Boeing Company, The

Company Profile

Publication Date: 19 Jun 2009

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TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Boeing Company, The
Company Overview

COMPANY OVERVIEW

Boeing is engaged in the design, development, manufacturing, sale and support of commercial
jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and
services. The company operates in the US and Europe. It is headquartered in Chicago, Illinois and
employs about 162,200 people.

The company recorded revenues of $60,909 million during the financial year ended December 2008
(FY2008), a decrease of 8.3% compared to 2007. The decline in revenues was primarily due to
lower revenues from commercial airplanes segment. The operating profit of the company was $3,950
million during FY2008, a decrease of 32.2% compared to 2007. The net profit was $2,672 million in
FY2008, a decrease of 34.4% compared to 2007.

KEY FACTS

Head Office Boeing Company, The

100 North Riverside Plaza
Chicago
Illinois 60606 1596
USA
Phone 1 312 544 2000
Fax
Web Address http://www.boeing.com
Revenue / turnover 60,909.0
(USD Mn)
Financial Year End December
Employees 162,200
New York Ticker BA

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SWOT Analysis

SWOT ANALYSIS

Boeing is engaged in the design, development, manufacturing, sale and support of commercial
jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and
services. The company is one of leading producers of commercial aircraft. It has customers in more
than 90 countries around the world and is one of the largest US exporters in terms of sales. The
company’s large scale of operation enhances its market penetration opportunities and gives it
substantial bargaining power. However, changes in the budgetary priorities of the US Government
could directly affect the company's operating results.

Strengths Weaknesses

Large scale of operation Weakening financial performance

Strong association with Federal Legal proceedings
Government Sluggish performance in key segments
Focus on R&D
Strong order backlog

Opportunities Threats

Inorganic growth Change in the US budgetary priorities

Rising global defense spending Issues arising from fixed-price contract
Growing demand for commercial airplanes Forecasted global recession in 2009
Labor market woes in the US

Strengths

Large scale of operation

Boeing is the global market leader in design, development, manufacture, sale and support of
commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch
systems and services. The company is one of two major manufacturers, equipped to produce aircraft
capable of carrying more than 100 passengers for the worldwide commercial airline industry, and
the second-largest defense contractor in the US. Boeing is one of the leading producers of commercial
aircraft and offer a broad spectrum of commercial jetliners designed to meet passenger and cargo
requirements of both the US and non-US airlines. The company has customers in more than 90
countries around the world and is one of the largest US exporters in terms of sales.

In addition, Boeing has greater scale in terms of revenues, compared to other players in the market.
The company generated total revenues of $60,909 million in FY2008, which is significantly higher
than that of its competitors such as Raytheon ($23,174 million), General Dynamics ($29,300 million),

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SWOT Analysis

BAE Systems ($30,927.7 million), Northrop Grumman ($33,887 million), and Lockheed Martin
($42,731 million). The company’s large scale of operation enhances its market penetration
opportunities and gives it substantial bargaining power.

Strong association with Federal Government

Boeing has a strong association with the US federal government. In FY2008, the US government
contracts accounted for 46% of total revenues of the company. The company deals with numerous
US government agencies and entities, NASA, and the Department of Homeland Security. The
company’s IDS segment provides various research, development, production, modification and
support services to the US Department of Defense (80% of IDS 2008 revenues), NASA and other
defence customers.

The company also engineered and deployed various products for the Army, Navy and Air Force,
among others. It tests complex and mission critical hardware and software systems used by the
Army, Navy, and NASA, with many of these customer relationships spanning more than three
decades. The company played key roles in improving the performance, reliability, maintainability,
supportability, and weapons effectiveness.

The company has received significant contracts from these customers. Most recently, Boeing received
a $48.9 million contract from the US Navy in May 2009, for development and testing of a Distributed
Targeting system for the F/A-18E/F Super Hornet strike fighter. In June 2009, Boeing received A-10
sustainment and integration contract from the US Air Force. In the same month, the company also
received a $5.2 million US Marine Corps contract to provide a solution for recovering disabled Mine
Resistant Ambush Protected vehicles. In June 2009, Boeing received a contract from the US Army,
for future combat systems spin out production. Strong relationship with major customers enables
the company to receive many new contracts and hence serves as a competitive advantage.

