Boeing Risk Management

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...