1 karmen chan – airplane programs jonathan loh – commercial sales berton lim – engineering,...
TRANSCRIPT
1
Karmen Chan – Airplane Programs Jonathan Loh – Commercial Sales
Berton Lim – Engineering, Operations & Tech. Andy Neo – Finance
E2 - Ensuring Success: B787Enhancing
Sustainability
2
The Current Market Outlook
Outsourced Manufacturing – Growing Trend
Refocusing: High Value, Core Competence
Emerging Markets, Emerging Threats
Countering Threats, Sustaining Advantage
StandardsBioFuels, Emissions
Standards
Exogenous EventsShorter Economic Boom-
Bust Cycles
3
E2: Ensuring & Enhancing
Ensuring Success:
B787
Core Competence & Competitive Advantage
Enhancing Sustainability
Strong New Ecosystem
4
Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target
Ensure
Timeliness & Reliability
Improved Quality
Communicates and convinces
customers?
5
Ensuring Vendor Performance: Tuning-Up & Providing Suppor
OBJECTIVES The Boeing Vendor Tune-Up Program
Execution
Align process & quality standards
Continuous improvement in processes Global MoonShine
mobile teamsRegional Mobile team to support
Knowledge sharing
Focus groups with MoonShine team
Every 2 months
Periodical refresher courses
Ensure
6
Training & Rewarding theNextGen Boeing Workforce
Ensure
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
7
Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target
Ensure
Timeliness & Reliability
Improved Quality
Communicates and convinces
customers
The Boeing Vendors Tune-Up Program
Rewarding and Training NextGen Boeing
Workforce
8
E2: Ensuring & Enhancing
Enhancing Sustainability
Ensure Enhance
Core Competence & Competitive Advantage
Ensuring Success:
B787
Strong New Ecosystem
9
Buy-to-Build Ratio: Are we Outsourcing too much?
Ensure Enhance
10
Buy-to-Build Ratio: Are we Outsourcing too much?
Ensure Enhance
Situation:70% outsourcing
down to approximately
60%
Implication:Built up
experience & complex
knowledge
Conclusion:Leverage on
787 experience for future
1. Inevitable of the future
2. Establish leadership
3. StarShine to support outsourcing
1. Result of purchase of Vought
2. Testing commenced
1. Steep learning curve
2. Leaders in Global Supply Chain Mgmt
11
Emerging Threats: China at the Top
Ensure Enhance
Resulting Implications of Threats
12Ensure Enhance
Situation:Economics Influence
Outsourcing
Implication:Manufacturing
more Overseas - BUT
Solution:Focus on Higher
Value Work
1. Outsourcing not for cost
2. Manufacturing less of an advantage tomorrow
1. Financial Risk Reduced
2. Allows Foothold in Key Markets
3. Allows Focus on Core Competency
1. Design & Systems Integration
2. Excel in Project Mgmt
3. Making it difficult to replicate
13
With the Threat: Our Core Competencies & Advantages will be:
Ensure Enhance
Gold Standard in Project Management
Higher Value Work
Foundation: Innovation
14
What’s next beyond 787?
Ensure Enhance
Starshine
• Specialised unit focusing on Project Management Excellence
Nanotechnology
• Enhance aircraft performance through better materials
15
StarShine: Developing Project Management Excellence
Ensure Enhance
Goals
Functions
• 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
Starshine
16
Why StarShine?
Ensure Enhance
• Assist, support program teams in project management
• Share best practices – across industries/internally
• Good ideas from collaboration between experts
• Timely delivery of planes, improvements in production processes
• Improve project management capabilities
• Attain sustainable competitive advantage that are not easily replicated; create ecosystem of gold standards
Engagement
Excellence
Epitome
1
2
3
17
Nanotechnology
Ensure Enhance
Nanotechnology
Goals
• Open new frontiers with emerging technology
• Explore long-term potential of enhancing aircraft performanceSource: U.S. Committee on Aeronautics Research and Technology
Functions• Apply new composite materials to aircraft design
• Research work with UW Centre of Nanotechnology
18
Why Nanotechnology?
