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Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So Vision 2025: The Premier Global Supply Chain Leader.

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Presentation on theme: "Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So Vision 2025: The Premier Global Supply Chain Leader."— Presentation transcript:

1 Todd Penke, Juan Pablo Saldarriaga, Katlin Smith & Jon So Vision 2025: The Premier Global Supply Chain Leader

2 2April 16, V I S I O N : P eople working together as a global enterprise for aerospace leadership Strategies Run healthy core businesses Leverage strengths into new products and services Open new frontiers Core Competencies Detailed customer knowledge and focus Large-scale systems integration Lean enterprise Values Leadership Integrity Quality Customer satisfaction People working together A diverse and involved team Good corporate citizenship Enhancing shareholder value

3 3April 16, 2010 Core Competencies Detailed customer knowledge and focus Large-scale systems integration Lean enterprise Premier global supply chain leader V I S I O N : A global enterprise that cultivates communication and cooperation with the worldwide network for aerospace leadership Strategies Run healthy core businesses Leverage strengths into new products and services Open new frontiers Values Leadership Integrity Quality Customer satisfaction People working together A diverse and involved team Good corporate citizenship Enhancing shareholder value

4 4April 16, inch gap is found between the nose-and- cockpit section and fuselage (made by different suppliers) Jun Takeaways from the Dreamliner The Dreamliner has provided valuable lessons in global supply chain management Source: Boeing sets up team to design and sell the 7E7 First flight: Aug First delivery: May 2008 Jan Additional oversight of large component manufacturing A A Guidance in detailed designs for inexperienced global partners C C Consistent management during new product development B B Jan Further three-month delay announced due to problems with suppliers and slow assembly process First flight: Jun First delivery: early 2009 Dec Dreamliners first flight First delivery: 4 th qtr. of 2010 Boeing acknowledges a delay of up to six months due to unfinished work by global partners Head the Dreamliner project is replaced First flight: March 2008 First delivery: late 2008 Oct. 2007

5 5April 16, 2010 Supply Chain Activity in New Product Development Responsible Party The breakdown of Boeings systems integrator business model occurs at the detailed design and manufacturing stage General Design Work Final Assembly Global Partners Detailed Design Work Global Partners Large Component Manufacturing Inexperienced global partners cannot handle detailed design work Insufficient oversight of manufacturing Boeing SMaRt Strategically Outsource Boeing Precision Manufacturing Oversight

6 6April 16, 2010 Supply Chain Activity in New Product Development Boeing 2025 Precision and SMART will enable Boeing to become the premier global supply chain leader Boeing SMaRt Boeing SMaRt General Design Work Final Assembly Detailed Design Work General Design Work Final Assembly Detailed Design Work Large Component Manufacturing Boeing Precision General Design Work Final Assembly Large Component Manufacturing

7 7April 16, 2010 Boeing SMaRt Boeing SMaRt Supply Chain Activity in New Product Development General Design Work Final Assembly Detailed Design Work General Design Work Final Assembly Detailed Design Work Large Component Manufacturing Boeing Precision BOEING PRECISION Production of & Long-Term Strategy

8 8April 16, 2010 Project team to divide and conquer 787 supply concerns M M Likelihood of delay occurrence LowHigh Low High Possible extent of compound delays 5-10 Person Project team will place current 787 into four quadrants depending on: Likelihood of delay occurrence Possible extent of compounded delays 5-10 Person Project team will place current 787 into four quadrants depending on: Likelihood of delay occurrence Possible extent of compounded delays Action for each supplier will be based on its sqare | Boeing Precision | Boeing SMaRt | Boeing 2025 |

9 9April 16, 2010 Risky suppliers with critical parts require alternative suppliers to mitigate risk High Low Sq. 1: Develop Alternative Suppliers Action Plans Based On Square Possible extent of compound delays Likelihood of delay occurrence LowHigh | Boeing Precision | Boeing SMaRt | Boeing 2025 |

10 10April 16, 2010 Alternate suppliers can help limit delays when problems occur for relatively low costs P P Source: Develop a supplier contingency plan: Case Materials Square 1: Develop Alternative Suppliers Example: Airplane Fasteners which caused over 6 months of delays in the 787. They were essential for production and were being produced by a risky supplier. Many recent delays have occurred due to upstream suppliers causing domino effects downstream Can be achieved for low cost of $12-$15 million | Boeing Precision | Boeing SMaRt | Boeing 2025 |

11 11April 16, 2010 For suppliers that are at risk for delay or who are producing critical parts, Boeing should have on-site representatives High Low Develop Action Plans Based On Square Sq. 1: Develop Alternative Suppliers Sq. 1, 2, and 3: Place Boeing employees in house Possible extent of compound delays Likelihood of delay occurrence LowHigh | Boeing Precision | Boeing SMaRt | Boeing 2025 |

12 12April 16, 2010 Close coordination can be kept with suppliers for $25 Million over 6 years Squares 1, 2, and 3: Place Boeing employees in house For suppliers with higher risk of delaying shipments (group 3), place 1- 2 Boeing employees onsite for period of six months or longer if necessary – approximately $20 million N N For suppliers with higher risk of delaying shipments (group 3), place 1- 2 Boeing employees onsite for period of six months or longer if necessary – approximately $20 million N N For suppliers with critical components but less risk (groups 1 & 2), have traveling Boeing employees make on-site visits weekly – approximately $5 million O O For suppliers with critical components but less risk (groups 1 & 2), have traveling Boeing employees make on-site visits weekly – approximately $5 million O O | Boeing Precision | Boeing SMaRt | Boeing 2025 |

13 13April 16, 2010 On-site representatives will enable early problem mitigation and therefore lessen impact of delays Source: Case Materials Squares 1, 2, and 3: Place Boeing employees in house Boeing places order Supplier begins design Supplier begins production Supplier sends product for delivery Secondary supplier fails to deliver Supplier is missing key technology Suppliers employees go on strike Scaled production fails Transport Labor in country go on strike Best Case Scenario Problems Arise Boeing Mitigates Risk Alerted to problem Boeing has time to find another supplier Boeing can work with supplier to solve problems Boeing can plan production around delays | Boeing Precision | Boeing SMaRt | Boeing 2025 |

