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BOEING INVESTMENT PLAN

Team Echo
Kevin Calvert
Jeremy Edwards
Julie Hubbert
Charles Pao

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The purpose of this investment plan is to provide our parents with an investment
strategy concerning their assets at retirement. We, the children, have researched and
reviewed the Boeing company to invest our parents money in. Our goal for this
investment strategy is to maintain our parents current net income with adjustment for
inflation. We do this by considering their social security benefits, interest and dividend
income, inflation, draw down of savings, and sell of stocks. These income items are
then compared with our parents inflation adjusted expenses.
Boeing Overview
Boeing is the second largest aerospace and defense contractor in the world. Boeing is
also the largest global aircraft manufacturer in the world. They were integral in the
development of military aircrafts such as everything from the B-17 Flying Fortress and
B-29 Superfortress to current aircrafts such as the Apache, Chinook, and Osprey
helicopters. Boeing has also maintained a sustained relationship with NASA through the
development of rocketry and satellite technology and continues to be the primary
contractor for the International Space Station. With Boeing continuing to be driven by its
ability to provide customers with continued development at the right price, the company
is showing no signs of slowing in the future market. It will continue to sustain its
profitability and market share for the next several decades (About Us, 2014).
Major Markets and Customer Base
Given the breadth and diversity of Boeing in the commercial, aerospace, and defense
market, their major markets are located globally. Currently, Boeing is divided into two
divisions, Boeing Commercial Airplanes and Boeing Defense. The primary business of
the Commercial Airplanes division is the development, construction, and sales of
commercial airliners of various sizes and configurations ranging from the 777 down to
regional jets. The commercial airliners are sold globally, and sales will continue to grow
over the next several years. As of this year, 12,000 Boeing commercial jetliners are in
service worldwide and comprise roughly 75 percent of the global market. According to
Boeings latest Current Market Outlook, a long-term forecast of air traffic volumes and
airplane demand, long-term demand will increase by 36,770 new airplanes with 15,500
of those new planes replacing older and less fuel-efficient airplanes. The remaining
21,270 airplanes are expected to be implemented in future fleet expansion in emerging
markets such as the Asian Pacific region and Europe. This expansion is valued at $5.2
trillion dollars over the next twenty years (Long-Term Market, 2014).
The Boeing Defense, Space & Security division is the second largest defense and
aeronautical agency in the world. In the United States, Boeing supports numerous
agencies such as the Department of Defense, the National Aeronautics and Space
Administration (NASA), and the federal government itself. Boeing also provides support
to allied government customers located in 150 countries. These products and services
vary greatly in their application. For military applications, Boeing produces strike or
surveillance aircraft, unmanned aircraft, weapons, and rockets. They also provide

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information security and analysis, integrated missile systems, and secure

communications. In cooperation with NASA, Boeing develops or maintains space
transportation, military and space security, satellite systems and services, heavy lift
launch vehicles, and is the primary contractor for the International Space Station (About
Us, 2014). While current governmental funding for the defense industry and NASA has
taken a cut in recent times, with the increasing use of unmanned aircraft, fighter jets,
information security concerns, and global communications, Boeing should not see any
sizeable decrease in revenue from the governmental sector any time soon.
Company Competition
The current market for commercial jet airliners continues to be an extremely competitive
market. Despite Boeings 75 percent market share in the segment, competitors continue
to try to increase their market share in North America. Their primary competitor is
Airbus, a European company, which has received roughly the same number of orders
for aircrafts and delivered roughly the same number as Boeing within the last ten years.
However, in the current year Boeing has seen a significantly larger amount of orders
than their leading competitor due to the Emirates canceling a large order of jetliners
from Airbus. A number of other companies across the globe have also begun attempting
to grab market share, such as Embraer, Bombardier, Irkut (Russia), COMAC (China),
and Honda and Mitsubishi (Japan) (The Boeing Company, 2014).
The Defense, Space & Security division faces strong competition in all markets from a
number of companies located globally. Primary competition includes companies such as
Lockheed Martin, Northrup Grumman, Raytheon, General Dynamics, BAE Systems,
and Airbus. While competition has remained fierce amongst defense contractors,
particularly within the last decade, Boeing has continued to build a strategic presence
by strengthening operations, and collaborating with other defense companies for
various projects. For example, despite Lockheed Martin being a competitor, the two
companies created a joint venture named Hellfire Systems, LLC, which manufactures
Hellfire missiles. The two companies also jointly own United Launch Alliance, LLC,
which manufactures the Delta IV and Atlas V while launching high-priority systems for
the U.S. Air Force, National Reconnaissance Office (NRO), NASA, and commercial
payloads to orbit. Boeing and Lockheed Martin are also the primary contractors for the
F-22 Raptor. Bell Helicopter and Boeing formed Bell-Boeing Joint Project Office to build
the V-22 Osprey, the tilt-rotor aircraft that is primarily used by the United States Marine
Corps (The Boeing Company, 2014).
Corporate Citizenship
Boeing has a proud tradition of corporate citizenship globally. In 2013 alone, Boeing
invested over $176 million dollars in people and communities throughout the world and
contributed thousands of hours of volunteer work. Through the motto of One Boeing
Alignment, which is a three-tier approach to corporate citizenship, Boeing focuses its
efforts in their products and services, community engagement, and business practices
(Boeing, 2013, p.3). The diversity of Boeings involvement in the community is