Ensure Enhance
• Relevant to most aircraft components and systemsSource: Bax and Willems Consulting
• Eg: Airframes, windows
• Better material properties that boost functional performance
• Added protection during harsh weather conditions
• Build up collective suite of capabilities from investment
• Be the leading edge of innovation and material science development
Impact
Improvement
Innovation
1
2
3
19
E2: Ensuring & Enhancing
Enhancing Sustainability
Core Competence & Competitive Advantage
Ensuring Success:
B787
Ensure Enhance
Strong New Ecosystem
20Ensure Enhance Financial
2010
F
2011
F
2012
F
2013
F
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F
2021
F
2022
F
2023
F
2024
F
0
1000
2000
3000
4000
5000
6000
Incremental Net Profit Current Growth Path of Net Profit
Net Profit 2010F - 2024F
In U
SD
mil
Incremental Profit ofUSD 3.5 Billion
Financial Implications with our Recommendations
21
Reaffirmation of Our Strategy with Positive NPV
Ensure Enhance Financial
2010
F
2011
F
2012
F
2013
F
2014
F
2015
F
2016
F
2017
F
2018
F
2019
F
2020
F
2021
F
2022
F
2023
F
2024
F
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
Operating Cash Flow 2010F – 2024F
Va
lue
in
n U
SD
mil
NPV USD 3.63 Billion
22
Financial Assumptions & Justifications
Ensure Enhance Financial
Valuation Assumptions
15 Year Time Horizon
3 Stage Growth Model
CAGR Growth Rate of 12.96%, followed by 6%
Terminal Growth Rate of 3%
WACC of 10.71%
Qualitative Assumptions
Commercial Airline to be key driver of growth
Assumed On Schedule Delivery of the 787
Treating Nanotechnology as a call option
23
WACC (+-2%) Nanotechnology Growth (+-3%) Nanotechnolgoy Procurement (+-3%)
-4,000.00
-2,000.00
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
6,609.02
Sensitivity Analysis
Identifying the Risks
9,870.910,604.07
-2,622.77-3,359.94
2,894.42
Ensure Enhance Financial
24
Milestone & Implementation: E2: Ensuring & Enhancing
Ensure Enhance Financial Milestones
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ENSURE – Tune-Up &
Global MoonShine Program
ENSURE – Wage
Restructuring
ENSURE – Training
Program
ENHANCE – StarShine
Team
ENHANCE -
Nanotechnology
-- Union NegotiationsExecute & Quarterly Review
-- Due Diligence & Approval-- Planning & Development
-- Union Negotiations
-- Development & Staffing --Training & Field Trips
Execution & Quarterly Review --Training & Field Trips
Continuation of PhantomWorks Research & DevelopmentCommercial Application for New Products & Variants--
--Training & Field Trips
--Training & Field Trips
Global Educational Institution Research Tie-Ups
Execution & Quarterly Review
Execute & Quarterly Review
25
Milestone & Implementation: E2: Ensuring & Enhancing
Ensure Enhance Financial Milestones
2022 2023 2024 2025 2026 2027 2028 2029 2030
ENSURE – Global
MoonShine Program
ENSURE – Wage
Restructuring
ENSURE – Training
Program
ENHANCE – StarShine
Team
ENHANCE -
Nanotechnology
Execute & Quarterly Review
Execution & Quarterly Review --Training & Field Trips
Commercial Application for New Products & Variants
Execute & Quarterly Review
Execution & Quarterly Review
Global Educational Institution Research Tie-Ups
--Training & Field Trips
--Training & Field Trips
26
E2: Ensuring & Enhancing
Core Competence & Competitive Advantage
Ensure Enhance Financial Milestones Summary
Ensuring Success: B787Stabilize Labor
Relations – Satisfaction & Productivity
Strengthen Vendor
capabilities – Tune-Up
Enhancing Sustainability
StarShine Program – Gold
Standard in Project Mgmt
Forever New Frontiers -
Nanotechnology
Strong New Ecosystem
27
Question & Answer
28
Index – Presentation & Supplementary SlidesPresentation 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
29
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
– 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
Resilience to new technologies & Customer-centricity
Customer centric Approach
30
Vendors for B787 ProjectUnited States Europe
Japan/Korea China
Boeing Charleston (announced as Vought Aircraft Industries)
Spirit Aerosystems Inc Hamilton Sundstrand Rockwell Collins Honeywell Goodrich General Electric Moog Inc Toray Industries
Fuji Heavy Industries Kawasaki Heavy Industries Mitsubishi Heavy Industries Panasonic Bridgestone Korean Airlines - Aerospace
Division
Shenyang Aircraft Coporation BHA Aero Composites
Manufacturing Hafel Aviation, Harbin Chendu Aircraft
Alenia Aeronautica GE Aviation Messier-Dowty Dassault Systèmes Eaton Aerospace Rolls-Royce Thales GKN Aerospace
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
32
Surveillance Tools to Monitor Vendors’ Performance
Source: http://www.boeingsuppliers.com
33
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
Do we have the right partners?
• 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
Asia Pacific
35
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
36
Too much outsourced overseas?
• 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
Supply Chain problems that ensued
37
Too much outsourced overseas?
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
EXAMPLE: Travelled Work (Production Issues)
A need to implement more stringent selection and due diligence in checking first-tier vendor’s supplier network for future projects
Source: Boeing 787 Lessons Learnt, October 2008, Burkhard Domke, Head of Engineering Intelligence, Airbus
38
Compensation Packages: Learning Points from 2008 Strikes’ Settlements
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)
Why Boeing needs to avoid a repeat of 2008 Strikes
“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.”
