20,000
-2.00
6,000
10,000
-4.00
4,000
0
-10,000
0.20
2004
Revenue
Income After
Tax
Financial Leverage
0.40
2006
2007
2008
Return on Equity
%
12,000
25.0
10,000
20.0
19.85
8,000
15.0
12.18
13.26
11.26
10.0
7.61
-6.00
2004
2005
2006
2007
2008
2009
-8.00
Total Assets
Total
2009
Revenue
Avg Total
Assets
5.0
2,000
0
0.00
2004
2005
2006
2007
2008
0.0
2009 Net Income
Total Common
Equity
63
Stability of Boeing
$mm
Working Capital
Total Debt to Equity(%)
60,000
9000.00
2009
8000.00
50,000
7000.00
2008
40,000
6000.00
2007
5000.00
30,000
4000.00
2006
20,000
3000.00
2000.00
2005
10,000
1000.00
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
0
Current Liabilities
Current Assets
Working Capital
$mm
0.00
2005
2006
Operational Liquidity
2008
2007
2006
2005
-50%
0%
Shareholder 2009
Equity
2008
Total Debt
Total Debt/ Shareholder Equity
Cash Flow Funding
2009
-100%
2007
50%
100%
Cash Flow From Operations
Cash Flow From Financing
Cash Flow From Investing
0.3
0.2
0.2
0.1
0.1
0.0
-0.1
-0.1
-0.2
-0.2
-0.3
2005
2006
2007
2008
2009
CF From Ops/LT Debt
Ret. Earnings/Total Assets
64
Key Assumption 1: Opportunity Cost of
USD 500 Mil a Year
Source: The Seattle Times
65
Key Assumption 2: Growth Rates
Company Industry
Sector
S&P 500
Sales (MRQ) vs Qtr. 1 Yr. Ago
41.64
4.98
-6.41
13.90
Sales (TTM) vs TTM 1 Yr. Ago
12.10
1.35
-7.28
1.88
5.84
8.11
6.15
6.39
Sales - 5 Yr. Growth Rate
Source: Reuters
66
Key Assumption 3: Positive Trends for
Nanotechnology
Significant
Developments
Aviation technology takes off
Using nanotechnology techniques
to improve surfaces, making them
resistant to ice accumulation.
Margaret Blohm, advanced
technology program leader,
demonstrated how surfaces could
be engineered to resist water and
other liquids, making them
"superhydrophobic," she said.
She is also exploring ways to
reduce ice adhesion, potentially
preventing ice building on aircraft
surfaces.
Increased
Commercial
Testing
Anti-Icing System Succeeds in
Test Conditions
One immediate use for Battelle’s
innovative technology is coating
unmanned aerial vehicles (UAVs).
The vast majority don’t have antiicing systems, which leads to
cancelled missions—studies show
about 12 percent—or sometimes
even a crash after the wings
become icy.
Increased Filing
of Patents
A comprehensive worldwide
database of consumer products
incorporating Nanotechnology has
been constructed and is being
constantly updated by the Wilson
Center’s “Project on Emerging
Nanotechnologies”.3 In the period
from March 2006 to May 2007,
the number of products listed on
the database more than doubled,
from 212 to 475 and this growth
seems set to continue.
Source: Hoizon Scanning
Intelligence Group
Source: timesunion.com
67