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widespread. First, Boeing supports education programs designed to develop a globally

competitive workforce and enables students to excel through academic endeavors to
inspire future leaders. For instance, Boeing invests in the National Math and Science
Initiative and hosts the FIRST Robotics Competition which has supported almost 850
FIRST teams with funding and active participation from volunteers since 2008 (Boeing,
2013, p.5). In addition to community investments that Boeing supports, nearly 50% are
dedicated to educational programs worldwide (Boeing, 2013, p.9).
Educational awareness and support is only one facet of corporate citizenship Boeing
participates in. Other highlights include Boeing donating more than $16 million dollars to
military and veteran programs in 2013 alone (Boeing, 2013, p.16). Boeing also employs
more than 23,000 military veterans, which according to Forbes, is the seventh best
employer for veterans in America (Dill, 2014). The company also contributes greatly to
humanitarian aid worldwide. Since 2000, Boeing has donated more than $31 million
dollars to relief efforts globally and a further $33 million dollars to health and human
services programs in twenty-five countries (Boeing, 2013, pp.20-22). These endeavors
mark just a few of the widespread commitments Boeing strives to better globally. The
company is also engaged in programs that benefit the environment, volunteering, the
Employees Community Fund, civic engagement, and arts and culture. Boeing is truly a
world leader in corporate citizenship that will continue for years to come.
Boeings Last 5 Years and Stock Projection
Sales Dollars
The sales trend for Boeing is increasing over the past 5 years. Although they had a 5.82% decrease in sales from 2009 to 2010, this was their only year in past five years to
have a decrease in sales. This is mainly because of an -8.21% decrease in cost of
goods sold from 2009 to 2010, so the amount of sales dollars is expected to decrease.
2010 was the only year that Boeing did not see a growth is sales dollars in the past 5
years. From 2011 to 2012, the company saw an 18.86% increase in sales which is the
highest percentage increase of the past 5 years. Cost of goods sold also increased by
22.71%, so net income decreased by 2.89% from 2011 to 2012. This shows great
potential for future growth of the company. Their sales is projected to be doubled the
amount it was in 2009 twenty years from now (Investor, 2014).

Sales/Revenue
% Growth
All Values USD Billions

2009
68.28B
---

2010
64.31B
-5.82%

2011
68.74B
6.89%

2012
81.7B
18.86%

2013
86.62B
6.03%

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Annual Net Profit/Loss

The net income for Boeing has varied over the past 5 years and has been somewhat
inconsistent. Even with decrease in sales from 2009 to 2010, Boeing increased net
profit by 148.01%, from $1.34 billion to $3.31 billion in net income. This was the highest
increase percentage of the past 5 years. 2011 still saw a 21.14% increase in profit from
2010 to $4.01 billion. 2012 is the only year in the past 5 years that Boeing has had a
negative percentage loss in net income from 2011, even though they still had a net
profit of $3.9 billion dollars for the fiscal year. Boeing saw its highest net income dollars
in the past 5 years in 2013 with a 17.56% increase of $4.58 billion from 2012 (Annual,
2014).