Key concerns of workforce
39
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 incentive-pay 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
Compensation Packages: Learning Points from 2008 Strikes’ Settlements
40
Holistic Compensation
• Kerr (1975) recognized the existence of a divergence of goals and motives among members of the organization which led to non-similar 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
41
Boeing: 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
WHAT IS THE MOONSHINE SHOP?
Brainstorming Try-storming
42
Boeing: Moonshine Shop
• 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
SUCCESS?
43
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
44
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
45
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
46
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
47
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
48
A350XWB v. B787
49
Rising Fuel Costs
No Customer Volume
Yields low due to Competitors Overcapacity
Tough Conditions
Shine Wears Off Cargo Market
Cargo Airline: A Tight Market
50
Importance of building right plane for airline industry
51
Commercial Aircraft Industry Analysis
52
Starshine
StarShine Structure
Prod Dev (2)
SCM (4) Finance (2)Engin (4)Sales (2)
BD (2)
Commercial Av Service (2)
AirplaneProg (2)
53
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
54
Nanotechnology Areas
• Anti-scratch, anti-glare etc by depositing nanopowder based thin layers onto glass
• Nanoscale silver particles in filtration systems for higher air quality
• Corrosion and thermal protection
• Nanostructured coatings to prevent ice formation
• Carbon nanofibres proven to reduce the weight of wires by close to 4 times
• Cost efficiency
Avionics and other systems
Airframes and components
Coatings and paints
55
The DCF Valuation
Valuation ChartSheet (In USD mil)
2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F
Net Profit 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
Operating Cash Flow 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
Terminal Value 9,438.96
Discount Factor @ 10.71% 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
Discounted Cash Flows 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
NPV 3,624.07
56
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
Expenses
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
Capital Corp Int Exp 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
Goodwill Impairment - - - - - - - -
Special Program
Penalities Owed to Airlines 1,968.00 2,376.00 2,640.00 2,556.00 1,692.00 828.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Operating Expense 64,443.07 67,004.11 69,651.69 72,100.76 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
Operating Profit 2,065.28 1,784.22 1,537.33 1,616.77 2,871.32 3,865.30 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
Minus Taxes 543.17 469.25 404.32 425.21 755.16 1016.57 1274.13 1315.72 1366.39 1429.68 1483.04 1541.15 1603.66 1671.22 1742.81
Net Profit 1,522.11 1,314.97 1,133.01 1,191.56 2,116.17 2,848.73 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
57
Number of Deliveries for Planes
2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F
Matured Planes
Model 717 13 5 - - - - - - -
Model 737 212 302 330 290 372 387 402 418 434
Model 747 13 14 16 14 8 8 8 8 8
Model 757 2 - - - -
Model 767 10 12 12 10 13 14 13 13 13
Model 777 40 65 83 61 88 91 94 97 100Total Number of Matured Deliveries 290 398 441 375 481 500 517 536 555
Unit Cost of Matured Deliveries 73.67 71.52 76.59 78.55 72.33
New Development
Model 787 (Delivered) 80 96 120
Orginal Deliveries 37 75 132 164 164 164
Cumulative Penalized Planes 37 112 244 328 396 440
Number of Penatly Months 12 12 12 12 12 12
Penalty 0.5 0.5 0.5 0.5 0.5 0.5
Total Penalty Incurred 222 672 1,464 1,968 2,376 2,640
Assumes 6 Planes
Each Month
Assumes 8 Planes Each
Month
Assumes 10 Planes
Each Month
Delivery Schedule(1)
58
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
Total Number of Matured Deliveries 575 597 619 642 666 690 715 741 768 797 826
Unit Cost of Matured Deliveries
New Development
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
Total Penalty Incurred 2,556 1,692 828 0 0 0 0 0 0 0 0
Assumes 12 Planes
Each Month
Assumes 12 Planes
Each Month
Assumes 12 Planes
Each Month
The Flight Delivery Schedule(2)
59
Calculating the WACCI.
