Boeing expects pricing pressure from Airbus and customers.

“We have to focus on cost and efficiency as we move forward,” Randy Tinseth, Boeing Commercial Airplanes vice president of marketing, told the crowd.

The company faces stiff pricing pressure from rival Airbus and customers, he said. “Every (sales) campaign is a dogfight.”

In another article, Boeing added that Boeing's commercial airplanes division is "not competitive" under current tax rules.

Boeing Co's (BA.N) commercial airplanes division is "not competitive" under current U.S. tax rules and the company is using its access to the Trump administration to press for changes, Chief Financial Officer Greg Smith said on Thursday.

...

"We're not competitive today ... and we're thankful to have the opportunity to have the podium and talk about it and, hopefully, help the administration think that through as they're deciding on where they want to go with this."

As current management is fully focused on cutting costs, R&D budgets will have not much room for additional spending.

Muilenburg’s vision does not leave room for increasing how much the company is spending on research and development. The company has between $2 billion and $3 billion of R&D spending tied up through 2021 on existing programs, including the 777X, the 737 MAX and 787-10.

Articles
http://www.heraldnet.com/business/boein ... customers/
http://www.reuters.com/article/us-boein ... SKBN1622B5

Aside from a few studies here and there, I guess this won't leave much room for MOM developments before 2021.

So they can up their bonuses and buy back more shares, right? No thanks.

KarelXWB wrote:

Boeing expects pricing pressure from Airbus and customers.
In another article, Boeing added that Boeing's commercial airplanes division is "not competitive" under current tax rules.
As current management is fully focused on cutting costs, R&D budgets will have not much room for additional spending.
Aside from a few studies here and there, I guess this won't leave much room for MOM developments before 2021.

Thanks for the quotes and the references, but I think we've heard Boeing say that they are having to compete hard on price and that R&D is fully subscribed till at least 2021. The 'not competitive' stuff seems new, but that's just posturing to pander to the new administration.

As for MOM:

Boeing acknowledges that it is “very early” in the gated process leading up to the go-ahead of an all-new NMA, the overarching time line for which is dictated by the availability of advanced-technology, 40-45,000-lb.-thrust high-bypass-ratio turbofans. “You are talking about an aircraft that will enter service in the middle of the next decade, so there are lots of questions that would need to be answered,and you have to tick them off one at a time,” says Tinseth.

Ref: http://aviationweek.com/commercial-avia ... us-watches

Bricktop wrote:

So they can up their bonuses and buy back more shares, right? No thanks.

Yep, same old song and dance. We can't spend more on R&D, yet we spent billions buying back shares, largely because executive bonuses are tied to share prices. Hey, her's a chance to try to make more money by shifting paying even less taxes, let's go for that! Same old same old.

A lot of executives seem to forget that share price is an emergent property. Trying to directly bump it up just creates a dysfunctional business.

Boeing's ego is getting out of control.

Outside of the 787 and 777, your products suck. How about we start there.

What do they mean by "tax reform", what actual changes do they want?

Gemuser

The US currently has the highest corporate tax rate in the developed world. That puts every US business at a competitive disadvantage with foreign based companies, and Boeing is no exception. That (and excessive regulations) is why you see so many corporate inversions, and so many companies moving manufacturing offshore. Tax relief and regulatory relief will bring flocks of jobs back, and be a huge boost for those businesses still here. And the bigger the business the bigger the benefit.

Just about no US corporation pays anything close to the 'highest corporate tax in the world'. My own suspicion is that if you really want to hear that pig squeal, have the house and senate propose a somewhat lower tax and actually collect it.

SEPilot wrote:

The US currently has the highest corporate tax rate in the developed world. That puts every US business at a competitive disadvantage with foreign based companies, and Boeing is no exception. That (and excessive regulations) is why you see so many corporate inversions, and so many companies moving manufacturing offshore. Tax relief and regulatory relief will bring flocks of jobs back, and be a huge boost for those businesses still here. And the bigger the business the bigger the benefit.

From the last annual report, Boeings effective income tax rates were 27.7%, 23.7% and 26.4% for the years ended December 31, 2015,2014 and 2013. That puts them on par with Germany at 29.72%, France has a maximum tax rate of 34.43 %, the Netherlands where Airbus is incorporated at 25%.

frmrCapCadet wrote:

Just about no US corporation pays anything close to the 'highest corporate tax in the world'. My own suspicion is that if you really want to hear that pig squeal, have the house and senate propose a somewhat lower tax and actually collect it.

