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◆ revenue.
◆ Boeing Capital
◆ Last year, for the first time, Airbus received 233 commercial
orders, 57 more than Boeing did. This year they are on track to
deliver more than Boeing for the first time.
◆ In 2000, Airbus announced the A380 two-deck superjumbo jet. It
is set to begin flights in 2006. The A380 will likely dominate the
superjumbo market and reduce Boeing’s 747 sales.
◆ Airlines want higher efficiency airplanes. Market research
suggests there will be more point-to-point flights in demand.
◆ Boeing must push the 7E7 (known as 787 later) to maintain
foothold in the commercial aircraft oligopoly.
Business Environment &
Customer Preference
◆ The events of September 11 and the bursting of the IT bubble in
2001 led to a significant decline in airplane orders.
◆ Boeing was originally intend to introduce “Sonic Cruiser,” which
promised to fly 15% to 20% faster than any commercial aircraft with
futuristic design to the market, expecting these are the customers’
demand.
◆ After two years development, Boeing found that customers prefer
different features.
◆ Based on discussion with over 40 airlines, Boeing identified a fresh
market to replace mid-size planes, named 7E7, which has following
advantages.
◆ Lower operating costs
◆ Mid-size plane that could travel long distances
◆ Wider aisles
◆ Lower cabin altitude
Weighted Average
Cost of Capital
WACC = (Wdebt)(rd)(1-tc) + (Wequity)(re)
◆ The cost of equity capital is calculated using the Capital Asset Pricing
Model (CAPM).
re = CAPM = rf + β (rm – rf )
Betas LH NG R
S&P 500 0.36 0.34 0.43
NYSE 0.49 0.44 0.59
Boeing’s Beta
To determine Boeing’s defense beta, first unlever the
beta’s for the comparable companies and average them to
get the industry average defense beta.
β
β = levered
unlevered debt
1 + (1 - t)
equity
⎛ debt ⎞
β = β × ⎜
⎜1 + ( - t)
⎟ = 0 . 37
⎟ × (1 + ( - 0.35) × 0.525 )= 0 . 50
defense unlevered
(NYSE) ⎝ 1 equity ⎠ 1
2. + NPV
NPV by Initial Costs
S&P 500 NYSE ◆ Projections assume
$8B initial outlay
$6B 7,704 6,341
• http://www.capital-flow-analysis.com/investment-essays/boeing_buyback.html
• https://www.thetrumpet.com/article/1020.26857.62.0/united-states/boeing-vs-airbus?preview
• http://www.forbes.com/2004/01/05/cx_al_0105matchup.html
• http://www.slideshare.net/reyyandemir/aviation-industry-and-mro-sector-trends
• http://www.iata.org/pressroom/facts_figures/fact_sheets/documents/fuel-fact-sheet.pdf
• http://www.as777.com/data/manufacturer/forecast/airbus%202003.pdf
• http://en.wikipedia.org/wiki/Boeing