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The Boeing Company – Start With Strong Leadership

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Dennis Mullenburg must be one very bright and powerful guy. In an age of splitting executive responsibilities, Dennis is Chairman, President and CEO of The Boeing Company. His appointment as Chairman came in 2016. He has been with the company for over 30 years and yet is still just 52 years old.

His compensation last year was only a little over $5 million in salary and bonus making Dennis less costly than the average major league baseball player. Other than that little drawback, it is entirely possible he has one of the best jobs in corporate America. Here is why.

Everyone Knows The Boeing Brand

If anyone has ever flown on a commercial airline in the United States, there is better than an 80% chance it was on a Boeing aircraft. Yea, there are those other guys like Airbus Industries but they represent no major threat to Boeings dominance.

Commercial aircraft is the cornerstone of Boeing representing 68% of business. But Military Aircraft (14%), Network and Space Systems (8%) and Global Services and Support (10%) carry their share of the revenue load. The United States Defense Department accounts for about 60% of the non-commercial aircraft business.

Boeing’s leadership position in the global aircraft industry has never been better.   The company manufacturers from a $473 billion order backlog that has grown 47% over the past few years. This amounts to 5700 aircraft on backlog. At last years rate of 762 deliveries, Boeing workers will be at it nonstop for the next 7.5 years. And that assumes no growth in the current backlog.

How Do They Do It

Boeings record makes the airline and aerospace business look easy. Quite to the contrary, it is one of the most complex on planet earth. Increasing fuel efficiency is one of the most important objectives in designing a new jetliner. This often requires the creation of new materials that are strong yet lighter and then sourced from a highly complex supply chain. Any screw-ups and production can easily get shut down. Boeing management has been quite successful increasing production rates and that is a sure sign of outstanding management

The Outlook Is Pretty Predictable

How does management view the outlook for commercial aviation? Their public reports talk about an addressable market over the next 10 years of $3.7 trillion. Boeing finished off last year with $95 billion in total revenues so there is a lot more market potential.

Military spending has leveled off from peak 2008 levels and so have Boeings order backlogs with the Defense Department. But that, of course could change if President Trump’s budget request for a $54 billion bump up in military spending gets through Congress.

Other areas such as global positioning services and related projects are keeping Boeing engineers busy. Whenever you instruct your Smartphone to route you to an unfamiliar location, Boeing is involved.

Boeing By The Numbers

Boeing’s operating margins of 7.9% are about average for a heavy manufacturing business. Return on invested capital and equity are, however, very strong at 81% on equity and 34% on invested capital. And these returns have been achieved without excessive leverage. Long-term debt is 58% of total capital.

Happy Campers

With all these things going for it, you would imagine that Boeing is a great place to work. You would be right. They employ over 160,000 skilled workers who know their jobs are secure from competitive threats and major business recession. Just as importantly, Dennis Mullenburg knows the importance of keeping a labor force happy.

Dividend investors also have lots to be happy about. Boeings annual payout of $5.68 per share works out to a 3.21% yield. Dividend growth has been accelerating from a compound 13.8% rate over the past 10 years to 16.7% over the last 5 to 27.4% in the most recent 3-year period. Even so, the payout ratio is still a modest 38% of Free Cash Flow.

These days it is hard to find anyone with a nice word for the airline travel with all the endless security hassles, weather delays, smaller seats and extra charges. But it is just as hard to find a bad word for Boeing.

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