Well said. That's why every corporate employs tax experts. Few would be paying half the published corporate tax rate, and that's after utilising legal profit minimisation.

Boeing definitely gains in the R&D department from military contracts, naturally an area where they are not asking for more, though by highlighting R&D budgets are fully committed, a not so subtle suggestion.

Boeing are not pushing the creative financing envelope. For example, utilising Exim funding where applicable, on major components with values below that of an engine (extensive use of sub-contractors is an opportunity missed to-date). Or using a basket of currencies based on the customers natural exposure (and sharing the benefits). Plus the million and one legal, tax effective tools.

Boeing have done silly things, like share buybacks, and allowing 788 customers to model hop, carrying forward launch discounts to the 789 and even 10. And they've sold almost a decades worth of 777X production at 'sweetheart' prices.

US citizens, you are already paying inflated prices for domestic air travel, so why not subsidise commercial aircraft sales in the USA and overseas as well?

Gemuser wrote:

What do they mean by "tax reform", what actual changes do they want?

Gemuser

Basically they want bigger and better tax breaks from the govt. They feel that paying nearly 30% tax rate is way too high.

Gemuser wrote:

What do they mean by "tax reform", what actual changes do they want?

Gemuser

Ha ha, the same tax reform everyone would like. To pay less.

Boeing already got a tax break on the 777X program. And last year Boeing slowed down payments to suppliers.

Personally, I think the main issue that Boeing has at the moment is not tax; it is the very short-term obsession that Boeing management has with their annual profit and share price figures, probably driven by executive bonus schemes. Because of the time-frames required by aircraft programs, this is an industry that needs management to take a far longer term view of things.

Unfortunately, it seems that Airbus is beginning to show signs of also taking a shorter-term view.

zeke wrote:

From the last annual report, Boeings effective income tax rates were 27.7%, 23.7% and 26.4% for the years ended December 31, 2015,2014 and 2013. That puts them on par with Germany at 29.72%, France has a maximum tax rate of 34.43 %, the Netherlands where Airbus is incorporated at 25%.

Thanks for this. It would be interesting "for competitive reasons" to know what Airbus paid. Wouldn't program accounting, essentially deferring losses, jack up their marginal tax rates? And wouldn't it make sense to accelerate those losses into periods where they are more valuable, like now rather than later if there's tax reform?

Bricktop wrote:

zeke wrote:

From the last annual report, Boeings effective income tax rates were 27.7%, 23.7% and 26.4% for the years ended December 31, 2015,2014 and 2013. That puts them on par with Germany at 29.72%, France has a maximum tax rate of 34.43 %, the Netherlands where Airbus is incorporated at 25%.

Thanks for this. It would be interesting "for competitive reasons" to know what Airbus paid. Wouldn't program accounting, essentially deferring losses, jack up their marginal tax rates? And wouldn't it make sense to accelerate those losses into periods where they are more valuable, like now rather than later if there's tax reform?

Very right. They could wipe out the entire year's profit by bringing forward enough of the deferred costs. But that also impacts commercial profit -> share value -> executive payout so better to kick the can down the road and pay some taxes while doing so.

zeke wrote:

SEPilot wrote:

The US currently has the highest corporate tax rate in the developed world. That puts every US business at a competitive disadvantage with foreign based companies, and Boeing is no exception. That (and excessive regulations) is why you see so many corporate inversions, and so many companies moving manufacturing offshore. Tax relief and regulatory relief will bring flocks of jobs back, and be a huge boost for those businesses still here. And the bigger the business the bigger the benefit.

From the last annual report, Boeings effective income tax rates were 27.7%, 23.7% and 26.4% for the years ended December 31, 2015,2014 and 2013. That puts them on par with Germany at 29.72%, France has a maximum tax rate of 34.43 %, the Netherlands where Airbus is incorporated at 25%.

But you have to look at the actual taxes paid by companies there. Boeing pays around 25% when the "official" rate is 39%; every country has tax breaks, and so in order to compare you have to look at what they actually pay. What was the effective rate paid by Airbus in the same years?

speedbored wrote:

Personally, I think the main issue that Boeing has at the moment is not tax; it is the very short-term obsession that Boeing management has with their annual profit and share price figures, probably driven by executive bonus schemes. Because of the time-frames required by aircraft programs, this is an industry that needs management to take a far longer term view of things.

