1 karmen chan – airplane programs jonathan loh – commercial sales berton lim – engineering,...

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



Ensure Enhance


Ensuring Success:

B787


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




Ensuring Success:

B787

Ensure Enhance


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


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


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


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


Execution & Quarterly Review --Training & Field Trips

Commercial Application for New Products & Variants


Execution & Quarterly Review

Global Educational Institution Research Tie-Ups



26



Ensure Enhance Financial Milestones Summary

Ensuring Success: B787Stabilize Labor

Relations – Satisfaction & Productivity

Strengthen Vendor

capabilities – Tune-Up


StarShine Program – Gold

Standard in Project Mgmt

Forever New Frontiers -

Nanotechnology


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


Boeing Cap 3.25% 10/27/2014


Boeing 6.875% 03/15/2039

500High 116.1 6.875Fixed Yes No 5.73

Boeing 3.75% 11/20/2016


Boeing 5.875% 02/15/2040

450High 101.7 5.875Fixed Yes No 5.76

Boeing 6.125% 02/15/2033


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


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.

http://timesunion.com/

1 karmen chan – airplane programs jonathan loh – commercial sales berton lim – engineering,...

Documents

sustainability slide

time starshine slide

innovation slide

project mgmt

global supply chain

core competency

ensuring success

support program teams