WORLDWIDE VISION

How Treasury is supporting Boeing's efforts to expand its global presence

BY JUNU KIM

There's no denying Boeing's interest in expanding its global presence. In 2002, carriers based outside the United States accounted for 69 percent of the orders at Boeing Commercial Airplanes. And among the major defense wins in the past 18 months are the F-15K fighter aircraft to the Republic of Korea and the 737-based Airborne Early Warning and Control aircraft to Turkey.

That international focus hasn't been lost on the Boeing Treasury Department, whose services Boeing uses in some fashion in each international sales campaign. And as Boeing goes global, so does Treasury, in terms of its strategy, expertise, foreign outreach and tactical support.

"Boeing is rapidly expanding its international presence, identifying key countries throughout the globe and establishing senior-level in-country expertise and leadership," said Walt Skowronski, senior vice president of Finance and treasurer. "It is our responsibility at Treasury to fully support and complement this activity. Over the last few years we have made a conscious effort to greatly enhance our international finance capabilities and expertise."

For Treasury, enhancing its international finance capabilities includes not only adding people who have international finance experience, but also expanding relationships with international banks. More than half of current Boeing banking partners are represented by non-U.S.-based financial institutions.

Treasury views these institutions, which include 36 credit line banks and numerous others worldwide that provide nearly $8 billion in committed credit, as not merely service providers but as financial partners. These partner banks offer not only financial support but also local-market intelligence, insight and advice. And since some sale contracts may call for Boeing to use the services of a bank located in that other nation, having these partners on board may help strengthen the Boeing competitive position.

To nurture these relationships and communicate the Boeing vision, strategy and performance, senior Treasury officials began a program in 2002 to visit the home office of each of these partner banks at least once a year.

These bank partners assist Boeing's international efforts in many key areas, including letters of credit, global cash management and foreign-exchange currency management.

As Boeing conducts more defense deals directly with foreign governments (instead of first selling to the U.S. government, which would then effectively resell to the other nation), its need for banks to assist with letters of credit has grown substantially. The dollar value of letters of credit issued or committed to be issued on behalf of Boeing has increased by over 500 percent since the end of 2001, said Geoff Carpenter, assistant treasurer, Global Treasury Operations. In fact, the F-15K sale required letters of credit from more than 19 banks.

These relationships also help with Boeing cash management functions. As Boeing enters new markets, it must establish bank accounts and services to help support offices there.

Another way Treasury is thinking globally is in how it views currencies. Although Boeing mainly conducts foreign business in U.S. dollars, Treasury representatives have encouraged business-unit procurement members who do business abroad to seek quotes in U.S. dollars and the supplier's home currency, if that currency is stable enough to be hedged.

Carpenter said Treasury has seen procurement savings of generally between 5 percent and 10 percent and at times, on smaller contracts, up to 30 percent—by performing a simple analysis: What will a transaction cost in the foreign currency, including any cost for hedging, and is the savings material enough to make it worth taking the extra step of dealing in that foreign currency?

Carpenter recalled one recent example when a Japanese supplier provided a price of about $42 million. Upon Boeing's request, the company also provided a quote in Japanese yen that equated to $40 million, including the expense for hedging. Boeing used this information to negotiate a lower price in dollars.

"Treasury's role is not to compel anyone to do deals in a foreign currency. Instead, it's about keeping all our options open and choosing the alternative that's most advantageous to meeting our business goals," Carpenter said.

After all, evaluating options and choosing the best alternative is a big part of how Treasury—and all of Boeing—can support company business and drive stakeholder value.

junu.kim@boeing.com