Unfortunately, it seems that Airbus is beginning to show signs of also taking a shorter-term view.

They are both shortsighted.

We are only kidding ourselves if we actually believe the commercial airplane market is competitive. A and B are a duopoly and they want it to stay that way.

2014

1. Boeing

Boeing (ba, +0.33%) pre-tax income: $5.95 billion
CEO James McNerney total pay: $23.3 million
U.S. corporate income tax total: refund of $82 million

http://fortune.com/2014/11/19/these-7-c ... ral-taxes/

"As for Boeing, the report says the company paid an effective tax rate of -1 percent, -9.1 percent and -0.1 percent, respectively in 2008, 2009 and 2010, while making profits of nearly $3.8 billion, $1.5 billion and $4.5 billion. That adds up to an effective rate of -1.8 percent, or -$178 million, over the three years."

http://www.seattlepi.com/boeing/article ... 251088.php

https://www.nytimes.com/2016/10/18/opin ... .html?_r=0

Nah, I think Boeing's fine. If anything, they should be getting less tax breaks. Same with GE. Pay your fair share, and if you can't run a profitable aerospace firm in the US then you've got other issues.

Maybe they can start with getting their house in order, and realize that share price should be something that is a product of how they run the company. Do that by selling airplanes at good margins, cutting costs, etc. Don't do it by burning through cash buying back shares when you have a bunch of other issues to deal with (Like the deferred 787 production cost for one)

Seems evident to me Boeing management cares only for their stock price and how Wall St. feels about it. Seems they could care less about what happens to the company after they've cashed out their bonus checks (which are no doubt tied to stock performance)

diverted wrote:

2014



"As for Boeing, the report says the company paid an effective tax rate of -1 percent, -9.1 percent and -0.1 percent, respectively in 2008, 2009 and 2010, while making profits of nearly $3.8 billion, $1.5 billion and $4.5 billion. That adds up to an effective rate of -1.8 percent, or -$178 million, over the three years."

Seems evident to me Boeing management cares only for their stock price and how Wall St. feels about it. Seems they could care less about what happens to the company after they've cashed out their bonus checks (which are no doubt tied to stock performance)

These are the figures that tells me that the entire corporate tax system is broken. When the Worlds then largest commercial aircraft builder could make their accounts read such as to pay no corporation tax for three years in succession, yet continue to thrive and expand.

diverted wrote:

Nah, I think Boeing's fine. If anything, they should be getting less tax breaks. Same with GE. Pay your fair share, and if you can't run a profitable aerospace firm in the US then you've got other issues.

Maybe they can start with getting their house in order, and realize that share price should be something that is a product of how they run the company. Do that by selling airplanes at good margins, cutting costs, etc. Don't do it by burning through cash buying back shares when you have a bunch of other issues to deal with (Like the deferred 787 production cost for one)

Seems evident to me Boeing management cares only for their stock price and how Wall St. feels about it. Seems they could care less about what happens to the company after they've cashed out their bonus checks (which are no doubt tied to stock performance)

They are making changes. Unfortunately, the current focus is on customers (pricing, terms, flexibility), costs, and suppliers, all factors which determine future prosperity.

The Board needs to change the Key Result Areas of senior management, so the focus is across the entire spectrum, on long-term, sustainable and consistent performance, not predominantly on stock price performance.

Commercial aircraft cradle to grave is two decades plus, whereas senior management are on 1-5 year contracts. Employees, contractors and customers have more long-term commitment to Boeing than senior management and the board. Something has to change or give.

I think Boeing has to give significant discounts to sell 739-9s, 787-10s, 777-300ER's and 777-9s while A330s puts pressure on the 787-9.

Boeing probably feels the nationalist tendence of the POTUS might provide opportunities.

Don't forget that whenever a new program is announced, Boeing threatens to assemble the aircraft in a location other than the Seattle area unless they get incentives from the state of Washington.
As has been said, the us corporate tax rate is the highest in the world, this is a fact. But it comes with the caveat that no corporations actually pay that rate, if they pay taxes at all. Boeing is no exception.
I'm not sure how WA sales tax figures in to aircraft sales, if at all. But a ~9% sales tax adds up to a hefty bill on a multi million dollar aircraft.