Net
Income
% Growth

2009
1.34B

2010
3.31B

2011
4.01B

2012
3.9B

2013
4.58B

---

148.01%

21.14%

-2.89%

17.56%

All Values USD Billions

Dividend History
The stock dividend payout history of Boeing has slowly increased over the past 5 years.
Boeing gives its shareholders a cash dividend form of payment on their shares of stock.
Shareholders consistently have received dividend payouts each quarter of each fiscal
year for the entire companys history. From 2009 to 2011, Boeing had a total of $1.68 of
dividend payout each year. In 2012, stockholders saw a .08-cent increase in total
dividend payout for that year. In 2013, the company had its biggest dividend payout of
the past five years with $1.94 total dividend payout for the entire fiscal year. There is no
indication that Boeing will not continue to be able to provide dividend payouts for its
stockholders in the future. There is only one other company, Airbus, which is any type of
competition for Boeing that would lower its value of investing in the company (Investor,
2014).
Annual
Dividends
Dividend
Amount
Year-End
Yield %
All Values USD

12/2009

12/2010

12/2011

12/2012

12/2013

$1.68

$1.68

$1.68

$1.76

$1.94

3.10%

2.57%

2.29%

2.34%

1.42%

For the purpose of our investment strategy, we are taking the average year-end yield
percent from the last five years to determine the projected dividends Boeing will pay to
our parents.

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Stock price and Projected Change

The stock price per share for Boeing has nearly tripled in the past 5 years. There are
currently 720,613,000 outstanding shares for the company. In 2009, the lowest closing
stock price for the company was $29.05. For the current year, Boeing saw a high of
$144.57 per share and a low of $116.32 per share; however, it is still higher than any
previous high stock mark of the companys history. It is calculated that there is $122.71
sales dollars for every share of stock for the company. The range in stock price for the
company in the past 5 years shows how much Boeing has grown and will continue to
grow.

However, for the purpose of our investment strategy we have assumed Boeings stock
to grow at a nominal rate of 7%. Even though the past 5 years indicate tremendous
growth, the countrys economic depression in 2009 and the subsequent bounce back
of the economy for the past 5 years have skewed Boeings stock growth. Nevertheless,
with projected sales and product production to be doubled as well as low threats of
competition, this is great indication that stock prices should continue to rise over the
next twenty years.
Inflation Rate and Effect on Disposable Income, Expenses, and Savings
The latest annual rate of inflation in the United States is 1.7%, as reported by the
Bureau of Labor Statistics (US Inflation Rate, 2014).

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US Inflation Rate Table (1980 2014)

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Ave

2014

1.6%

1.1%

1.5%

2.0%

2.1%

2.1%

2.0%

1.7%

2013

1.6%

2.0%

1.5%

1.1%

1.4%

1.8%

2.0%

1.5%

1.2%

1.0%

1.2%

1.5%

1.5%

2012

2.9%

2.9%

2.7%

2.3%

1.7%

1.7%

1.4%

1.7%

2.0%

2.2%

1.8%

1.7%

2.1%

2011

1.6%

2.1%

2.7%

3.2%

3.6%

3.6%

3.6%

3.8%

3.9%

3.5%

3.4%

3.0%

3.2%

2010

2.6%

2.1%

2.3%

2.2%

2.0%

1.1%

1.2%

1.1%

1.1%

1.2%

1.1%

1.5%

1.6%

2009

0.0%

0.2%

-0.4%

-0.7%

-1.3%

-1.4%

-2.1%

-1.5%

-1.3%

-0.2%

1.8%

2.7%

-0.4%

The projected inflation rate in the long run is an estimated 2% (Economic Projections of
Federal Reserve, 2014, p. 1). This means that the disposable income for our parents
will not purchase the same amount of goods and services in future years as they would
be able to purchase today. For example, if our parents needed $60,000 for the first year
of their retirement, then according to the inflation rate calculator, the amount they would
need after 18 years to maintain the same purchasing power as today would be
$85,694.77 (Inflation Calculator, 2014). Thus, inflation greatly impacts the purchasing
power.
Inflation Calculator
Today's Amount:

60000

Annual Inflation Rate:

Number of Years:

18

Reduced Amount

$42,009.56

Required Amount

$85,694.77

This also means that any amount that is saved today will be worth less in the future due
to the inflation rate. In this situation, our parents decide to deposit $1,500 into a savings
account today and decide to leave in the savings account for 18 years at a savings rate
of 1.58%. Then, taking into account that they are in the 25% federal tax bracket and the
state tax rate for Texas is 6.25%, the amount of the deposit after 18 years would be
$1,273 and $1,388 if tax-deferred or tax-exempt (Calculator: How Will Taxes and
Inflation Affect My Savings?, 2014). The amount $1,273 has been adjusted for inflation.
This goes to show that inflation can also affect the amount of money that is saved.