14 14April 16, 2010 Even suppliers not at risk of delay should be incentivized to perform High Low Sq. 1: Develop Alternative Suppliers Develop Action Plans Based On Square Sq. 1, 2, and 3: Place Boeing employees in house Sq. 4: Incentivize continued performance Possible extent of compound delays Likelihood of delay occurrence LowHigh | Boeing Precision | Boeing SMaRt | Boeing 2025 |

15 15April 16, 2010 Significant incentives can cause spillover improvements in Supply Chain P P For 4: Incentivize continued performance Current Rewards Suggested Incentives E E Suggested Incentives E E Give suppliers a larger number of products where possible Allow greater control over second tier suppliers Continue to allow design flexibility Continued purchasing Supplier of the Year complete with press releases and award ceremony Being further down the supply chain, incentives may cause firms to pressure their second tier suppliers | Boeing Precision | Boeing SMaRt | Boeing 2025 |

16 16April 16, 2010 Implementation can take place immediately and reduce further delays L L Assign Quadrants Identify Alternate Suppliers Place Orders Deliveries Occur Apr July OctJan 11 Select Employees Travelers Start Visits Employees Depart for Sites Choose Award Companies Renegotiate Contracts Apr July Oct Sq. 1: Develop Alternative Suppliers Sq. 1,2,3: Place Employees in field Sq. 4: Incentivize performance Total Program Cost: $54 mm | Boeing Precision | Boeing SMaRt | Boeing 2025 |

17 17April 16, 2010 Boeing Precision Supply Chain Activity in New Product Development General Design Work Final Assembly Large Component Manufacturing General Design Work Final Assembly Large Component Manufacturing BOEING SMaRt Long-Term Strategy Detailed Design Work Boeing SMaRt

18 18April 16, 2010 Supplier management may curb risks, but better appraisal & selection of suppliers is needed for prevention Source: SupplierDelayDetailsCause Advanced Integration Technology 6 monthsBolts were not ready by agreed deadline due to lack of necessary tools Lack of supplier fit, supplier not researched Vought3 monthsStruggled to fabricate fuselage with wiring when second tier suppliers omitted parts Second tier supplier fell through Fuji, Mitsubishi, Boeing 1 monthA 0.3 gap was created between nose and fuselage sections. Parts were created by multiple suppliers across the globe. Too many suppliers, too little collaboration A system is needed to appraise suppliers abilities to procure necessary parts, design parts, and manage partial supply chains | Boeing Precision | Boeing SMaRt | Boeing 2025 |

19 19April 16, 2010 Supplier Manufacturer Rating (SMaRt) will qualify first-tier suppliers based on their capabilities S S upplier Manufacture Rating S All potential first-tier suppliers will be given a rating Ratings are based on procurement capabilities & ability to design large components Suppliers must be a low- medium competitive threat | Boeing Precision | Boeing SMaRt | Boeing 2025 |

20 20April 16, 2010 SMaRt determines production roles of first-tier suppliers based on procurement capability and ability to design large components X X | Boeing Precision | Boeing SMaRt | Boeing 2025 | Procurement Capability Ability to Design Large Components S S S SESE SMSM High Low High

21 21April 16, 2010 BOEING 2025

22 22April 16, 2010 Opportunity cost of manufacturing and micro-design has prevented Boeing from being able to focus intelligently on its supplier network Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace | Boeing Precision | Boeing SMaRt | Boeing 2025 | Boeings Traditional Role

23 23April 16, 2010 Reducing the costs and inefficiencies of the entire network, Boeing will derive Competitive Advantage from organizing the value chain Boeings Traditional Role Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace | Boeing Precision | Boeing SMaRt | Boeing 2025 | Boeings New Role Boeings New Role

24 24April 16, 2010 Efficiency leads to lower costs and higher revenues, widening the entire value chain Boeings Traditional Role Source: Wouter A. Beelarts - The Lean Value Network System; Co-investment And Co-innovation As Drivers For A Sustainable Position In The Marketplace | Boeing Precision | Boeing SMaRt | Boeing 2025 | Boeings New Role Boeings New Role Lower Costs No delay penalties Efficient supply network Higher Revenues Shorter cash-to-cash cycle for airplane development Provide value to customers

25 25April 16, 2010 Inability to produce on schedule results in both an increase in costs and a decrease in revenues Source: Boeing order and delivery records for the 737 and 787 (http://active.boeing.com/commercial/orders/index.cfm) 787 sales have leveled off in comparison with the 737 which saw few delays First 787 delays *This does not include losses due to option cancellations **Losses in the chart to the left reflect cancelled agreements Delays lead to cancelled agreements, cancelled options and lower sales. For 787, this has meant approximately 1,200 fewer 787 sales Delays lead to cancelled agreements, cancelled options and lower sales. For 787, this has meant approximately 1,200 fewer 787 sales | Boeing Precision | Boeing SMaRt | Boeing 2025 |

26 26April 16, 2010 New projects managed right will produce results like optimum case for the Dreamliner Source: Case Materials Original Expectations Q Q Current Events U U Expectations with SMaRt AD AD NPV of Dreamliner Project (millions) Significantly higher earnings result after a total implementation cost of approximately $300 million | Boeing Precision | Boeing SMaRt | Boeing 2025 |

27 27April 16, 2010 Inexperienced global partners cannot handle detailed design work Insufficient oversight of manufacturing Supply Chain Activity in New Product Development Boeing 2025 Precision and SMART will enable Boeing to become the premier global supply chain leader Boeing SMaRt General Design Work Final Assembly Detailed Design Work Large Component Manufacturing Boeing Precision

28 28April 16, 2010 Core Presentation Slide Deck Map Core Slides #SectionTitle 3 Introduction 2025 Vision 4Introduction The Dreamliner timelineThe Dreamliner timeline 5Introduction Boeing supply chain breakdownBoeing supply chain breakdown 6Introduction Precision and SMaRT initiativesPrecision and SMaRT initiatives 8Precision Precision Introduction and Project TeamPrecision Introduction and Project Team 9Precision Develop Alternative Suppliers 11Precision Place Boeing Employees In-HousePlace Boeing Employees In-House 14Precision Continue to incentivize suppliers 16Precision Precision Timeline 19SMaRT SMaRT Introduction