75% of Boeing Shares are held by 1507 Institutional investors, with the largest Capital World holding 57.6 million shares valued at about 80 billion.
Boeing are always talking about their investors, and looking after them and these are the ones they are talking about.
These investors want a return on their money either as dividend or Capital growth, and since the dividends aren't great, (for those focusing on yield), Capital growth becomes important, and so shares are bought back. This is just one way of managing excessive Capital held by the Company, to try and keep investors happy.
I doubt very much it has primarily to do with the Board members benefits although obviously the more shares they hold the greater their wealth as the share price moves up. If the share price goes down then they loose wealth. It's a very strong built in incentive, to keep the business healthy and growing.

Ruscoe

Planesmart wrote:

Commercial aircraft cradle to grave is two decades plus, whereas senior management are on 1-5 year contracts. Employees, contractors and customers have more long-term commitment to Boeing than senior management and the board. Something has to change or give.

What is your definition of senior management? By my definition most of them have been with the company for many years so they're not the kind that is here today, gone tomorrow. The ones at the very top may be on contract, the rest, I don't think so.

diverted wrote:

Seems evident to me Boeing management cares only for their stock price and how Wall St. feels about it. Seems they could care less about what happens to the company after they've cashed out their bonus checks (which are no doubt tied to stock performance)

First, management does care about the stock price not because their "bonus checks" are tied to it but because their "bonus checks" are for some part stock options (which aren't fully vested until several years later). Their performance is based on meeting goals specifically assigned to them. The last thing any halfway intelligent manager would want is having a bonus tied to the Boeing stock price -- you could go years without getting anything. At least if the stock price goes up in the future do in part to the manager's good performance, he'll be able to reap those rewards when his stock is vested.

I must admit to some confusion on the responses.
1. No one denies that the USA has the highest corporate tax rate.
2. In the last few years both the EU and US Administration has been on a tear for companies to pay their fair share of tax.
3. A.Net experts have been on Boeing for years in relation to its outsourcing for tax benefit.

Surprised on how folks are now defending Boeing's success in using loopholes to effectively lower its tax obligations, unfortunately, one cannot rely on loopholes when setting your tax obligations.

par13del wrote:

I must admit to some confusion on the responses.
1. No one denies that the USA has the highest corporate tax rate.
2. In the last few years both the EU and US Administration has been on a tear for companies to pay their fair share of tax.
3. A.Net experts have been on Boeing for years in relation to its outsourcing for tax benefit.

Surprised on how folks are now defending Boeing's success in using loopholes to effectively lower its tax obligations, unfortunately, one cannot rely on loopholes when setting your tax obligations.

I think we can all agree the US has a high corporate tax rate; however, the tax code is so full of loop holes that any company paying that full tax rate is run by incompetents. Can't blame a company for using all the means available to pay less tax, we all do it. However, the level of loopholes that exist for corporations is ridiculous.



https://www.thenation.com/article/six-r ... dge-taxes/


To quote Eisenhower, the last true republican (The last one to balance a budget, paid down the debt, etc)

"Dwight D. Eisenhower, Corporate tax rate 90%


Why? Because high corporate tax rates create incentives for big business to spend earnings and expand (ie new locations, new hires , new equipment and product R&D) which are deducted from taxable earnings, thus driving reported wealth into a lower tax bracket. Better to spend a majority of earnings on expansion than to horde it and pay Uncle Sam 90% of it. it's not Communism .It's responsible economics."

par13del wrote:

1. No one denies that the USA has the highest corporate tax rate.

I think you will find the UAE has the highest corporate tax rate in the world, around 55%

Ruscoe wrote:

75% of Boeing Shares are held by 1507 Institutional investors, with the largest Capital World holding 57.6 million shares valued at about 80 billion.
Boeing are always talking about their investors, and looking after them and these are the ones they are talking about.
These investors want a return on their money either as dividend or Capital growth, and since the dividends aren't great, (for those focusing on yield), Capital growth becomes important, and so shares are bought back. This is just one way of managing excessive Capital held by the Company, to try and keep investors happy.
I doubt very much it has primarily to do with the Board members benefits although obviously the more shares they hold the greater their wealth as the share price moves up. If the share price goes down then they loose wealth. It's a very strong built in incentive, to keep the business healthy and growing.

