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Products: The Boeing Company (BA)

Commercial Airplanes(Commercial Airplanes)
Defense, Space and Security Systems(Defense, Space and Security Systems)
Global Services(Global Services)
Boeing Capital Corporation(Boeing Capital Corporation)

Commercial Airplanes

What is being offered?

This division develops, produces and markets commercial jet aircraft, while also providing related support services. Boeing is one of the world's leading commercial aircraft producers. Key aircraft include the 737, 777, 787 and 747 models.

The division also provides spares, training, maintenance documents and technical advice to its commercial aircraft customers.

Who is buying?

Buyers chiefly include commercial airlines, such as American, All Nippon Airlines, Malaysian Airlines, Air India, and Aeroflot.

Competitors:

Airbus remains the single largest competitor for this division, with both companies together contributing to around 80% of new commercial aircraft deliveries. Other competitors include smaller jetliner makers such as Embraer and Bombardier. Chinese airplane maker Comac has also entered the single-aisle airplane market. However, it is a bog challenge for any new airplane maker to seriously challenge the duopoly of Boeing and Airbus.

What buyers care about:

  1. Price
  2. Fuel efficiency
  3. Load-carrying capacity
  4. Range (short/medium/long distances)

Top selling points:

The 737MAX, 787 Dreamliner and 777X models will play a key role in Boeing's future success. These new airplanes offer significanly higher fuel efficiency standards compared to their previous versions. These airplanes will drive Boeing'e deliveries for the next couple of decades, so their strong performance will determine Boeing's future success.

Average Boeing Airplane Price

Average Boeing Airplane Price declined from around $75 million in 2008 to $71 million in 2009 and $69 million in 2010. This decline was caused by shift in demand towards lower priced single-aisle aircraft like Boeing 737 from airlines, which were reeling under the financial crisis at the time.

In 2011, the average price increased to $76 million due to a change in delivery mix in favor of higher priced aircraft. This figure increased further to $81.3 million in 2012, $81.8 million in 2013 and $82.5 million in 2014, driven by a rise in the share of higher priced aircraft such as the 787 in the company's delivery mix. Average Boeing Airplane Price rose significantly in 2015 to reach about $86 million. This is probably due to the enhanced product mix that now features the new 737 MAX and the higher priced 787. The figure rose marginally to $86.7 million in 2016, falling to about 74 million in 2017. In 2018 the average price rose to $106 million.

Chart: Average Boeing Airplane Price

Global Commercial Aircraft Deliveries

Global Commercial Aircraft Deliveries stood at 1,281 in 2009. However, this number declined to 1,206 in 2010 as production rates were cut driven by falling new orders for airplanes in the aftermath of the global financial crisis. In 2011, global commercial airplane deliveries picked up again and increased to 1,271 as major airplane manufacturers including Boeing and Airbus raised their production rates driven by a rising order backlog. Deliveries have continued to steadily rise since then, and stood at 1,662 in 2015. In 2016, this figure reached 1,725, jumping further to 1,829 in 2017.

The backlog at the end of 2018 was 900 planes.

Chart: Global Commercial Aircraft Deliveries

Defense, Space and Security Systems

What is being offered?

The division offers 3 broad categories of products/services:

  1. Military Aircraft: Includes manned and unmanned aircraft such as the AH-64 Apache, C-17 Globemaster and the CH-47 Chinook helicopter.
  2. Network & Space Systems: Includes information, intelligence & surveillance systems, communications and space exploration technologies. Examples include Airborne Laser, Brigade Combat Team Modernization (BCTM) and the Ground-based Midcourse Defense (GMD).
  3. Global Services & Support: Engages in operations, maintenance, training, upgrades and logistics support functions for military platforms and operations. Examples include integrated logistics and training systems/services on aircrafts such as AH-64, F/A-18 and C-17.

Who is buying?

The single biggest customer is the US Government, which procures these products/services on a contract basis. Primary buying agencies within the US government include the Department of Defense (DoD), NASA and the Department of Homeland Security.

Competitors:

Key competitors include other large defense/military contractors such as Lockheed Martin, Northrop Grumman, General Dynamics and United Technologies.

What buyers care about:

  1. Price
  2. Timely delivery (adherence to contract specifications)
  3. Superior performance

US DSS Contractual Backlog

Boeing's US DSS Contractual Backlog was at $40.1 billion in 2009. It increased marginally to $41.9 billion in 2010, but declined significantly to $36.9 billion in 2011 primarily due to termination of the BCTM (Brigade Combat Team Modernization) program. In 2012, it recovered to $45.5 billion on F-15 and C-17 orders and the contract award for the Space Launch System program. However, the figure fell again to $44.1 billion 2013 and $41.4 billion in 2014 on fewer new order inflows. In 2015, US DSS Contractual Backlog stood at $42.9. In 2016, the figure increased marginally to $43.5 billion, and to $49.6 billion in 2017.