29 29April 16, 2010 Appendix Slide Deck Map #SectionTitle A BackgroundDreamliner Lessons – oversight and control of global supply chain BBackgroundDreamliner Lessons – consistent management of new product development CBackgroundDreamliner Lessons – guidance in detailed designs for inexperienced global partners DBackgroundOutsourcing the manufacturing of the Dreamliner EVisionDelay results: Cancelled Orders FVisionDelay results: Loss of profitability GVision737 versus 787 Sales HVisionResults of Cessna and Collaboration IVisionImpact of Collaboration on Operational Costs JFinancialsBoeing Income Statement 2009 KFinancialsProduction Delay Schedule LFinancialsProduction Delay Schedule Assumptions MFinancialsProject Team Cost Assumptions NFinancialsPermanent Team Cost Assumptions OFinancialsTraveling Team Cost Assumptions PFinancialsAlternate Supplier and Performance Incentive Cost Assumptions QFinancialsOriginal 787 Net Present Value RFinancials787 Original Income Inputs #SectionTitle S FinancialsExample of each years free cash flows broken down by Quarter TFinancialsCOGs and General & Administrative Assumptions UFinancials787 Income Delay VFinancials787 Income Delay Assumptions XSMaRt Scorecard YSituationBoeings Current Situation Methodology ZFraming5 Forces Analysis AAFraming2010 Market Share of Boeings Competitors ABFramingAirbus Competitor Profile ACSituationBoeing SWOT Analysis ADSituationAirbus SWOT Analysis AESituationEnvironmental Concerns AFProject RiskProject Risks AGSituationLean Value Chain AAddendum787 Income Realistic BAddendum787 Income Realistic Inputs

30 30April 16, 2010 Appendix A: Dreamliner Lessons – oversight and control of global supply chain Sept Boeing says main features of the 787 airplane design are complete and sends detailed design work to the company's global partners on the plane: Mitsubishi, Fuji and Kawasaki, of Japan; Alenia, of Italy; Spirit Aerosystems, of Wichita, Kan.; and Vought, of Dallas. The Puget Sound region will manufacture only the vertical tail fin, built by Boeing near Tacoma. The 787 manufacturing plan calls for Boeing's partners to pre-install all wiring and ducting, so that seven large, all-but-completed structural sections of the jet arrive in Everett for snap-together assembly. Jan A Wall Street analyst says the 787 program is running into delays and cost increases. CEO Jim McNerney says the plane is on target for its first test flight around the end of August 2007 and first delivery in May Oct Boeing acknowledges a delay of up to six months the worst delay to a jet program in the company's history due to problems in unfinished work passed along by its global partners and delays in finalizing the flight- control software. The new schedule puts the first flight in March 2008 and the first deliveries late that year. Jan A further three-month delay is announced due to problems with unnamed 787 suppliers and slow assembly progress at the Everett plant. First flight is moved to June 2008 and first delivery to early 2009, putting the plane about nine months behind its original schedule. Apr Boeing confirms yet another six-month delay due to continuing problems with unfinished work from suppliers. The first delivery is pushed to the third quarter of 2009 about 15 months behind the original schedule. Some of the largest 787 customers' planes will be at least two years late. Dec Boeing acknowledges another six-month delay for the 787 and reorganizes management again. Shanahan is put in charge of all commercial-airplane programs and brings in Scott Fancher from Boeing's military side to take the day-to-day lead on the 787. The first Dreamliner is now scheduled to fly sometime between April and June of 2009, with first delivery to ANA sometime in the first three months of Jun Boeing says it will acquire the 787 rear fuselage assembly plant in Charleston, S.C., buying out its partner Vought for about $1 billion. Source: [Core Slide][Deck Map]

31 31April 16, 2010 Appendix B: Dreamliner Lessons – consistent management of new product development Jan Boeing sets up a team of executives to design and sell a new plane now officially dubbed the 7E7 (E for efficiency). First test flight is scheduled for August 2007, first deliveries for May Headed by Mike Blair Oct Mike Bair, 787 program head, is replaced by Pat Shanahan from Boeing's defense unit. Aug Scott Carson steps down as chief executive, replaced by Jim Albaugh, previously chief executive of Boeing's defense and space division. Source: [Core Slide][Deck Map]

32 32April 16, 2010 Appendix C: Dreamliner Lessons – guidance in detailed designs for inexperienced global partners May 2006 Boeing says parts of its global supplier network won't be ready when the first 787s come together in just over two years, so mechanics in Everett will have to install some of the planes' electrical wiring and other systems. Jun Boeing engineers assembling the forward section of Dreamliner No. 1 find a 0.3- inch gap at the joint between the nose-and-cockpit section and the fuselage section behind it, made by different suppliers. Engineers fix the distortion by disconnecting and reconnecting internal parts that brace the frame. Jun Engineers begin work on a fix for the wing-body joint flaw. Source: [Core Slide][Deck Map]

33 33April 16, 2010 Appendix D: Outsourcing the manufacturing of the Dreamliner Source: [Core Slide][Deck Map]

34 34April 16, 2010 Appendix E: Customers respond negatively to delays and need assurance their orders will be delivered in a timely manner Source: Boeing order fulfillment records (http://active.boeing.com/commercial/orders/index.cfm) Announcement of the first 787 delay Lost demand Announcement of more 787 delays 81% of 787 orders were placed before the first delay was announced 96% of 787 cancellations occurred after delay announcements

35 35April 16, 2010 Appendix F: Customer worry over delivery timeline comes at a high cost for Boeing Boeings 787 is easily compared to the sales of the 737; however, the 737 saw few delays As a result, 737 sales continued at a constant rate while 787 sales have leveled off. This has meant approximately 1,200 fewer 787 sales G G *This does not include losses due to option cancellations **Losses in the chart to the left reflect cancelled agreements Source: Boeing order and delivery records for the 737 and 787 (http://active.boeing.com/commercial/orders/index.cfm) 787 sales have leveled off in comparison with the 737 which saw few delays First 787 delays

36 36April 16, 2010 Appendix G: 737 versus the 787 sales 737 Orders 787 Orders Year Year Year Year Year 5235 Year Year Year Year 9188 Year Cumulative 737 Sales Cumulative 787 Sales 737 to 787 multiple Without delays (*multiple) Difference ( ) Year Year Year Year Year Year Year Year Average Multiple: 1.30 [Core Slide][Deck Map]

37 37April 16, 2010 Appendix H: Collaborating with suppliers results in higher delivery performance and parts availability Source: Purchasing.com, Supplier Management Fuels Growth fro Cesna, In past situations where an aircraft manufacturer (Cessna) implemented supplier relationship management processes, it saw improved supplier performance and materials it sought from its suppliers were increasingly available. To achieve these results, they focused on: Building relationships Partnering with Suppliers Incentivizing Timeliness