Focus on R&D

Boeing has a strong focus on R&D activities. Its 'other' business segment principally includes the
engineering, operations and technology (EO&T) activities. EO&T is an advanced research and
development organization focused on innovative technologies, improved processes and the creation
of new products. R&D expenditures involve experimentation, design, development and related test
activities for defense systems, new and derivative jet aircrafts, including both commercial and military,
advanced space and other company-sponsored product developments.

The company's total R&D expenses amounted to $3.8 billion, $3.9 billion and $3.3 billion in FY2008,
2007 and 2006, respectively. R&D costs also include bid and proposal efforts related to government
products and services and costs incurred in excess of amounts estimated to be recoverable under
cost-sharing R&D agreements. R&D investments in the Global Tanker Aircraft program represent
a significant opportunity to provide state-of-the-art refueling capabilities. Other R&D efforts include
upgrade and technology insertions, and enhancing the capability and competitiveness of current
product lines such as the F/A-18E/F Super Hornet, F-15E Eagle, AH-64 Apache, CH-47 Chinook
and C-17 Globemaster.

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SWOT Analysis

The company is also investing in the communications market to enable connectivity between existing
air/ground platforms, increase communications availability and bandwidth through more robust space
systems, and leverage innovative communication concepts. Key programs in this area include Joint
Tactical Radio System, FCS, Global Positioning System, and Transformational Satellite
Communications System. The company's strong focus on R&D enables it to gain an edge over its
peers in a competitive marketplace by responding quickly to market dynamics.

Strong order backlog

Boeing was successful in increasing new orders in its key segments. The total order backlog of the
company stood at $323.9 billion in FY2008, an increase of 9.1% over 2007. The company has also
recorded increase in order from majority of its segments.

Of the total backlog, the commercial airplanes segment recorded a net backlog of $278.6 billion in
FY2008, an increase of 9.2% over 2007. Similarly, the integrated defense segment of the company
recorded an order backlog of $45.3 billion in FY2008, an increase of 8.4% compared to the previous
year. The strong order backlog assures stable revenue growth for the company and improves its
market position.

Weaknesses

Weakening financial performance

Boeing has recorded declining efficiency in terms of profits and margins. The company recorded
operating profit of $3,950 million during FY2008, a decrease of 32.2% compared to 2007. The net
profit was $2,672 million in FY2008, a decrease of 34.4% compared to 2007.

In addition, Boeing has recorded weak margins as compared to its competitors. Its operating margin
and net profit margin in 2008 were 6.5% and 4.4%, respectively, which is considerably lower than
its competitors, BAE Systems (10.3% and 10.6%); General Dynamics (12.5% and 8.4%); Lockheed
Martin (12% and 7.5%); and Raytheon (11.2% and 7.2%), during the same period. The company’s
weak financial performance implies poor cost management and decision making by the management.
Continuation of this trend could reduce availability of resources to pursue growth plans.

Legal proceedings

The company is involved in various lawsuits, claims and legal proceedings, including commercial
and contract disputes, employment matters, product liability claims, environmental liabilities, intellectual
property disputes and other personal injury claims, arising out of the conduct of the company’s
business. In 2006, Boeing was named as a defendant in a lawsuit filed in the US District Court for
the Southern District of Illinois. The complaint alleges that fees and expenses incurred by Boeing
Voluntary Investment Plan (the VIP Plan) were unreasonable and excessive, not incurred solely for

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SWOT Analysis

the benefit of the VIP Plan and its participants, and were undisclosed to participants. By mid 2008,
the out come of the litigation was not concluded.

Further Telesat Canada (Telesat) and a group of its insurers served Boeing Satellite Systems
International (BSSI) with an arbitration demand alleging breach of contract, gross negligence and
willful misconduct in connection with the constructive total loss of Anik F1, a model 702 satellite
manufactured by BSSI. Telesat and its insurers seek over $385 million in damages and $10 million
in lost profits. The arbitration hearing in this matter has been scheduled for November 2010. In
FY2008, the company received a formal dispute notice from New Skies alleging that BSSI breached
the NSS-8 contract by failing to timely deliver a satellite in orbit and repudiating the replacement
satellite option. Such legal proceedings could results in excessive expenditure for the company. It
could also adversely affect the image of Boeing.

