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Date Submitted: 02/11/2016 03:53 PM
DERIVATIVES AND RISK MANAGEMENT
Company: The Boeing Company (BA)
The Boeing Company was founded in 1916 and is based in Chicago, Illinois. This
multinational corporation designs, manufactures, and sells airplanes, rotorcraft, rockets and
satellites. Boeing is also the largest aircraft manufacturers and exporter in United States
serving the market worldwide. Several main clients in year 2015 of Boeing are Alaska
Airlines (US), All Nippon Airways (Japan), Ryanair (Ireland) and Korean Airlines (Korea).
(Table 1) Boeing’s commercial airplanes business depends hugely on commercial airlines,
thus the corporation is subject to unique risks
Various Risk Exposures (Rank by importance)
1. Geopolitical Risk
The commercial aircraft market is predominantly driven by long term trends in airline
passenger and cargo traffic. This risk is formed by several underlying factors like political
stability in customers’ and home countries, world trade policies, terrorism and countries’
relationship. It is also the main factor of demand risk where the actual demand for
aircraft might not reach the forecasted value bringing unnecessary cost for the firm in
terms of disposing or storing their surplus. For example the political events in Ukraine
lead to an escalating series of sanctions and higher oil prices. Boeing’s major orders are
mostly from commercial aircraft market where their demand on commercial aircraft is
further influenced by their costi. This chain effect shows the high correlation between
geopolitical risk and demand risk. Besides geopolitical risk, demand for aircraft also
highly depends on the market condition (market risk). Significant deterioration in the
global economic environment could result in fewer new orders for aircraft.
2. Commodity Risk
Fluctuation of commodities price is not the only factor of commodity risk. Boeing relies
heavily on other...