38 38April 16, 2010 Appendix I: Collaborating with suppliers reduces various operational costs to the suppliers Source: SAP Improving supplier perfromance through collaboration Administrative Costs Cost of Delayed Orders Cost of Inventory Cost of Production Downtime 20 % 85 % 50 % 25 % Cost of disputes, backtracking, etc. Cost of delays upstream, costs of not planning for expected delays, cost of delays due to customer demand variability Cost of safety stock and excess inventory Cost to supplier of variable downstream demand [Core Slide][Deck Map]

39 39April 16, 2010 Appendix J: Boeing Income Statement Source: Boeing 10-K Report 2009 Income Statement In Millions of the reported currency, except per share items. For the Fiscal Period Ending12 months Dec months Dec CurrencyUSD Revenue 60, ,281.0 Other Revenue-- Total Revenue 60, ,281.0 Cost Of Goods Sold 50, ,365.0 Interest Expense - Finance Division Gross Profit 10, ,741.0 Selling General & Admin Exp. 3, ,364.0 R & D Exp. 3, ,506.0 Depreciation & Amort.-- Other Operating Expense/(Income)-- Other Operating Exp., Total 6, ,870.0 Operating Income 3, ,871.0 Interest Expense (202.0) (339.0) Interest and Invest. Income Net Interest Exp Other Non-Operating Inc. (Exp.) 18.0 (351.0) EBT Excl. Unusual Items 3, ,755.0 Impairment of Goodwill-- Gain (Loss) On Sale Of Invest.-- Gain (Loss) On Sale Of Assets 4.0 (24.0) Legal Settlements-- Other Unusual Items-- EBT Incl. Unusual Items 3, ,731.0 Income Tax Expense 1, Earnings from Cont. Ops. 2, ,335.0 Earnings of Discontinued Ops (23.0) Extraord. Item & Account. Change-- Net Income 2, ,312.0 Pref. Dividends and Other Adj.-- NI to Common Incl Extra Items 2, ,312.0 NI to Common Excl. Extra Items 2, ,335.0 Per Share Items Basic EPS $3.697 $1.849 Basic EPS Excl. Extra Items Weighted Avg. Basic Shares Out Diluted EPS $3.665 $1.839 Diluted EPS Excl. Extra Items Weighted Avg. Diluted Shares Out Normalized Basic EPS $3.451 $1.546 Normalized Diluted EPS Dividends per Share $1.62 $1.68 Payout Ratio % 44.6% 93.0% Supplemental Items EBITDA 5, ,537.0 EBITA 3, ,078.0 EBIT 3, ,871.0 EBITDAR 5, ,810.0 As Reported Total Revenue* 60, ,281.0 Effective Tax Rate % 33.6% 22.9% Current Domestic Taxes Current Foreign Taxes Total Current Taxes Deferred Domestic Taxes 1, Deferred Foreign Taxes 26.0 (55.0) Total Deferred Taxes 1, Normalized Net Income 2, ,096.9 Interest Capitalized Non-Cash Pension Expense (390.0) Filing DateFeb Restatement TypeNCO Calculation TypeREP Supplemental Operating Expense Items General and Administrative Exp. 3, ,364.0 R&D Exp. 3, ,506.0 Net Rental Exp Imputed Oper. Lease Interest Exp Imputed Oper. Lease Depreciation Stock-Based Comp., G&A Exp Stock-Based Comp., Total Income Statement (continued) In Millions of the reported currency, except per share items. For the Fiscal Period Ending12 months Dec months Dec CurrencyUSD

40 40April 16, 2010 Appendix K: Production Delay Schedule L L Current Production Planning 7 Everett N. Charleston Total Total Produced Delivery Possible Delays 8 Everett N. Charleston Total Delivery Cost of Delays Delayed Deliveries % of %74%70% Price of $162 % 0f %24%20% Price of $194 % of % Price of $148 Total Delay Costs (1.5)/Q $69.0 $228.0 $(36.0) $- $36.0 $72.0 $810 7 source: 8 delays include quarter delay from testing, slower ramp-up of production, and 1 quarter delay from SC plant opening late

41 41April 16, 2010 Appendix L: Production Delay Schedule Assumptions Assumptions Delay Costs / Quarter 1 $1.5 Month Delay (Yes or No) Yes Slower Prod. Ramp-up (Yes or No) No Delay Costs Current Expected Delay Costs $4,000 Additional Backup Costs $810 Prevention Costs Project Team 2 $(0.404) Traveling Team 3 $(4.152) Permanent Team 4 $(20.246) Alternate Parts Costs 5 $(13.790) Performance Incentive Costs 6 $(14.493) Total Cost of Program $(53.086) Total $4,810 Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 See Project Team Cost Assumptions 3 See Traveling Team Cost Assumptions 4 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 5 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 6 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month

42 42April 16, 2010 Appendix M: Project Team Cost Assumptions Project Team Cost Assumptions Employee Tax Cont.40% Misc. Costs10% Research Budget ($k) $50 Number of Employees7 Project Length (Months)6 Employee CostsSalaryTaxes (0.4)Misc. CostsTotal Project Team Manager $82 $32.80 $8.20 $123 Employees 2-5 $70 $28.00 $7.00 $105 Employees 6-10 $55 $22.00 $5.50 $83 Project Length (Months) Employee $181 $226 $272 $317 $362 6 Employee $209 $261 $313 $365 $417 7 Employee $236 $295 $354 $413 $472 8 Employee $264 $329 $395 $461 $527 9 Employee $291 $364 $437 $509 $ Employee $319 $398 $478 $557 $637 Total Project Cost ($k) $404.0 Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source: E102.htm

43 43April 16, 2010 Appendix N: Permanent Team Cost Assumptions Permanent Team Cost Assumptions Employee Tax Cont.30% Misc. Costs40% Travel Costs ($k/yr) $150 Insurance Costs10% Number of Employees12 Project Length (Years)6 Employee CostsSalaryTaxes (0.3)Misc.TravelInsuranceTotal Project Team Manager $82 $32.8 $8.20 $150.0 $8.2 $281 Project Length (Years) Employee $2,812 $5,624 $8,436 $11,248 $14,060 $16,872 2 Employee $3,093 $6,186 $9,280 $12,373 $15,466 $18,559 3 Employee $3,374 $6,749 $10,123 $13,498 $16,872 $20,246 4 Employee $3,656 $7,311 $10,967 $14,622 $18,278 $21,934 1 Employee $3,937 $7,874 $11,810 $15,747 $19,684 $23,621 2 Employee $4,218 $8,436 $12,654 $16,872 $21,090 $25,308 Total Team Cost ($k) $20,246 Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source:

