Boeing Bond Analysis

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  • Topic: Bond, Bond market, Finance
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Boeing
Bond Analysis

Presented to
Dr. -----

Prepared by
Filipe Ferro

October 9, 2012

Table of Contents
Boeing Company3
Bond Issue3
Unsystematic Risk4
Principal Repayment4
Debt to Invested Capital4
Debt to Equity4
Current & Quick Ratios5
Interest Repayment5
Times Interest Earned5
Credit Position6
Competitor Analysis6
General Dynamics6
Northrop Grumman7
Systematic Risk7
Market Responsiveness7
Duration8
Modified Duration9
Accuracy of Rating9
Interest Rate Expectations9
Summary10
Appendix11
Descriptive Statistics11
Regression Analysis11
Duration & Modified Duration12
References13

Boeing Company
Boeing is a manufacturer of aircrafts and national defense equipment making it a member of the Aerospace & Defense industry. It was founded in Seattle, Washington on July 15, 1916. It is headquartered in Chicago, Illinois, USA. Commercial aircraft include the 737, 747, 777, and very recently, the 787. Military products consist of high-dexterity and stealthy aircraft such as a the A-10 Thunderbolt II and highly-efficient and powerful satellites such as the Boeing 601.1 Its biggest competitors are Northrop Grumman, General Dynamics, and Airbus. According to Morningstar, Boeing employed 171,700 people and revenue reached $69 billion in 2012.2 Bond Issue

The bond I have chosen to analyze is a debenture with a maturity date of August 15, 2021. Morningstar shows this bond issue consists of 400 million $1,000 par value bonds with 398 of them outstanding. The bond is a semi-annual fixed coupon bond with an annual rate of 8.75%. The accrual start date was August 15, 1991. The original life of the bond was 30 years and the remaining life as of October 2012 is a little over 8 years and 10 months. This bond issue is non-callable, non-putable, non-convertible, and it is not subject to Rule 144A. These bonds are currently selling at 135.20% of par value as of September 29, 2012, making their price $1,352. Standard & Poor’s NetAdvantage rates this issue as an A. Its current yield ratio is 6.47. I have always been enthusiastic about airplanes. My first experiences in flight were in Boeing aircrafts. I also chose this bond issue because of Boeing’s large size, reputation, and financial security. Selecting a debenture is risky and requires strong financial security since the only security backing it is the issuing company’s credit rating. With a current yield of 6.47 resulting from the relatively high coupon rate of 8.75%, this is a great bond for a fixed income (coupon pays $87.50 annually). Unsystematic Risk

Principal Repayment
Debt to Invested Capital
In recent years, Boeing’s debt to capital ratios have been 42% for 2007, 112.9% for 2008, 85.2% for 2009, 80.6% for 2010, and 74.0% for the end of 2011. Boeing’s total debt to invested capital ratio is 65.53% (as of June 2012)3. Standard & Poor’s calculates this as (total debt)/(total equity + total debt), 2,466,000+8,735,0005,892,000+11,201,000. This means that debt makes up about 65% of all invested capital. Boeing still has 35% of capital that is not tied to debt. This is good compared to the last few years. This ratio is on a downward trend. Debt to Equity

Boeing’s total debt to equity ratio is 1.51 (as of June 2012) 3, meaning that for every $1 in equity there is $1.51 of debt. This is calculated as 8,735,0005,804,000 on the balance sheet. According to Standard & Poor’s Industry Survey, Boeing’s debt to equity ratio at the end of 2011 was 2.85. The Aerospace & Defense industry average from 1981 to 2011 was 0.90.4 The industry survey states that Boeing’s high debt to equity ratio is due to its “financial arms” since it has a large financing department. It is also probably due to its new model plane, the 787 Dreamliner, which requires a relatively expensive manufacturing processes – unibody parts made up of composite carbon fiber materials – and advanced...
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