Ruscoe

How one can talk about excessive capital at a company having nearly no equity, I find strange. Boeing is serious under capitalised and scrapping the barrel for the share buy backs..

RickNRoll wrote:

A lot of executives seem to forget that share price is an emergent property. Trying to directly bump it up just creates a dysfunctional business.

True. What does this then say about Boeing? is it an observable property?

What kind of taxes/levies does Boeing actually pay?
Sales Tax? What else?

SEPilot wrote:

The US currently has the highest corporate tax rate in the developed world.

Yes, for ordinary companies, not for internationals like Boeing. I highly doubt that Boeing pays anywhere near the corporate tax rate. They probably have a web of corporations to pay close to zero tax. They probably have a lot of cash off shore and perhaps they want to get it to the US to give it to the shareholders?

Planesmart wrote:

US citizens, you are already paying inflated prices for domestic air travel, so why not subsidise commercial aircraft sales in the USA and overseas as well?

We are doing the overseas part already thru EXIM and WA state tax incentives. BTW, US average domestic airfares are third lowest in the world.

I think drumming up the tax reform may bite US registered global companies in the rear, historically their net rate has been negative(refund) to 2%. Even a strictly enforced 5% vs a fake 39% rate would cost a fortune. They should stop lobbying this cause.

mjoelnir wrote:

Ruscoe wrote:

75% of Boeing Shares are held by 1507 Institutional investors, with the largest Capital World holding 57.6 million shares valued at about 80 billion.
Boeing are always talking about their investors, and looking after them and these are the ones they are talking about.
These investors want a return on their money either as dividend or Capital growth, and since the dividends aren't great, (for those focusing on yield), Capital growth becomes important, and so shares are bought back. This is just one way of managing excessive Capital held by the Company, to try and keep investors happy.
I doubt very much it has primarily to do with the Board members benefits although obviously the more shares they hold the greater their wealth as the share price moves up. If the share price goes down then they loose wealth. It's a very strong built in incentive, to keep the business healthy and growing.

Ruscoe

How one can talk about excessive capital at a company having nearly no equity, I find strange. Boeing is serious under capitalised and scrapping the barrel for the share buy backs..

Wait a minute. Where did you come up with Boeing having nearly no equity, undercapatilized and scrapping the barrel for share buy backs?

According to th SEC filings, Boeing has $10 Billion in cash and short term investments (see page 17)

http://s2.q4cdn.com/661678649/files/doc ... _4Q_16.pdf

Do you claim to know something that Boeing is not disclosing to the securities and exchange commission? Compared to other US aviation manufacturers like Lockheed Martin, Northrop Grumman, GE and United Technologies, Boeing has more cash per share than any of them. Undercapitilazation means that a company does not have adequate capital to cover operations and pay its creditors. There is no evidence that this is true in any SEC filing that I can see. As far as I can tell, Boeing has a larger than typical amount of cash right now for the industry, which is probably where they want to be before launching a new airplane program.

Bricktop wrote:

So they can up their bonuses and buy back more shares, right? No thanks.

Yep, same old song and dance. We can't spend more on R&D, yet we spent billions buying back shares, largely because executive bonuses are tied to share prices. Hey, her's a chance to try to make more money by shifting paying even less taxes, let's go for that! Same old same old.[/quote]

Moreover - how are labour relations at Boeing going? I can't imagine that this news is going to bode well for unions...

Rajahdhani wrote:

Moreover - how are labour relations at Boeing going? I can't imagine that this news is going to bode well for unions...

General attitude of employees and retirees is to close their eyes and pray for the best. As long as bond managers are in the basket bond holders have no say. On top everyone who will be really impacted shun any negative comments, which boasters management.

After the fact every goes on news circuit claiming "we haven't seen this coming"

Newbiepilot wrote:

mjoelnir wrote:

Ruscoe wrote:

75% of Boeing Shares are held by 1507 Institutional investors, with the largest Capital World holding 57.6 million shares valued at about 80 billion.
Boeing are always talking about their investors, and looking after them and these are the ones they are talking about.
These investors want a return on their money either as dividend or Capital growth, and since the dividends aren't great, (for those focusing on yield), Capital growth becomes important, and so shares are bought back. This is just one way of managing excessive Capital held by the Company, to try and keep investors happy.
I doubt very much it has primarily to do with the Board members benefits although obviously the more shares they hold the greater their wealth as the share price moves up. If the share price goes down then they loose wealth. It's a very strong built in incentive, to keep the business healthy and growing.