44 44April 16, 2010 Appendix O: Traveling Team Cost Assumptions Traveling Team Cost Assumptions Employee Tax Cont.40% Misc. Costs10% Travel Costs ($k/yr) $50 Number of Employees4 Project Length (Years)6 Employee CostsSalaryTaxes (0.4) Misc. Costs Travel CostsTotal Project Team Manager $82 $32.8 $8.20 $50.0 $173 Project Length (Years) Employee $173 $346 $519 $692 $865 $1,038 2 Employee $346 $692 $1,038 $1,384 $1,730 $2,076 3 Employee $519 $1,038 $1,557 $2,076 $2,595 $3,114 4 Employee $692 $1,384 $2,076 $2,768 $3,460 $4,152 Total Team Cost ($k) $4,152 Notes Boeing Project Manager has average annual salary of $70,228 (range from $55k to $82k from 16 voluntary entries); source:

45 45April 16, 2010 Appendix P: Alternate Supplier and Performance Incentive Cost Assumptions Alternate Supplier Cost Assumptions Plane Price 2 $171.6 COGS(% of Sales) 3 82% Relavant Parts5% Plane Sales Total Revenues $7,894 $15,101 $20,592 $26,255 $26,770 COGs $(6,473) $(12,383) $(16,885) $(21,529) $(21,951) Relevant Parts $(323.64) $(619.13) $(844.27) $(1,076.45) $(1,097.55) Cost Differences (%)2% 1% 0%-1% Excess Costs/Savings $(6.47) $(12.38) $(8.44) $- $10.98 Total Costs/Savings $(13.79) Performance Incentive Cost Assumptions Plane Price 2 $171.6 COGS(% of Sales) 3 82% Relavant Parts2% Plane Sales Total Revenues $7,894 $15,101 $20,592 $26,255 $26,770 COGs $(6,473) $(12,383) $(16,885) $(21,529) $(21,951) Relevant Parts $(323.64) $(619.13) $(844.27) $(1,076.45) $(1,097.55) Cost Differences (%)3%2% 1%0%-1%-2% Excess Costs/Savings $(9.71) $(12.38) $(16.89) $(8.44) $- $10.98 $21.95 Total Costs/Savings $(14.49)

46 46April 16, 2010 Appendix Q: Original 787 Net Present Value R R Ideal Production Schedule Delivery Earned Revenues 5 $- $6,349 $12,870 $22,651 $28,142 COGS $- $5,206 $10,553 $18,574 $23,077 Gross Profit $- $1,143 $2,317 $4,077 $5,066 Overhead Expenses R&D 6 $(500) $(1,000) $(1,500) $(800) $(250) $(200) General & Admin 7 $(231.00) $( ) $( ) $( ) $( ) $(324.68) $(354.16) $(372.58) $(391.95) $(412.33) $(433.77) $(456.33) $(480.06) $(505.02) Total Overhead $(731) $(1,385) $(1,445) $(1,439) $(1,372) $(1,825) $(1,154) $(1,173) $(642) $(612) $(634) $(656) $(680) $(705) EBITDA $(731) $(1,385) $(1,445) $(1,439) $(1,372) $(682) $1,162 $2,905 $4,424 $4,453 $4,432 $4,409 $4,386 $4,361 Depreciation 8 $(13) $(15) $(14) $(33) $(36) $(34) EBIT $(731) $(1,398) $(1,460) $(1,454) $(1,387) $(696) $1,149 $2,872 $4,388 $4,418 $4,396 $4,375 $4,351 $4,326 Tax/Tax Shelter $292 $559 $584 $582 $555 $278 $(459) $(1,149) $(1,755) $(1,767) $(1,758) $(1,750) $(1,740) $(1,730) Net Income $(439) $(839) $(876) $(872) $(832) $(417) $689 $1,723 $2,633 $2,651 $2,638 $2,625 $2,611 $2,596 PPE (CapEx) 9 $- $( ) $(50.00) $- $25.00 $- $(387.50) $(50.00) $- $25.00 $- Free Cash Flows $(439) $(601) $(841) $(887) $(847) $(456) $675 $2,077 $2,647 $2,615 $2,602 $2,566 $2,576 $2,561 Discounted FCF's $(439) $(546) $(695) $(667) $(579) $(283) $381 $1,066 $1,235 $1,109 $1,003 $899 $821 $742 Net Present Value $4,048 5 Earned Revenues = weighted average plane price * planes delivered for the quarter 6 Based on estimate of $8-10 billion development costs listed in case, $6 bn of which covered by Boeing 7 See General & Administration Assumptions (First year costs based on half basis as R&D budget) 8 Assumung Depreciation term = 20 years 9 Based on note in 10-K which states reason for higher PPE investment due to factory growth

47 47April 16, 2010 Appendix R: 787 Original Income Inputs Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million =.7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See Cost of Goods Sold Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using r f :.16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance, Assumptions: Delay Costs / Q 1 $1.5 Plane Price 2 $171.6 COGS 3 82% Future Growth % Tax Rate40% Discount Rate10%

48 48April 16, 2010 Appendix S: Example of each years free cash flows broken down by Quarter 2007 Q1Q2Q3Q $- $2,917 $1,716 $- $2,392 $1,407 $- $525 $309 $(1,000) $(500) $(300) $(200) $(371.74) $(81.17) $(1,372) $(581) $(381) $(281) $(1,372) $(581) $(56) $(72) $28 $(15) $(3) $(1,387) $(585) $(60) $(76) $24 $555 $234 $24 $30 $(10) $(832) $(351) $(36) $(45) $15 $- $(12.50) $(847) $(354) $(39) $(36) $24 $(579) $(220) $(24) $(23) $15 Ideal Production Schedule Delivery Earned Revenues 5 COGS Gross Profit Overhead Expenses R&D 6 General & Admin 7 Total Overhead EBITDA Depreciation 8 EBIT Tax/Tax Shelter Net Income PPE (CapEx) 9 Free Cash Flows Discounted FCF's 5 Earned Revenues = weighted average plane price * planes delivered for the quarter 6 Based on estimate of $8-10 billion development costs listed in case, $6 bn of which covered by Boeing 7 See General & Administration Assumptions (First year costs based on half basis as R&D budget) 8 Assumung Depreciation term = 20 years 9 Based on note in 10-K which states reason for higher PPE investment due to factory growth