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INPUTS
Amount you have deposited
Years saved

1,500
18
1.58

25.00

Your state tax rate

6.25

Inflation rate

2.00

Your savings rate

Your federal tax rate

RESULTS
In 18 years, your deposit will be worth:
Amount

Amount
adjusted
for
inflation

If you pay taxes on earnings

$1,819

$1,273

If tax-deferred or tax-exempt

$1,986

$1,388

By looking at the graph above, the affect inflation has on the spending value of money is
very noticeable.

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Also, due to inflation, our parents living expenses will also increase, meaning they
would have to have a larger spending budget to match the rising prices in goods and
services.
Alternative Investment Strategies
In order to counter inflation and preserve their purchasing powers, our parents can
invest in other areas that would be inflation proof besides Boeing. One possibility is to
invest in bonds that are benchmarked to inflation ---- Treasury Inflation Protected
Securities, or TIPS (Reeves, 2013, p. 2). TIPS is directly linked to the Consumer Price
Index; this means that the larger the inflation the bigger the payout from the
investments. If consumer prices remain constant and inflation does not rise, then
investing in lower risk alternatives, such as corporate bonds, is the better route. Another
possibility is to invest in gold. When inflation rises, so does gold. Naturally, there is
some risk involved if this route is chosen. The risk for investing in gold is if inflation
stops rising or even starts to decline, then gold will stop rising and possibly decline in
value (Reeves, 2013, p. 3). A third route is to invest in foreign currency. The
improvement in technology has made trading foreign currency easier. As with the
previous two methods mentioned, there is risk involved with investing in foreign
currency. Trading in foreign currency can mean a lot of volatility, thanks to the endless
flow of geopolitical news and policy actions that threaten to the change the game in a
hurry (Reeves, 2013, p. 4). Other possible investments include investing in
commodities, such as cotton, soybeans, or any raw material, and investing in real
estate.
Although these are alternatives, the safest possible way to invest money would be to
put the money in an interest earning account, such as savings, or a CD. Unfortunately,
investing in a savings account or CD does not make it inflation proof and has the
possibility of losing purchasing power as shown earlier with the charts and calculations.
Thus, it ultimately depends on how much risk our parents are willing to take. This will
determine where they invest the remaining amount of money that is left over after
investing in Boeing and accounting for expenses.
Investment Strategy
After carefully considering Boeings projected stock and dividends, our investment
strategy involves investing $250,000 (half of our parents CD dollars) into Boeing while
investing the other half into savings. During the next 16 years, after the 2 years that they
stop working and retire, they will draw $25,000 per year first from their savings and then
from their selling of stocks.
Expenses
The following is an estimated budget for our parents expenses and net income. The
Social Security tax and Federal Income tax have already been calculated to simplify the
process (Federal Insurance, 2013; Publication 501, 2013). The other expenses have

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been reasonably estimated by carefully considering our parents age, location, income,
and assets.
Estimated Annual Expenses
Income
Income Taxes
Social Security Medicare Tax
Federal Income Taxes
Total

$7,650
15,763
($23,413)

Home Owners Expenses

Property Taxes (cor.net)
Home Owners Insurance
Repairs/Maintenace
Water (cor.net)
Gas
Electric
Phone/Cable/Internet
Total

$8,544
3,600
1,800
1,092
1,236
2,418
180
($18,870)

Personal Expenses
Food
Medical/Medical Insurance
Personal Items
Cell Phone
Total

$4,320
1,800
1,200
1,200
($8,520)

Automobile
Auto Insurance
Gasoline
Maintenance
Total Expenses

$100,000

$2,400
1,950
720
($5,070)
($58,273)