Sluggish performance in key segments

Boeing has recorded sluggish operational performance in its key segment. Commercial airplanes,
the largest business segment of the company, accounted for 45.9% of the total revenues in FY2008.
Revenue from this segment reached $28,263 million, a decrease of 15.3% compared to 2007.
Further, revenues from Boeing military aircraft segment declined by 1.8%; network and space systems
segment declined by 1.2%; and revenues from the Boeing capital corporation segment declined by
13.7%.

In addition, Boeing has also recorded decline in revenue from few of its key markets. The US, the
company’s largest geographical market, accounted for 61% of the total revenues in FY2008. Revenues
from the US reached $37,132 million in FY2008, a decrease of 5.6% compared to 2007. Further,
revenue from Asia, other than China declined by 28.7%; Europe by 4.8%; China by 15.7%; Oceania
by 6.4%; and Africa by 45.9%. A continued weak performance in the key divisions will affect the
overall financial position of the company.

Opportunities

Inorganic growth

Boeing has been expanding its portfolio of products and strengthening its position in the industry by
acquiring assets or organizations. For instance, in November 2008, Boeing acquired Tapestry
Solutions, a San Diego-based company specializing in software systems and services.This acquisition
will accelerate the growth of the company's service and support business. Tapestry Solutions' data
fusion, logistics and knowledge management products and services will enhance the company’s
global logistics support network. Further in December 2008, Boeing acquired Federated Software
Group, a St. Louis-based company whose engineering services and software systems help track
and distribute equipment and personnel for the US Department of Defense. This acquisition will
expand the company’s presence in the military supply-chain and logistics command-and-control
markets.

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SWOT Analysis

In addition, Boeing acquired Digital Receiver Technology, a company that develops wireless
surveillance products for government customers. This acquisition will help the company to expand
its presence in the growing intelligence market. In June 2009, the company signed an agreement
to acquire eXMeritus, a company that provides hardware and software to federal government. This
acquisition will expand the company’s presence in the cyber and intelligence markets. These
acquisitions will help the company to reinforce its market position in various segments as well as
expand its geographical coverage.

Rising global defense spending

Global military expenditure and arms trade form the largest spending in the world in 2007. The global
defense spending was more than $1 trillion in 2007 and has been rising in recent years. The US
remains the largest market by far, yet the defense budget is expected to reach its peak in 2009 as
growth is driven by the demands and consequences of the war in certain places around the world.
Outside the US, around 80% of the defense spending comes from just 20 countries: seven in Europe
(the UK, France, Germany, Italy, Spain, Netherlands and Greece); six in the Asia Pacific region
(Japan, China, South Korea, India, Taiwan and Australia); three in the Middle East (Saudi Arabia,
Israel and Turkey); two in South America (Brazil and Colombia); and Russia in the Commonwealth
of Independent States.

The US approved $481.4 billion in 2008 for the DoD's base budget. The US President has requested
the Congress for $515 billion as the defense spending for FY2009. In addition to 2009 budget request,
the President has requested an initial $70 billion in supplemental funding to support war efforts in
Iraq and Afghanistan. By 2010, large defense budgets and good growth is forecasted in five countries:
Russia, China, South Korea, India and Saudi Arabia. Together these countries are forecast to grow
their budgets by a combined total of $55 billion between 2007 and 2010. The company is one of the
leading defense contractors, especially in military aircrafts, naval systems and defense electronics
and avionics. Its clients include the defense departments of several countries. The increasing global
defense spending could provide the topline growth for Boeing in the short to medium term.

Growing demand for commercial airplanes

The commercial airplane market is expected to grow to $2.8 trillion by 2027. By that year, the global
commercial airplane fleet is expected to double as compared to the existing fleet size. It is projected
that the passenger traffic would grow at 4.8% annually till 2027, requiring approximately 28,600 new
commercial airplanes to meet the increasing traffic. The largest market is projected to be the
Asia-Pacific region, with 36% of the $2.8 trillion market (as a result of the demand among Asian
carriers in that market for more twin-aisle airplanes). North America will make up for 26% of the total
market, and Europe will make up 25%. Deliveries to airlines in Latin America, the Middle East and
Africa will represent a total of 13% of the market between 2006 and 2025.