49 49April 16, 2010 Appendix T: COGs and General & Administrative Cost Assumptions % Cost of Goods Solds (COGS) Assumptions 1 Boeing COGS Sales of Products $57,032 $50,180 $57,049 Costs of Products $(47,639) $(41,662) $(45,375)Average COGS (%) % COGS $0.84 $0.83 $0.80 $0.82 General & Administrative Cost Assumptions Orders Per Plane Boeing Boeing Boeing Boeing Boeing Boeing % of Orders20%23%15%26%14%9% Average % of Orders (exc. 2008, 2009) 3 ……………………………………………21% Total General & Administrative Costs 4 G&A $3,657 $4,228 $4,171 $3,531 $3,084 $3,364 Commercial Shares (50%) $1,829 $2,114 $2,086 $1,766 $1,542 $1, Shares (21% of CA) $385 $445 $439 $372 $325 $354 1 Source: Boeing 10-K 2 Sources: Boeing 10-K filings & company website 3 Exclusion of 2008, 2009 data due to lower numbers after announced delays & economic crisis 4 Source: Boeing 10-K

50 50April 16, 2010 Appendix U: 787 Income Delay V V Ideal Production Schedule Actual Delivery Earned Revenues 5 $ - $ 6,349 $ 12,870 $ 22,651 $ 28,142 COGS $ - $ 5,206 $ 10,553 $ 18,574 $ 23,077 Gross Profit $ - $ 1,143 $ 2,317 $ 4,077 $ 5,066 Overhead Expenses Planned R&D 6 $ (500) $ (1,000) $ (1,500) $ (800) $ (250) $ (200) $ (100) Additions to R&D $ - $ (20) $ (50) Reconciled R&D $ (500) $ (1,000) $ (1,520) $ (850) $ (250) $ (200) $ (100) General & Admin 7 $ (231.00) $ (385.01) $ (445.12) $ (439.12) $ (371.74) $ (324.68) $ (354.16) $ (372.58) $ (391.95) $ (412.33) $ (433.77) $ (456.33) $ (480.06) $ (505.02) Total Overhead $ (731) $ (1,385) $ (1,445) $ (1,439) $ (1,372) $ (1,845) $ (1,204) $ (1,223) $ (642) $ (612) $ (634) $ (656) $ (680) $ (605) EBITDA $ (731) $ (1,385) $ (1,445) $ (1,439) $ (1,372) $ (1,845) $ (1,204) $ (1,223) $ 501 $ 1,704 $ 3,443 $ 4,409 $ 4,386 $ 4,461 Depreciation 8 $ (13) $ (15) $ (14) $ (28) $ (31) $ (29) EBIT $ (731) $ (1,398) $ (1,460) $ (1,454) $ (1,387) $ (1,858) $ (1,218) $ (1,251) $ 470 $ 1,674 $ 3,413 $ 4,380 $ 4,356 $ 4,431 Tax/Tax Shelter $ 292 $ 559 $ 584 $ 582 $ 555 $ 743 $ 487 $ 500 $ (188) $ (669) $ (1,365) $ (1,752) $ (1,742) $ (1,772) Net Income $ (439) $ (839) $ (876) $ (872) $ (832) $ (1,115) $ (731) $ (750) $ 282 $ 1,004 $ 2,048 $ 2,628 $ 2,614 $ 2,659 PPE (CapEx) 9 $ - $ (250.00) $ (50.00) $ - $ $ - $ (287.50) $ (50.00) $ - $ $ - Delay Penalties $ (750) Free Cash Flows $ (439) $ (1,101) $ (941) $ (887) $ (847) $ (1,854) $ (1,494) $ (1,816) $ (548) $ 974 $ 2,017 $ 2,624 $ 2,584 $ 2,629 Discounted FCF's $ (439) $ (997) $ (772) $ (660) $ (570) $ (1,130) $ (825) $ (909) $ (249) $ 400 $ 750 $ 884 $ 788 $ 727 Net Present Value $ (1,209)

51 51April 16, 2010 Appendix V: 787 Income Delay Assumptions Assumptions:R&D Addition Assumptions: Delay Costs / Q 1 $(1.5)2007 $(50) Plane Price 2 $ $(100) COGS 3 82%2009 $(200) Future Growth %2010 $(100) Tax Rate40% Discount Rate10% Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million =.7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See COGs AssumptionsCOGs Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using r f :.16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance, finance/

52 52April 16, 2010 Appendix X: SMaRt Scorecard Source: [Core Slide][Deck Map]

53 53April 16, 2010 Appendix Y: Methodology employed for assessing Boeings current situation = Competitive Advantage Analysis BoeingAirbus CRITICAL RESOURCES & CAPABILITIES THAT GENERATE COMPETITIVE ADVANTAGE X Xxxxx xxxxx xxxxx xxxxx X xxxx xxxx xxxx xxxx xxxx x Xxxxx xxxxx xxxxx xxxxx X xxxxx xxxxx xxxx xxxx xxxx xxxx xxxx x Xxxxx xxxxx xxxxx xxxxx TOTAL xxxxx xxxxx xxxx xxxx xxxx xxxx xxxx Porters 5 Forces Industry Analysis & Other External Analyses + Margin Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Firm Infrastructure Human Resource Management Technology Development Procurement StrengthsWeaknesses Threats Opportunities Value Chain Analysis SWOT Analysis I/SB/S Financials & Supplemental Information & &

54 54April 16, 2010 Threat of New Entrants Very Low. Developing airplanes is costly. Also due to a long lead time before a company will reach the break-even point ( aircraft) However, the Chinese government has approved the launch of an aircraft manufacturer. Supplier Power Low Suppliers are less in this industry so Boeing has high control Now that Boeing is serving the market differently with a diverse supply chain, supplier power may increase since Boeing is so reliant on these parties. Buyer Power Low There are few choices available to buyers if they are unhappy with current aircraft manufacturer. Family Concept of multiple aircraft maintenance creates sticky features and increases switching costs. Threat of Substitutes Moderately Low Several substitutes are available such as cruises, buses, no traveling…etc. but often dont solve customers problems in the way a plane would. Surface transportation such as rail sometimes serves as a substitute. Intensity of Rivalry High Commercial aircraft composes over 65% of revenue. Losing market share can have a large impact on profitability Appendix Z: Porters Five Forces Analysis - Commercial Aviation Industry Source: Datamonitor – Boeing Co. Company Profile (2009)

