Boeing Frontiers
June 2002 
Volume 01, Issue 02 
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Boeing Capital Corporation
Planes, trains & automobiles

Getting to know Boeing Capital Corporation


U.K. Royal Air Force C-17Helping to establish a broader global presence for Boeing can sometimes be a lonely job … just ask Cian Dooley.

Dooley is senior director–Europe for Boeing Capital Corporation, and is the sole occupant of the company's office in Dublin, Ireland's, vibrant financial district. Along with a Commercial Aviation Services field representative, he makes up the entire Boeing presence in Ireland.

"Sometimes it feels like Seattle is a lot farther than 7,000 kilometers (4,350 miles) away," said Dooley. "But being connected electronically, and having the opportunity to regularly visit our offices in Renton, helps bridge the gap. Fortunately, it helps to know that there are 174,000-plus others on your team."

Thomas Hansen can relate. He inhabits Boeing Capital's one-person office in Stockholm, Sweden, where the rest of the Boeing in-country contingent is two CAS field representatives at Arlanda Airport.

Yet the presence of Dooley and Hansen in their respective cities, along with the other "count-the-employees-on-one-hand" Boeing Capital offices in Brussels, Hong Kong, Atlanta, Austin, Chicago, Detroit and New York, is a key element of the business unit's long-term vision.

"We are establishing ourselves as a premier, global, full-service financier," said Boeing Capital President Jim Palmer. "We have a small — but growing — number of offices in major financial and industrial centers, and have our eye on other locations around the world.

Thomas Hansen"Having talented team members who are readily accessible to customers and investors is a vital part of fulfilling our vision, because financing is really a people business," Palmer said. "Our competitive advantages are the talent and experience of our employees, and the strength of the Boeing brand."

Boeing Capital has leveraged those advantages well since being elevated to be one of three new Boeing business units in late 2000. Since the end of 1999, the Boeing Capital portfolio — the total value of the airplanes and commercial equipment it owns and leases, plus the value of outstanding loans — has more than tripled to approximately $10 billion. During 2001, revenues increased 48 percent to $663 million, with Boeing Capital's net income growing 42 percent to $152 million.

Boeing Capital and the financing business may seem somewhat mysterious and exceedingly complex to many people, but Palmer says the basics of the business are relatively simple.

"We generate cash from our own operations, in the form of loan and lease payments. We also receive equity contributions, which are essentially investments directly from The Boeing Co.," said Palmer. "But the majority of our capital comes from issuing corporate bonds, which are purchased by investors with the promise that we will pay interest on a scheduled basis and pay off the principal amount when the bond matures."

Using those funds, Boeing Capital offers two kinds of leases — long-term and operating leases — and loans, also known as notes. Customers may choose to borrow for the outright purchase of an airplane, satellite, ship, machine tool or a wide variety of other equipment types, or they may choose to lease the same item(s) from Boeing Capital. Long-term leases are essentially a lease-to-own agreement, while operating leases represent more of a rental arrangement.

Boeing Capital currently has 40 percent of its portfolio in long-term leases, 33 percent in operating leases, and the remaining 27 percent in the form of notes and loans.

Although many people may identify Boeing Capital with its role in financing 7-series aircraft, commercial airplanes represent only 70 percent of the business. In addition to providing, and/or arranging financing for Commercial Airplanes customers, the Renton-based Aircraft Financial Services group has a fleet of nearly 300 airplanes under lease, as well.

"I believe that a lot of people think we exist just to provide financing for Boeing Commercial Airplanes customers. That's part of our mission, but it's important to understand that our decisions are made independently and our Boeing-related transactions are at market rates," said Palmer. "We are not what is often referred to as ‘the lender of last resort' — the source of financing for people who can't get it anywhere else. Boeing Capital is responsible for generating profits for The Boeing Company."

There also is a decidedly different side of the Boeing Capital business that most people aren't aware of — the financing of commercial equipment, such as business aircraft, oceangoing vessels, truck-and-trailer fleets, and manufacturing, mining and other commercial equipment. The Long Beach-based Commercial Financial Services group is responsible for such transactions, which represent about 30 percent of the portfolio.

Boeing Capital has financed several ocean-going vesselsPalmer explains that the rating agencies that establish and monitor Boeing Capital's credit ratings, and subsequently the pricing of its corporate bonds, like to see that the company is maintaining a healthy balance between Boeing products and other types of equipment in case of an aerospace industry downturn.

"Plus, the worldwide commercial financing market is very big, and growing steadily," Palmer said. "There are opportunities for profitable growth."

The third, and newest, business group within Boeing Capital is Space and Defense Financial Services. Based in Long Beach, this small-but-active team works closely with Boeing Satellite Systems and Boeing Launch Services in providing and arranging financing for satellites and launches.

The group also is involved in arranging lease financing for military transport airplanes, having placed four Boeing C-17s with the United Kingdom's Royal Air Force. It also is working closely with the Military Aircraft and Missile Systems business unit in a proposed 767 tanker lease to the U.S. Air Force.

"It's another example of us leveraging our core strengths, especially our knowledge of aerospace products and customers," said Palmer. "We'll continue building on those strengths, developing additional expertise in our three primary areas."

Palmer stresses that businesses such as consumer credit cards and home mortgages are well outside of that core, and Boeing Capital isn't interested in pursuing them.

"We're growing quickly, but in a prudent and profitable manner," Palmer said. "New business opportunities that supplement our core businesses are one of the ways that we can sustain that growth, and make our contribution to Boeing's overall growth and transformation. Expanding the number of cities — and countries — that we have offices in, and increasing the size of those offices, is another growth strategy."

Jim PalmerThree keys to Boeing Capital

Say "enhanced equipment trust certificates" or "subordinated debt" to most people, and you're on your way to convincing them that they'll never understand Boeing Capital, or what the business unit does. Financing is a complex, intricate business, according to Boeing Capital President Jim Palmer, but it helps to start with the basics.

"There are three key elements to the financing business: credit, equipment and funding," he said.

"Credit is understanding the customer's ability to make payments, which means more than just checking their credit rating. Equipment involves understanding the value of the equipment that is being purchased or leased, particularly its residual value — how much it will be worth during the life of the lease, as well as at the end of the lease period. And funding means having sufficient money available, at the right times, to pay for the equipment, and to pay principal and bondholders."

It's the details beyond those basics that keep Boeing Capital's 213 employees moving fast: there are specialists who analyze both credit and equipment; a treasury group that oversees funding; and groups of accountants, contract administrators, attorneys and marketing representatives backing them.

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