The company is one of the leading producers of commercial aircraft and commercial jetliners. The
company's commercial jet aircraft includes the 737 narrow-body model and the 747, 767, 777
wide-body models. Boeing's 20-year forecast reflects an average growth rate of 5% per year for
passenger traffic, and 6% per year for cargo traffic based on projected average annual worldwide

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real economic growth rate of 3%. Based on long-term global economic growth projections, and
factoring in increased utilization of the worldwide airplane fleet and requirements to replace older
airplanes, the company projects a $3.2 trillion market for 29,400 new airplanes. The commercial
airplane division with significant operations worldwide is well positioned to benefit from the growing
commercial airline market.

Threats

Change in the US budgetary priorities

Boeing is dependent on the US government for majority of its revenues. Changes in the budgetary
priorities of the US Government, or the DoD, could directly affect the company's operating results.

For instance, the US defense budget declined in the late 1980s and the early 1990s, resulting in a
slowdown in new programs, program delays, and program cancellations. These reductions caused
most defense related government contractors to experience declining revenues, increased pressure
on operating margins and even net losses in certain cases. While spending authorizations for defense
related programs by the US government have increased in recent years and in particular after the
September 11, 2001 terrorist attacks, these spending levels may not be sustainable. The future
levels of spending and authorizations for such programs may decrease, remain constant or shift to
programs in areas where the company does not currently provide services. A significant decline in
the overall US government spending, including in the areas of national security, intelligence and
homeland security would adversely affect the company's future revenues and limit its growth
prospects.

Issues arising from fixed-price contract

The company performs a portion of engagements on a variety of fixed-price contract vehicles. The
IDS segment of the company derived 50% of total revenue in FY2008 from fixed-price contracts.
Fixed-price contracts require the company to price contracts by predicting expenditures in advance.
In addition, some of the engagements obligate the company to provide ongoing maintenance and
other supporting or ancillary services with limitations on its ability to increase prices.

When making proposals for engagements on a fixed-price basis, Boeing relies on its estimates of
costs and timing for completing the projects. Any increased or unexpected costs or unanticipated
delays in connection with the performance of fixed-price contracts, including delays caused by factors
outside the company's control, could make these contracts less profitable or unprofitable.

From time to time, unexpected costs and unanticipated delays have caused to incur losses on
fixed-price contracts, primarily in connection with state government clients. On rare occasions, these
losses have been significant. In 2008, Boeing recorded a charge of $685 million for a reach-forward
loss on its 747 program as a result of schedule delays and higher cost estimates associated with

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the development of the 747-8 freighter and passenger derivative aircraft. Such problems in the future
with fixed price contracts could have a negative impact on the company's revenues.

Forecasted global recession in 2009

According to the world economy outlook of the IMF, the world economy will slow sharply in 2009
and in 2010, with the US likely to slide into recession reflecting the damage from the financial turmoil
in more than a half-century. The IMF forecasts, that the global economy, which was 3.4% in 2008,
will lose considerable speed slowing to 0.5% in 2009 its lowest rate since World War II. The tightening
of credit in financial markets adversely affects the ability of the company’s customers to obtain
financing for significant purchases and operations. This could result in a decrease in or cancellation
of orders for Boeing’s products and services as well as impact the ability of its customers to make
payments.

Further, the tightening of credit in financial markets may adversely affect Boeing’s supplier base and
increase the potential for one or more of its suppliers to experience financial distress or bankruptcy.
Therefore, further recession in global economy would harm the company’s business by adversely
affecting its revenues, results of operations, cash flows and financial condition.

Labor market woes in the US

The US economy is facing a serious challenge in its labor market. In recent times, tight labor markets,
increased overtime, government mandated hike in minimum wages and a higher proportion of
full-time employees are resulting in an increase in labor costs, which could materially impact the
company's results of operation. The federal minimum wage rate in the US, which had remained at
$5.1 per hour since 1997, increased to $6.5 per hour from July 2007. The federal minimum wage
rate is further expected to rise to $7.25 an hour effective July 2009.

Further, the company has experienced a work stoppage in 2008 when a labor strike halted commercial
aircraft and certain BMA program production and it may experience additional work stoppages in
the future, which could adversely affect its business. Boeing has relationship with 14 different US
labor organizations and seven different non-US labor organizations. Further, 33% of the company’s
employees are associated with certain labor associations like IAM, SPEEA and UAW. These unions
may also limit the company’s flexibility in dealing with its workforce. Work stoppages and instability
in union relationships could negatively impact the timely production and development of products,
which could strain relationships with customers and cause a loss of revenues that would adversely
affect the company’s operations.

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