airline industry analysis - boeing & airbus
TRANSCRIPT
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AIRBUS & BOEINGA FINANCIAL ANALYSIS
Airline Industry
May 31, 2014
Taposh Dutta Roy
& Team
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Boeing Overview• Founded 1916 in Washington State; HQ in Chicago
• Leader in commercial and defense aircraft; defense,
satellite and space systems
• Acquired several aerospace pioneers (e.g. McDonnell
Douglas, Rockwell International)
• Ambitious 787 Dreamliner – composite materials, fuel
efficient - $32B program cost
• 2013 – 648 aircraft delivered, $86.6 billion revenues
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Boeing Corporate Governance• James McNerney:
• Elected to serve as CEO and chairman of the board July 1,
2005
• Salary for 2013 $1.9 million
• Awarded $3.7 million in stock option grants
• 20 analysts cover Boeing
• CEO is the only insider on the Board
• None of the individual Board members hold a
disproportionate amount of stock
• Most of the top owners are equity firms
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Boeing Corporate Governance
“The Board’s compensation should be a mix of cash and equity-
based compensation with a significant portion of such
compensation in the form of the company’s stock or stock-
equivalent units. Non-employees directors receive a substantial
portion of their compensation in deferred stock units, which must
be held until retirement or other termination of Board service.”
-Boeing filing SEC
None of the individual board members or the companies for which
they work own a disproportionate share of stock. Many of the top
firms are equity firms.
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Airbus Overview• HQ in Blagnac, France
• 1967 – consortium of European aerospace firms to
compete with US firms
• 1970 – Airbus Industrie formed: French, German,
Spanish, British government backed entities
• 2001 – consortium is merged as European Aeronautic
Defense and Space Company (EADS)
• 2013 – 626 aircraft delivered, € 59.3 billion revenues
• 2014 – Rebranded Airbus Group: Airbus, Airbus
Defense and Space and Airbus Helicopters
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Airbus Governance• Prior to December 2012, the governments of Germany
France and Spain had effective veto power over
management decisions
• Dec 2012 – ownership overhaul – more “normal”
shareholder democracy – state entities own 28%
• Board makeup and insider holdings do not reflect
management balance of power
• 28 analysts covering; information broadly available
• CSR – adopting industry goals, not leading
• Ranked 73 of top 100 in Reputation Institute survey
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• 72.6% held by institutional investors
• Four executives are in the top five direct holders
• Institutional ownership is down 12 million shares
Stockholder Analysis — Boeing
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Stockholder Analysis — Airbus
• Merger with BAE
systems stopped by
company insiders
Sogepa & GZBV
(2012)
• Gov’t influence
relinquished allowing
Airbus to make major
business decisions.
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Risk & Return: Boeing
Debt $43,427,702,772
Equity $103,136,011,176
Tax 27%
β(L) 1.28
β(U) 0.89
R(f) 2.73%
MRP 5.00%
R(e) 9.11%
R(d) 3.73%
WACC 7.22%
Used weekly data from 2009 through
2013 from Boeing and S&P 500 to
calculate regression:
y = 0.00036 + 1.28x
The weekly return averaged 0.32%
which results in estimating that Boeing
performed 0.12% better than expected.
R(f) (1 – β ) = -0.096%
Intercept – R(f) (1 – β ) = 0.1161%
Annualized return yields 5.97%
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Risk & Return: Airbus
Debt $4,260,048,961
Equity $43,549,799,506
Tax 27%
Beta(L) 0.96
Beta(U) 0.89
R(f) 2.43%
MRP 5.60%
R(e) 7.44%
R(d) 3.43%
WACC 7.00%
Used weekly data from 2009 through
2013 from Airbus and CAC 40 to
calculate regression:
y = 0.0041 + 0.958x
The weekly return averaged 0.46%
which results in estimating that Airgus
performed 0.36% better than
expected.
R(f) (1 – β ) = 0.085%
Intercept – R(f) (1 – β ) = 0.36%
Annualized return yields 19.7%
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Dividend Policy & Analysis — Boeing• Payout ratio consistent over 5 years
• 2009 was different – program problems = lower earnings
• Maintained dividend but paused stock repurchase for 3
years
Boeing 2013 2012 2011 2010 2009
CashDividends $1,642 $1,360 $1,263 $1,245 $1,233
DividendperShare $2.19 $1.81 $1.70 $1.68 $1.68Stockre-purchase $2.8B 0 0 0 $50M
PayoutRatio 0.36 0.35 0.32 0.37 0.89DividendYield 2% 3% 3% 2% 3%
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Dividend Policy & Analysis — Airbus• Payout ratio growth over 5 years
• 2009 saw challenges with programs and orders
• Company posted a loss for the year
• Paused both dividends and stock repurchase
• Shareholder mix maybe have made this easier option
Airbus 2013 2012 2011 2010 2009
Dividend payout €587 €492 €366 €178 --
Dividend per share 0.75 0.6 0.45 0.22 0
Stock re-purchase €500M €31M €12M €40.5 M 0
Payout Ratio 0.41 0.40 0.35 0.32 0.00
Dividend Yield 1% 2% 2% 1% 0%
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Dividend Policy & Analysis
• Last 5 years paid lower
dividend than max Possible
• Manage a stable dividend
growth
• Last 5 years paid higher
dividend than max possible
FCFE
• Manage a stable dividend
growth
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Dividend Policy & Analysis
Boeing pays lower dividend as compared to the free cash flow
to equity. There is more room for Boeing to pay higher dividend
to its shareholders. Airbus has maintained a consistent dividend
policy and has paid more than their free cash flow. We would
recommend Boeing to pay more dividends and Airbus to
maintain their current dividend to shareholders
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Measuring Investment Returns
• 2013 Equity Return Spread44.21ROE - 9.11Re = 35.10%
• Equity growth significantly
outpaced net income in
2012 and 2013 trending
ROE downward
• 2013 Capital Return Spread23.68ROC -7.22WACC = 16.46%
• Debt decreased from $12B
to $8B over previous 5 yrs.
• Creating surplus value over
past 5 years
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Measuring Investment Returns
• 2013 Equity Return Spread13.64ROE – 7.44Re = 6.20%
• Net income growth trending
ROE upward
• 2013 Capital Return Spread8.20ROC -7.00WACC = 1.20%
• Positive Firm EVA in 2012 &
2103 after 3 prior years of
negative value
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Capital Structure ChoicesBoeing Airbus
Long Term Debt - $8.07B
D/E Ratio – 30%
Long Term Debt - $3.51B
D/E Ratio – 11%
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Capital Structure Choices
Benefits /Costs
Tax Benefits
Management
Discipline
Bankruptcy Costs
Agency Costs
Flexibility
Boeing
Low
Medium
Medium
Medium
Medium
Airbus
Low
Low
Medium
Medium
Low
Risk associated with A380
& 777 Production
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Valuation• Stable growth model used
• Mature companies and markets
• Intense competition
• Significant growth expected in China & India
• Large back log of orders
• Valued using FCFF model
• Changing debt ratios
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Valuation
• Higher valuation due to higher growth rate based on 5
year CAGR of revenue
• Airbus lower valuation:
• Higher costs (97% of sales vs. Boeing 93%)
• Twice the WC as Boeing, main cause is inventory
Firm Value
$(MM)
Value per
ShareMarket Value per Share
as of 12/13/2013
Boeing $202,744 $213 $136
Airbus $64,590 $77 $56