Cost of Debt (Kd):
Estimated All-In Cost for Company 5.88%
Effective Tax Rate (a) 26.03%
Kd = 5.9% * (1- 26.0%) = 4.35% II. Cost of Preferred (Kp): Estimated All-In Cost for Company (b) 0.00% No Preferred Debt
III.Cost of Equity (Ke):
Risk Free Rate (20-year T-Bond Yield) 3.40% Source: U.S. Department of Treasury Target Beta (c) 1.28
Beta-- Up 1.66
Beta-- Down 0.90 Market Return 8.52% Market Risk Premium (d) = (b) - (a) 5.12% Small Stock Premium (e) 0.00%
Country Risk Premium 2.00% ^ Rationale: A latent risk due to High Deficits
Target Ke 11.95%
IV.Weighted Average Cost of Capital (K):
D/V 16.33% P/V 0.00% E/V 83.67% Target WACC 10.71%
60
Calculation of the Cost of DebtCorporate Bonds Issued by Boeing
NameMaturity
DateAmount (In
USD Mil)Credit Quality
Price Coupon %Coupon Type
(Fixed/Floating)Callable Rule 144A
Yield to Maturity
Boeing Cap 5.8% 01/15/2013
600High 109.7 5.8Fixed Yes No 2.13
Boeing Cap 4.7% 10/27/2019
500High 101.1 4.7Fixed Yes No 4.56
Boeing Cap 3.25% 10/27/2014
500High 101.2 3.25Fixed Yes No 2.96
Boeing 6.875% 03/15/2039
500High 116.1 6.875Fixed Yes No 5.73
Boeing 3.75% 11/20/2016
500High 99.5 3.75Fixed Yes No 3.83
Boeing 5.875% 02/15/2040
450High 101.7 5.875Fixed Yes No 5.76
Boeing 6.125% 02/15/2033
400High 99.8 6.125Fixed Yes No 6.14
Boeing 8.75% 08/15/2021
400High 130.5 8.75Fixed No No 5.16
Mcdonnell Douglas 9.75%
4/1/2012 350High 110.9 9.75Fixed No No 3.9
Boeing 7.95% 08/15/2024
300High 123.5 7.95Fixed Yes No 5.55
Boeing 6.625% 02/15/2038
300High 107.5 6.625Fixed Yes No 6.06
Boeing 8.75% 09/15/2031
250High 125.4 8.75Fixed No No 6.53
Boeing 7.25%06/15/2025
247High 113.6 7.25Fixed No No 5.88
Source: Morning Star
61
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
Effective Tax Rate 9.12% 30.93% 33.67% 33.57% 22.88%
Average Effective Tax Rate 26.03%
Effective Tax Rate
Source: Boeing Annual Reports
62
A J A O F A J A O F A J A O F A J A O F A J A O F
0
20
40
60
80
100
120
140
160
180
200
BAS&P 500
Re-Based Monthly Closing Price: S&P 500 and The Boeing CompanyApr-2005 to Mar-2010
Overview of Boeing
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 $72.59 Shares Outstanding (mm) 755.85
Market Value ($mm) 54,867.44
Price/Earnings Ratio 39.7
Price/Book Value Ratio 25.8
Dividend Yield 2.31%
Primary Earnings Per Share (LTM) $1.83
Source: OneSource
63
2004 2005 2006 2007 2008 2009
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Profit Margin
Total Revenue
$mm %
Profitability of Boeing
2004 2005 2006 2007 2008 2009
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40Asset Turnover
Total Revenue
$mm
2004 2005 2006 2007 2008 2009-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00Financial Leverage
Total Assets
Total Common Equity
$mm
2004 2005 2006 2007 2008 2009
0
2,000
4,000
6,000
8,000
10,000
12,000
0.0
5.0
10.0
15.0
20.0
25.0
0.00
12.18 11.26
19.85
13.26
7.61
Return on Equity
Net Income
$mm %
64
Stability of Boeing
2005
2006
2007
2008
2009
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
Working Capital
Current LiabilitiesCurrent AssetsWorking Capital
$mm 2005 2006 2007 2008 2009
0
10,000
20,000
30,000
40,000
50,000
60,000
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
8000.00
9000.00Total Debt to Equity(%)
Shareholder EquityTotal DebtTotal Debt/ Shareholder Equity
$mm
2005
2006
2007
2008
2009
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cash Flow Funding
Cash Flow From OperationsCash Flow From FinancingCash Flow From Investing
2005 2006 2007 2008 2009
-0.4
-0.2
0.0
0.2
0.4Operational Liquidity
CF From Ops/LT DebtRet. Earnings/Total Assets
65
Key Assumption 1: Opportunity Cost of USD 500 Mil a Year
Source: The Seattle Times
66
Key Assumption 2: Growth Rates
Source: Reuters
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
Sales - 5 Yr. Growth Rate 5.84 8.11 6.15 6.39
GROWTH RATES
67
Key Assumption 3: Positive Trends for Nanotechnology
Aviation technology takes offUsing 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.
Source: timesunion.com
Significant Developments
Increased Commercial
Testing
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
Anti-Icing System Succeeds in Test ConditionsOne immediate use for Battelle’s innovative technology is coating unmanned aerial vehicles (UAVs). The vast majority don’t have anti-icing systems, which leads to cancelled missions—studies show about 12 percent—or sometimes even a crash after the wings become icy.