Chart: US DSS Contractual Backlog

Chart: Total DoD, NASA and Homeland Security (HS) Contract Spending

Chart: Boeings Share of Total DoD, NASA and HS Contract Spending

Global Services

What is being offered?

The division offers 3 broad categories of products/services:

  1. Military Aircraft: Includes manned and unmanned aircraft such as the AH-64 Apache, C-17 Globemaster and the CH-47 Chinook helicopter.
  2. Network & Space Systems: Includes information, intelligence & surveillance systems, communications and space exploration technologies. Examples include Airborne Laser, Brigade Combat Team Modernization (BCTM) and the Ground-based Midcourse Defense (GMD).
  3. Global Services & Support: Engages in operations, maintenance, training, upgrades and logistics support functions for military platforms and operations. Examples include integrated logistics and training systems/services on aircrafts such as AH-64, F/A-18 and C-17.

Who is buying?

Buyers include the defense agencies/departments of countries (excluding the U.S.). Examples include defense departments of countries such as Australia, Turkey and Italy.

Competitors:

Key competitors include other large defense/military contractors such as Lockheed Martin, Northrop Grumman, General Dynamics and United Technologies.

What buyers care about:

  1. Price
  2. Timely delivery (adherence to contract specifications)
  3. Superior performance

Top selling points:

The division was recently awarded a $35 billion deal by the US DoD for developing an aerial refueling tanker (the KC-X program). The deal is expected to lead to significant earnings growth in future years (subject to development related delays).

Chart: Non-US DSS EBITDA Margin

Chart: Revenue

Boeing Capital Corporation

What is being offered?

Boeing Capital Corporation (BCC) provides selective financing solutions for Boeing's commercial airplane customers and government based customers (for the defense, space and security division). The division's portfolio consists of equipment under operating leases, finance leases, notes and other receivables, investments and assets held for sale or re-leasing.

Who is buying?

Key customers include customers from Boeing's other divisions. For example, an airline company that wants to lease Boeing airplanes (as an alternative to buying directly) is a potential customer for BCC.

By this definition, customers include airline companies and the US government (for defense based products/services), namely the department of defense (DoD), NASA and Department of Homeland security.

Competitors:

Key competitors include other large aircraft leasing companies, such as the International Lease Finance Corporation (ILFS) and GE Capital Aviation Services (GECAS).

What buyers care about:

  1. Affordable lease/loan rates
  2. Restructuring of financing transactions with BCC according to specific customer requirement(s)

Total BCC Investment Portfolio

The Total BCC Investment Portfolio was $6 billion in 2008. It has declined steadily since then, to $5.7 billion in 2009, $4.7 billion in 2010, $4.3 billion in 2011, $4.1 billion in 2012, $3.9 billion in 2013 and $3.5 billion in 2014 (remaining almost constant in 2015). This steady decline is primarily due to a yearly increase in the number of assets that were held for sale or re-lease. That said, in 2016, the number jumped to $4.1 billion, and further to $4.5 billion in 2017.

The financial crisis of 2008-09 had a significant adverse impact on commercial airlines (primary customers of BCC), leadind to assets previously held on-lease to go off-lease.

 

Chart: Total BCC Investment Portfolio

Boeing Capital Corporation EBITDA Margin

Boeing Capital Corporation EBITDA Margin refers to the operating profit expressed as a percentage of revenues. Operating profit is calculated by subtracting total operating expenses from the revenues generated in this division (except D&A). These expenses include purchases of raw materials and other products, marketing expenses, general and administrative expense, research & development expense and other operating expenses.

Boeing Capital Corporation EBITDA Margin was around 65% in 2009. It recovered steadily to 75.4% in 2012 supported by a recovery in the global economy. However, the figure fell to 68.2% in 2013, 58.3% in 2014, and 49.8% in 2015, only to increase to historical levels of 69.7% in 2016. In 2017, the figure jumped to 78.5%. We expect Boeing Capital Corporation EBITDA Margin to increase over the remainder of the Trefis forecast period.

Chart: Boeing Capital Corporation EBITDA Margin

Rate of Income Earned on Notes/Receivables/Leases

Rate of Income Earned on Notes/Receivables/Leases represents the annual revenues of Boeing Capital Corporation (BCC) as a percentage of its investment portfolio. This is an implied driver which is calculated by dividing BCC's total revenue by the total BCC investment portfolio, which includes aircraft held under lease and financial notes/receivables.

The Rate of Income Earned on Notes/Receivables/Leases stood at 12.5% in 2007. It declined to about 11.6% in 2008-09. This primarily reflects declining revenues in these years, which was the result of many aircraft's going off-lease.

The reduction in rates was a consequence of the economic slump in 2008-09, which severely affected airline revenues and earnings. This in turn led to increasing cost controls and subsequently a return of aircraft which were previously held under lease by customers. One example of this is the return of four 757 aircraft previously leased to ATA Holdings Corporation, which filed for bankruptcy protection in 2008.

Chart: Rate of Income Earned on Notes/Receivables/Leases