55 55April 16, 2010 Appendix AA: 2010 Market Share of Boeings Competitors Source: IBIS Global Civil Aerospace Products Manufacturing Report 2010

56 56April 16, 2010 Appendix AB: Airbus Competitor Profile Source: Airbus and Boeing Annual Reports for year ended December 31, 2009 AEDS (Airbus division) Year Million Dollars Revenue % Change Growth Million Dollars Operating Profit Boeing (Commercial Aircraft Segment) Year Million Dollars Revenue % Change Growth Million Dollars Operating Profit N/C Boeings Declining Profits

57 57April 16, 2010 Appendix AC: SWOT analysis reveals that Boeing must balance large payoff of the systems integrator approach with the equally large potential risks Strengths Tier 1 supplier recognition in aerospace sector. Outsourcing is giving Boeing more flexibility and control in the design process Designs products according to customer desires Can implement large-scale implementation systems Unique contracts with NASA Seemingly more operationally efficient than competitors Weaknesses Tendency of Board of Directors to blame poor results on external factors. Many employees are angered over recent outsourcing and present a risk for strike Supplier structure presents significant risk in production schemes Opportunities Gaining insight and combining experience from current businesses in other industries - Inventory. Consolidation of suppliers allows Boeing to spend more time focusing on each supplier and work with those that provide the best value The Asia-Pacific markets for air transportation have allowed Boeing to capitalize on their growth Airbus has had many product delays including the A350 Threats Complex proprietary spare parts market (lack of consistent d/s data, commodity-type products) Airbus has passed Boeing in sales in the early 2000s and Boeing has yet to regain its ground Outsourcing is being viewed negatively by many because of job loss Third parties who Boeing has worked with has some of their proprietary knowledge and may decide to produce aircraft

58 58April 16, 2010 Appendix AD: Airbus S.A.S SWOT Analysis Strengths Leading market position Strong support from strong parent company (EADS) Focus on technological innovation Economies of Scale Brand Equity & Reputation Weaknesses Delays in A380, and A350 launch High delay penalty burden High production costs Slow learning curve Operational Inefficiencies Lower volumes and financial resources than rivals Opportunities Power8 restructuring plan New projects in international markets Growing demand for commercial airplanes especially in Asia-Pacific region. Threats Complex proprietary spare parts market (lack of consistent d/s data, commodity-type products) Tight credit markets and possibility of double dip recession. Threatens ability of customers to pay, risks cancellations. Source: Data Monitor – Airbus S.A.S Company Profile

59 59April 16, 2010 Appendix AE: General Environmental Analysis (STEEP) – Boeing Issues and Implications IssueImplications to Airparts (specifically spare parts)Importance Social Airlines are keeping their fleet in service for longer periods of time. At the same time, Airlines are increasingly conscious of their AOG (airline on ground) costs. Being an efficient and effective supplier is of increasing importance High Technological Changes in technology arent of immediate concern to Airparts. The process of fabrication and OEM wont be changing in the immediate future. Low Economic As commodity prices, specifically aluminum and steel. fluctuate Airparts needs to be aware of the potential costs and hedging options available. High Environmental With a new generation of aircrafts and emissions standards becoming increasingly important Airparts needs to be aware of changes affecting the business and what demands airlines will impose. Medium Political The FAA has consistently required higher standards for the airline industry. These stringent safety standards must be accounted for by the airlines, who, in turn will demand that their suppliers are compliant. Medium

60 60April 16, 2010 Appendix AF: Outsourcing of the type Boeing has engaged in has several risk factors that need to be taken into consideration. RiskArea AffectedRatingMitigation Strategy Strategic Risks Intellectual Property Long-Run Competitive Advantage In order to mitigate the risk of losing vital proprietary knowledge that might spawn future competitors and erode Boeings unique knowledge base Boeing should bring manufacturing that involves critical proprietary parts, processes, and knowledge. Operational Risk Manufacturing Outsourcing activities in which outsourcing to strategic partners have more focused core competencies will result in a decrease in operational risks for Boeing. Human Capital Risk R&D Design In order to mitigate the employee backlash that will come as a consequence of outsourcing Boeing should bring critical in-house jobs back. Also create education programs to re-train employees such that they can be relocated to another division. Financial Risk Entire Company By outsourcing under a strategic partnership framework where suppliers have a direct financial stake, Boeing is lowering its risk. Suppliers now have an incentive to be more cost efficient and perform better. Reputation al Risk Entire CompanyTo mitigate the degradation in customer relations and credibility Boeing should engage in an aggressive and active reassurance PR and Marketing campaign aimed towards its customers, investors, and the general public by highlighting the corrective measures taken in our Vision 2025 plan. X X X X Feasibility of Mitigation Level of Impact LOW HI LOW X

61 61April 16, 2010 Appendix AG: Boeing Commercial Airplanes Lean Value Chain Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE. Margin OperationsSupply Network Management Technology Development Firm Infrastructure Human Resource Management Inbound/Outbound Logistics Marketing, Sales, & Logistics Market Research Advertising Promotions Sales Force Customer Relations Material Mgmt Maintenance Services Fleet Enhancement Engineering Support Flight Operations Service Manual & Procedures Supply Chain Integration Strategic Procurement Strategic Supplier Management Balance Scorecard Supplier Relationship Mgmt Quality, Cost, and Delivery (QCD) Phantom Works Electronic Data Interchange (EDI) Enterprise Supplier Tool Supplier Portal Encrypted Supplier Data Exchange Network Final Assembly Fine Tuning & Testing Facilities Operations

62 62April 16, 2010 Appendix AH: Through innovation, co-innovation and co-investment improve the classic value chain and lead to a sustainable position in the market. Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE 3 aspects drive the innovation process: Continuation: Demand where a company can add value. Conception: Unique technology or smart and original processes, supported by Intellectual Property(IP) in cooperation with co-innovation parties, based on the customer demand. Configuration: Formation of a chain, system or network of stakeholders that have interest in bringing the new product to market.

