EADS

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EADS Boeing

• A comparison of Multinational Companies.
• Which company should we recommend for
  Investment?

Prepared by Phuong Pham Richard Vaillant Weichum
Weng Mohamed Zatet
ACIB872 Spring 2007 Professor Morris McInnes
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Agenda

• Introduction - Rich Vaillant
• Company Background - Phuong Pham
• Company Strategy - Mohamed Zatet
• Financial Management - Rich Vaillant
• Financial Performance - Weichum Weng
• Valuation - Weichum Weng
• Recommendation - Phuong Pham

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EADS Background

• The second largest aerospace company in the world
  after Boeing
• Company formed from Merger in 2000 between
  Eurocopter and EADS Astrium.
• Revenue in 2006 is 47.3 billion .
• 113,210 employees in 2006.
• Aerospace, defence, and telecommunications.
• Headquarters are in Germany and France.

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EADS Background Cont

• Thomas Enders (Germany) and Louis Gallois
  (French) are CEOs
• French and German governments subsidize EADS.
• EADSs stock is trading on European stock
  exchange (Uuronex Paris and Frankfurt Stock
  Exchange.)

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Boeing Background

• The worlds largest aerospace company.
• Established 1916 in Seattle, Washington.
• Revenue 61.5 billion in 2006.
• 153,000 employees in 2006.
• Commercial airlines, military aircraft,
  munitions, space systems and computer services.

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Boeing Background Cont

• Headquarter is in Chicago, Illinois.
• W. James McNerney, Jr is CEO.
• Receive tax breaks from the government.
• Boeings stock is trading NYSE

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Strategy
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Markets

• EADS and Boeing both are global companies.
• EADS Total 2006 Revenue 47.30B
• Airbus 28.85 billion Defence and Security
  6.62 billion
• Space System 3.78 billion Eurocopter 0.43
  billion
• Military Transport Aircraft 2.36 billion
  Other Businesses 1.42 billion
• BOEING Total 2006 Revenue 61.51B
• Commercial Airplane 28.29 billion Others
  0.62 billion
• Integrated Defense System 32.60 billion
• U.S is the largest market for both companies

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Revenue Comparison by Region (EADS Boeing)
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EADS Revenue 2006 Breakdowns by Segment
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Boeing Revenue 2006 Breakdowns by Segment
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Competition

• Civilian Market
• Boeing is main competitor of EADS in the
  100-seat and higher commercial aviation segment.
• Defense/Aerospace Market
• Intense competition from national companies in
  Russia, China, India
• Intense competition from private companies
  Lockheed, Northrop, SAAB, BAE, etc.

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• Financial Management

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Management Corporate Governance

• EADS
• Two Chairman CEOs one German (based in
  Germany) and one French (based in France).
• CEOs can only be replaced by his respective
  government.
• Heavily unionized with a socialist economic
  agenda.
• Receive on average 4.5bill per year in support
  of RD from EU governments.
• BOEING
• Has one CEO and eleven member board of directors.
• Centralized decision making gives the edge to
  Boeing to respond better to market demands.
• Receive funding from the U.S government in RD.
  US GAAP requires this funding to be recorded as
  offsets to RD expenses.

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Management Corporate Governance

• EADS Shareholders
• 58 controlled by 3 groups (30 French Government
  French Company, 5 Spanish State Holdings, 23
  Daimler-Chrysler)
• 37 in public markets over 6 stock exchanges.
• 3.5 Internal Ownership (employees/Management)
• BOEING Shareholders
• 70 Public Institutions (top 50 companies own
  54)
• 29 Mutual Funds
• 1 Internal Ownership (employees/Management)

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Accounting Policy

• EADS financial statements are prepared in
  accordance with IFRS.
• EADS engages both KPMG and Ernst Young as their
  Certified Public Accounting
• Boeing financial statements are prepared in
  accordance with US GAAP.
• Boeing engages Deloitte Touché as there
  Certified Public Accounting firm.

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Significant Risk

• EADS
• Operational Management (A380 delays)
• Outsourcing Manufacturing to United Aircraft Corp
  Aeroflot
• 87,000 union members angered at outsourcing, work
  stoppage looms
• Significant Government influence (France,
  Germany, Russia, UK)
• Financial Market Risk
• BAE Systems (UK Defense firm) sale of 20
  minority Interest in Airbus (Purchase in 2006,
  sell in 2007)
• BOEING
• Credit Risk in A/R.(58 of O/S A/R is with
  Airline companies at or near bankruptcy)
• Delays in Launch of 787 series airliner
• Continued RD funding from US Defense Budgets
• 37 of all US employees to renegotiate
  collective bargaining agreement

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Subsequent Events

• EADS
• On Feb, 2007 a major restructuring program called
  Power 8 which will implement headcount
  reduction of 10,000 employees yielding cost
  reduction 2.1B/yr.
• On Mar 2, 2007 EADS, A380F has been delayed and
  UPS cancelled orders.
• New CEO from Daimler-Chrysler (Rudiger Grube
  German influence).
• Russian Government to purchase 4 stake in EADS
  in exchange for A380 Outsourcing.
• EADS Boeing
• WTO reviewing Litigation on government funding to
  EADS 16B Boeing 24B

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Risk Factors of Stock Price

• Environment Risk (Systematic Risk, Beta)
• Business Risk (Non-systematic Risk, Operation
  Risk)
• Financial Risk
• Market Risk ( currency, interest )
• Credit Risk

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Stock Price Vs. Events
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Stock Price Characteristics

• Before 2006, stock price subject to Environment
  risk
• 9/11 EADS?50 Boeing ?25
• SARS EADS ?60 Boeing ?50
• After 2006, stock price subject to Business and
  Financial risk (zero-sum game)
• 2006 EADS ?27Boeing? 27 (zero-sum game)
• Boeing performed better than EADS after 9/11

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Aerospace/Defense Industry - 2006
Unit (USD)
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Dupont and Cash Flow Analysis
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Which company should we commend for investment?
Recommendation - BOEING
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(No Transcript)
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THANK YOU

• QUESTIONS?