Total Net Income.$41,727

As you can see, our parents total net income after expenses for the first of the two
years that they will be working is $41,727. Our strategy is to maintain this level of
income.
Basic Assumptions

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The following are basic assumptions we have included in order to carry out our
investment plan.
We have assumed the inflation rate to be 2%.
We have assumed our parents will buy Boeings stock at the current price of
$125.
We have assumed Boeings stock will grow at a nominal rate of 7% (real growth
rate of 5% plus 2% inflation rate).
We have assumed Boeing will pay a dividend equal to 2.3% of the current stock
price.
We have assumed the savings account will draw 1.58%.
We have assumed social security benefits to be $4000 each month adjusted for
inflation.
We have assumed the taxes paid on social security benefits and dividends to be
zero to simplify our calculations. The inclusion of these taxes would not change
our strategy.

Nominal Net Income

120000
100000
80000
60000

Nominal Net Income

40000

Expenses

20000

Income

0
1 3 5 7 9 11 13 15 17 19
Years

This graph shows that our parents net income is maintained throughout their retirement
years. The large drop in income after the first two years is caused by our parents no
longer bringing in their income from working. The income level is then maintained
through social security, stock dividends, and the added $25,000 from savings and
selling of stocks. The large drop after two years in expenses is caused by our parents
no longer having to pay income and social security taxes.
After calculating our parents income and expenses throughout our parents retirement
years, we feel that our investment strategy in Boeing and savings will allow them to live
comfortably and keep their current lifestyle by maintaining their net income.

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References
About Us. (2014, January 1). Retrieved October 26, 2014, from
http://www.boeing.com/boeing/companyoffices/aboutus/brief/bds.page?
Annual Financials for Boeing Co. (2014). Retrieved October 18, 2014 from
http://www.marketwatch.com/investing/stock/ba/financials#
Boeing (2013). The Boeing Company 2013 Corporate Citizenship Report. Retrieved
October 25, 2014, from
http://www.boeing.com/assets/pdf/companyoffices/aboutus/community/2013_rep
ort/Boeing_CitizenshipReport_031414.pdf
CALCULATOR: HOW WILL TAXES AND INFLATION AFFECT MY SAVINGS? (n.d.).
Retrieved October 2, 2014, from
http://www.providentcu.org/index.asp?i=Savings_Resources&search=tax_inflatio
n_Calc
Dill, K. (2014, April 22). Top 15 Employers For Veterans. Retrieved October 26, 2014,
from http://www.forbes.com/sites/kathryndill/2014/04/22/top-15-employers-forveterans/
Economic Projections of Federal Reserve Board Members and Federal Reserve Bank
Presidents. (2014, March 19). Retrieved October 2, 2014, from
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140319.pdf
Federal Insurance Contributions Act (FICA) Withholding for Social Security and
Medicare (2013, March 19). Retrieved October 18, 2014 from
https://fmx.cpa.state.tx.us/fm/pubs/paypol/tax_information/index.php?section=fed
eral&page=federal
Inflation Calculator - Save Enough to Account for Inflation. (2014, January 1). Retrieved
October 2, 2014, from http://www.buyupside.com/calculators/inflationjan08.htm
Investor Relations. (2014). Retrieved October 18, 2014 from
http://www.boeing.com/boeing/companyoffices/financial/index.page?
Long-Term Market. (2014, January 1). Retrieved October 26, 2014, from
http://www.boeing.com/boeing/commercial/cmo/index.page
Publication 501 (2013). Retrieved October 18, 2014, from
http://www.irs.gov/publications/p501/ar02.html#en_US_2013_publink100022105
1
Reeves, J. (2013, October 4). 5 Ways to Inflation-Proof Your Portfolio. Retrieved
October 22, 2014, from http://investorplace.com/2013/10/5-ways-to-inflationproof-your-portfolio/view-all/#.VEgsYPnF8uM

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US INFLATION RATE. (2014, September 17). Retrieved October 2, 2014, from

http://usinflation.org/us-inflation-rate/
The Boeing Company (NYSE:BA) | Competitors & Competition. (2014, January 1).
Retrieved October 26, 2014, from http://www.bgaaeroweb.com/firms/Competitors/Competitors-Boeing.html