63 63April 16, 2010 Appendix AK: Lean Value Chain Concept Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE The ultimate lean value chain consists of 3 innovation drivers: continuation, conception, & configuration. As such one could argue that a sustainable position in the market can be obtained and maintained by continuous innovation. Innovation is a fundamental job for BCA.

64 64April 16, 2010 Appendix AL: Boeing Commercial Airplanes (BCA) Classic Value Chain Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE Six primary value activities have been identified. In addition to the traditional primary activities of Porter. Strategic procurement has become an activity that affects the companys bottom line to such an high extent that it should be considered as a primary activity.

65 65April 16, 2010 Appendix: AM: The links among resources, capabilities, and competitive advantage Robert M. Grant - Contemporary Strategy Analysis 7th Edition (Chapter 5 – Analyzing Resources and Capabilities)

66 66April 16, 2010 Appendix AN: VRIO Framework Sources: J. Barney - Gaining and Sustaining Competitive Advantage (2002).

67 67April 16, 2010 Appendix AO: Assessing value chain partnerships in the Aerospace Industry Source: A.T. Kearney - Integrated Value Chains In Aerospace and Defense: Managing relationships and complexity up and down the value chain

68 68April 16, 2010 Appendix AP: Aerospace Suppliers Bullwhip Effect Source: A.T. Kearney - Integrated Value Chains In Aerospace and Defense: Managing relationships and complexity up and down the value chain

69 69April 16, 2010 Urgency High Low High Importance Loss of Credibility & CR Loss of Industry Leadership Traditional Customer Problems New Product Development Overhang Supplier Power & Dependence High Jet Fuel Costs Overly -Optimistic Forecasts Concentration Risk for Customers CEO Turnover & Transformation Delays and Cancellations New Long-Run Competitors Proprietary Knowledge Loss Supplier Problems Critical Activities Appendix AQ: Boeing currently has 13 significant issues it must address to improve profitability. Management should focus on addressing the most urgent and important ones immediately, while keeping the other issues in perspective Source: HBS – Boeing 787: The Dreamliner (June 21, 1005); Foster Business School – Boeing 787: The Dreamliner (B) (October 14, 2008) Important Goals Distractions Interruptions Distractions Interruptions

70 70April 16, 2010 Appendix AR: Business Evolution Matrix Source: Wouter A. Beelarts - THE LEAN VALUE NETWORK SYSTEM; CO-INVESTMENT AND CO-INNOVATION AS DRIVERS FOR A SUSTAINABLE POSITION IN THE MARKETPLACE Volume EfficiencyDifferentiation Mass individualized Product/Market Companies Capacity Companies Capacity Economy Industrial economy Network economy

71 71April 16, 2010 Addendum A: 787 Income Realistic AE AE Ideal Production Schedule Delivery Earned Revenues 6 $ - $ 6,349 $ 12,870 $ 22,651 $ 28,142 COGS $ - $ 5,206 $ 10,553 $ 18,574 $ 23,077 Gross Profit $ - $ 1,143 $ 2,317 $ 4,077 $ 5,066 Overhead Expenses R&D 7 $ (500) $ (1,000) $ (1,500) $ (800) $ (250) $ (200) Additions To R&D $ (200) $ (350.00) Reconciled R&D $ (500) $ (1,000) $ (1,200) $ (1,000) $ (1,850) $ (800) $ (250) $ (200) General & Admin 8 $ (231.00) $ (385.01) $ (445.12) $ (439.12) $ (371.74) $ (324.68) $ (354.16) $ (372.58) $ (391.95) $ (412.33) $ (433.77) $ (456.33) $ (480.06) $ (505.02) Additions to G&A $ (50) $ (60) $ (20) Reconciled G&A $ (231.00) $ (385.01) $ (495.12) $ (489.12) $ (421.74) $ (384.68) $ (374.16) $ (372.58) $ (391.95) $ (412.33) $ (433.77) $ (456.33) $ (480.06) $ (505.02) Total Overhead $ (731) $ (1,385) $ (1,695) $ (1,689) $ (1,422) $ (2,235) $ (1,174) $ (1,173) $ (642) $ (612) $ (634) $ (656) $ (680) $ (705) EBITDA $ (731) $ (1,385) $ (1,695) $ (1,689) $ (1,422) $ (2,235) $ (31) $ 1,144 $ 3,435 $ 4,453 $ 4,432 $ 4,409 $ 4,386 $ 4,361 Depreciation 9 $ (13) $ (15) $ (14) $ (33) $ (36) $ (34) EBIT $ (731) $ (1,398) $ (1,710) $ (1,704) $ (1,437) $ (2,248) $ (45) $ 1,111 $ 3,400 $ 4,418 $ 4,396 $ 4,375 $ 4,351 $ 4,326 Tax/Tax Shelter $ 292 $ 559 $ 684 $ 682 $ 575 $ 899 $ 18 $ (444) $ (1,360) $ (1,767) $ (1,758) $ (1,750) $ (1,740) $ (1,730) Net Income $ (439) $ (839) $ (1,026) $ (1,022) $ (862) $ (1,349) $ (27) $ 667 $ 2,040 $ 2,651 $ 2,638 $ 2,625 $ 2,611 $ 2,596 PPE (CapEx) 10 $ - $ (250.00) $ (50.00) $ - $ $ - $ (387.50) $ (50.00) $ - $ $ - Free Cash Flows $ (439) $ (601) $ (991) $ (1,037) $ (877) $ (1,388) $ (41) $ 1,021 $ 2,054 $ 2,615 $ 2,602 $ 2,566 $ 2,576 $ 2,561 Discounted FCF's $ (439) $ (544) $ (813) $ (771) $ (590) $ (846) $ (23) $ 511 $ 931 $ 1,073 $ 967 $ 864 $ 786 $ 708 Net Present Value $ 3,036

72 72April 16, 2010 Addendum B: 787 Income Realistic Assumptions Assumptions: Delay Costs / Q 1 $ 1.5 Plane Price 2 $ COGS 3 82% Future Growth % Tax Rate40% Discount Rate % Notes: 1 $1.5 million = 3* $0.5: given in case as monthly delay penalty plane month 2 $171.6 million =.7* $ * $194 to represent weighted average costs of & (exclusion of due to later arrival) 3 See Cost of Goods Sold Assumptions 4 Found in Case A: pg 7 5 Discount Rate from CAPM using r f :.16%, Market Return: 8%, Beta: 1.31: sources; yahoo finance, finance/


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