Ruscoe

How one can talk about excessive capital at a company having nearly no equity, I find strange. Boeing is serious under capitalised and scrapping the barrel for the share buy backs..

Wait a minute. Where did you come up with Boeing having nearly no equity, undercapatilized and scrapping the barrel for share buy backs?

According to th SEC filings, Boeing has $10 Billion in cash and short term investments (see page 17)



http://s2.q4cdn.com/661678649/files/doc ... _4Q_16.pdf

Do you claim to know something that Boeing is not disclosing to the securities and exchange commission? Compared to other US aviation manufacturers like Lockheed Martin, Northrop Grumman, GE and United Technologies, Boeing has more cash per share than any of them. Undercapitilazation means that a company does not have adequate capital to cover operations and pay its creditors. There is no evidence that this is true in any SEC filing that I can see. As far as I can tell, Boeing has a larger than typical amount of cash right now for the industry, which is probably where they want to be before launching a new airplane program.

If you look at page 53, The Boeing Company and Subsidiaries Consolidated Statements of Financial Position

There you will find equity. Total equity 877 million USD. Total equity divided by total liabilities and equity gives you the equity ratio.
So 877 divided by 89997 is less than one percent. 2015 it was still about 6.7 percent and that was low. More undercapitalised is hardly possible.

Yes Boeing has enough cash, but that is financed by debt not own capital.

dtw2hyd wrote:

We are doing the overseas part already thru EXIM and WA state tax incentives.

EXIM provided net profit.
So many things around were US people think they pay for but do not.
Then the US doesn't pay for protecting Euros either another faulty assumption.
It is all ministry of power projection expenditure.

dtw2hyd wrote:

Planesmart wrote:

US citizens, you are already paying inflated prices for domestic air travel, so why not subsidise commercial aircraft sales in the USA and overseas as well?

We are doing the overseas part already thru EXIM and WA state tax incentives. BTW, US average domestic airfares are third lowest in the world.

I was meaning domestically, for US-based airlines. More targetted financial tools, than blunt old EXIM and State handouts (the latter for all production, not just domestic).

I agree, a universal, single digit, non-avoidable, global Corporate tax, would be far cheaper to collect, and far more effective at addressing the imbalance between corporates and small businesses/individuals.

Newbiepilot wrote:

Wait a minute. Where did you come up with Boeing having nearly no equity, undercapatilized and scrapping the barrel for share buy backs?

According to th SEC filings, Boeing has $10 Billion in cash and short term investments (see page 17)

http://s2.q4cdn.com/661678649/files/doc ... _4Q_16.pdf

Are you confusing cash with equity?

WIederling wrote:

dtw2hyd wrote:

We are doing the overseas part already thru EXIM and WA state tax incentives.

EXIM provided net profit.
So many things around were US people think they pay for but do not.
Then the US doesn't pay for protecting Euros either another faulty assumption.
It is all ministry of power projection expenditure.

The US certainly does pay to defend Europe.

WIederling wrote:

dtw2hyd wrote:

We are doing the overseas part already thru EXIM and WA state tax incentives.

EXIM provided net profit.
So many things around were US people think they pay for but do not.
Then the US doesn't pay for protecting Euros either another faulty assumption.
It is all ministry of power projection expenditure.

Ok, if EXIM is so profitable, why not extend it to US carriers, just don't call it EXIM. There wouldn't be a US3-ME3 fiasco.

Even if 777X is as successful as 77W ie., 800 orders it will be $10 Million WA subsidy per plane. With current 300 orders it is $27 Million WA subsidy per plane mostly to foreign entities.

Planesmart wrote:

Newbiepilot wrote:

Wait a minute. Where did you come up with Boeing having nearly no equity, undercapatilized and scrapping the barrel for share buy backs?

According to th SEC filings, Boeing has $10 Billion in cash and short term investments (see page 17)

http://s2.q4cdn.com/661678649/files/doc ... _4Q_16.pdf

Are you confusing cash with equity?

