Boeing
Alright, I feel I have used the word "Introduction" in many of the previous posts as a way of saying: I'm not ready to start the meat of this series yet. Not today. Today we open the Boeing 10-K and get to work.
10-K (BA 2019 10-K).
Although this maybe repetative I will reiterate the 10-K item definitions from last post for completeness
Part 1
Item 1:
" “Business” requires a description of the company’s business, including its main products and services, what subsidiaries it owns, and what markets it operates in. This section may also include information about recent events, competition the company faces, regulations that apply to it, labor issues, special operating costs, or seasonal factors. This is a good place to start to understand how the company operates."As mentioned previously I suggest writing your own verison of Item 1 and see if it matches the companies.
I know boeing produces airplanes for major airlines and happend to be aware that they are involved in the defense and space sectors as well. I can't recall what other buisnesses they are in but the 10-K will enlighten us.
Reading the 10-K we see Beoing list out their buisnesses:
- Commerical Airplanes
- Defense, Space and Security
- Global Services
- Boeing Captial
They then go ahead and summerize each of them for us. This is super awesome.
Commerical Airplanes
Just as expected Boeing claims they are a leader in this sector. Here we learn about the products they offer. Specifically: "737 narrow-body model and the 747, 767, 777 and 787 wide-body models".
Defense, Space and Security
This section is more interesting since we are generally less aware of this segement of their buisness.
They mention that Boeing has R&D in manned and unmanned aircrafts. This makes sense and seems like a good place for boeing to do buisness. Glad to see them in using their aircraft abilities in other products.
They go on to mention many other military sounding products (missiles etc). The point here is that Boeings knowledge is not only being used on commerical airplanes but is used in many other products, even those that aren't aircrafts per say.
Additionally they seem to be involved with building and deploying satellites.
Global Services
Fairly short section. Doesn't seem like anything too interesting. That said, this section seems to be Boeings "Customer Support" segment and we know now that Boeing had major 787 issues. Seemingly this segment would have dealt with that mess.
Boeing Capital Segment
This segment seems like something worth keeping an eye on. First off let's just explain what this segment does. This segment is there to help customers of Boeing finance their orders. From the sound of it, Boeing offers an extremely expensive product and its customers need a way of paying for their purchases overtime. The fact that Boeing has a segement dedicated to, from what it sounds like, loaning and help finance their customers orders means their customers must do this often/always and Boeing feels either the free market wont provide this financing option or it will if the free market will, it will be too expensive leading to a loss in customers.
In short, it appears to be in Boeing's best interest to provide financing themselves.
This is a segment worth keeping an eye out for because its clear (I think) from here that Boeing will be a company with either loads of debt or low net income. They are selling product without immediate payment. This means for R&D they either need to take more money out of their bank account (since they can't use money they were paid for their product since nobodies paid yet) or get loans.
For a moment lets pretend we it's Feburary 2020, the corona virus is a new pathogen wreaking havic and the news has just announced, airlines are pausing travel.
As an investor in Boeing you first think: If airlines can't buy planes, Boeings earnings will suffer. This is not ideal but not cause of alarm. You then think about more and realize that maybe some airlines go out of buisness, that could be bad for Boeing since that won't only hurt Boeings next quarterly earnings but potentially have a longer lasting effect. Still Boeing as a company wont collapse because of this.
But then you think about this segment of Boeings business. Your eyes widen, palms sweaty.
American airlines just recently refreshed their fleet of airplans. That means they bought and were delivered Boeing jets but most likely acquired them via Boeings Capital Segment. Meaning they probably haven't paid Boeing for them in full yet. What if they go bankrupt? Boeing will suffer massive loses in that case. What if other airlines who have purchased Beoing aircrafts with financing through Boeing go bankrupt?
This would be a massive problem. You as an investor would want to make sure Boeing had enough captial to remain solvant. You'd purhaps be looking to see if Boeing sells some bonds to raise captial.
That all about covers the 4 main segments of Boeings buisness. They go on to discuss some other interesting parts of their buisness such as unions and compeition. We'll take a look at that next time.