Cash does not equal equity. I was commenting on the statement that Mjoelnir said that Boeing is undercapitalized. Having $10 Billion in cash means that they aren't undercapitalized, since that is a term usually is based on cash flow and not debt to equity. Boeing has reduced equity and increased debt as they have been spending to increase production and on development like 737MAX and 737 rate increases, 777X and 767 tanker. That does not mean the company is under capitalized, which means the company is on the verge of bankruptcy.

Under-capitalization refers to any situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy, may be one that is over-exposed to risk, or may be one that is financially sound but does not have the funds required to expand to meet market demand.

https://en.m.wikipedia.org/wiki/Undercapitalization

You can argue that dividends and share buybacks are not a prudent use of money (which I think is his point) when a company is issuing debt, but the term undercapitlized usually means bankruptcy is a risk since the company can't obtain enough capital (cash) to run the business and I don't see that happening based on the debt to equity situation and leverage.

http://marketrealist.com/2017/01/is-boe ... investors/

RickNRoll wrote:

A lot of executives seem to forget that share price is an emergent property. Trying to directly bump it up just creates a dysfunctional business.

Or they can invest in the very long term - a time frame which benefits no one today, only their successors decades down the track. Its the same with politics. Why not buy back shares today with all of your free cash flow and reap the rewards today.

Hi All,

I cannot believe I read through 40 some odd posts and no one has brought up what Boeing and other heavy manufacturers in the US are talking about when they say tax reform.

Please Google and read the proposals about "Border Adjustability." It's complex, but what the House Republicans and Trump Administration are looking at is installing a new tax code the penalizes those that manufacture outside the US by not letting them deduct their COGS against their US profit. For those that manufacture in the US, they will move the US tax system to a more territorial system (like the rest of the world already has), rather than worldwide, so Boeing will no longer be taxed on its profits made elsewhere in the US. This is all in response to VAT and worldwide taxation that put US companies at a huge disadvantage.

Regards,

Team

Newbiepilot wrote:

Planesmart wrote:

Newbiepilot wrote:

Wait a minute. Where did you come up with Boeing having nearly no equity, undercapatilized and scrapping the barrel for share buy backs?

According to th SEC filings, Boeing has $10 Billion in cash and short term investments (see page 17)

http://s2.q4cdn.com/661678649/files/doc ... _4Q_16.pdf

Are you confusing cash with equity?

Cash does not equal equity. I was commenting on the statement that Mjoelnir said that Boeing is undercapitalized. Having $10 Billion in cash means that they aren't undercapitalized, since that is a term usually is based on cash flow and not debt to equity. Boeing has reduced equity and increased debt as they have been spending to increase production and on development like 737MAX and 737 rate increases, 777X and 767 tanker. That does not mean the company is under capitalized, which means the company is on the verge of bankruptcy.

Under-capitalization refers to any situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy, may be one that is over-exposed to risk, or may be one that is financially sound but does not have the funds required to expand to meet market demand.

https://en.m.wikipedia.org/wiki/Undercapitalization

You can argue that dividends and share buybacks are not a prudent use of money (which I think is his point) when a company is issuing debt, but the term undercapitlized usually means bankruptcy is a risk since the company can't obtain enough capital (cash) to run the business and I don't see that happening based on the debt to equity situation and leverage.

http://marketrealist.com/2017/01/is-boe ... investors/

You seem to understand that cash does not equal equity, so why do you mix up capital and cash? Equity is a measurement of capital, it is synonymous with the expression of working capital. It is calculated by subtracting liabilities from assets and the result is equity, or working capital.
The post I was answering was you talking about Boeing using its "excessive capital" to by shares back. There is no "excessive capital" at Boeing, the equity is down to 877 Million USD and the equity ratio is < than 1%. That is not far from zero capital. There are very few big firms as undercapitalized as Boeing.
A firm being undercapitalized or overcapitalized has nothing to do with stock prices. The movement of the stock price of Boeing does not change its capitalization.

If Boeing wants to increase its working capital, it has to make a profit and keep it, or Boeing has to sell shares instead of buying them back

A company can have a lot of cash, but nearly no capital and vice versa. The cash a company has depends for example on its credit lines. You have more cash if you pay your suppliers late and if you collect a lot of prepayments from your customers. If you pay back a loan you decrease your cash, if you take a loan you increase your cash. Cash is not a description of capital, but equity is.