Banking on good relations

Why associations with financial services firms pay off

BY ANNE EISELE

Chances are, if asked to list your closest friends and business allies, your banker wouldn't top the list. But for Boeing, maintaining close working relationships with nearly three dozen commercial and investment banks around the world is absolutely essential to ensuring the company's continued business success.

Banks provide Boeing a diverse array of services, whether assisting Corporate Treasurer Paul Kinscherff's group in managing the balance sheet, helping Boeing Capital Corp. President Walt Skowronski's team finance commercial airplanes, or providing insight on mergers, acquisitions, divestitures and joint ventures to the Corporate and Strategic Development team led by Joe Lower. In each case, relationships based on trust and understanding are essential, and all three groups work closely together and with Boeing's banks to ensure the trust and understanding are there.

Perhaps nowhere are strong, enduring relationships with banks more important than when it comes to asking them for billions in potential borrowing power . in good economic times and bad. And that is just what Boeing does.

More than 30 banks from North America, Europe and the Asia-Pacific region help Boeing satisfy credit needs in several key areas, including providing some $4 billion in lines of credit that can be accessed to fund acquisitions, underwrite new operations or just to be there in case the company runs into trouble. Of that amount, $2.5 billion is renewable every 364 days and $1.5 billion is renewable every five years, providing both flexibility and stability.

"The credit support, along with the broad array of services they provide, positions our banks as a key contributor to the company's success as a global aerospace enterprise," said Kinscherff, whose Corporate Finance and Banking team oversees relations with Boeing's credit-line banks.

Like Boeing, many companies have committed lines of credit from their banks to provide them immediate access to cash. Large companies such as Boeing rarely, if ever, borrow from them, however, as the primary function of a corporate credit line is to assure the capital markets and the rating agencies that the company can quickly access financing if needed. It's only tapped in extraordinary circumstances.

In the market uncertainty after Sept. 11, for example, Boeing immediately began conserving cash and doubled its 364-day credit line just in case it needed to access money quickly. In the end, because cash flow returned fairly rapidly, Boeing did not need to borrow from its credit lines, nor does it intend to unless absolutely necessary.

These days, though, Boeing employees often hear that the company is generating a lot of cash. So why does it still need lines of credit?

"It's all about liquidity. The credit line is for the proverbial rainy day," says Ruud Roggekamp, assistant treasurer of Corporate Finance and Banking. He noted that in a cyclical industry such as commercial aerospace, it's particularly prudent to ensure appropriate amounts of credit availability. In addition, rating agencies expect companies to maintain meaningful committed bank lines of credit and take that into consideration when evaluating a company's risk profile. Strong credit ratings help Boeing achieve a lower cost of financing and, in turn, are taken into account by banks when assessing a company's credit-worthiness.

In addition to providing lines of credit, banks such as Citigroup, JP Morgan, Sumitomo and Royal Bank of Scotland-to name a few-do far more than provide bank accounts. For example, they also advise Treasury on how to structure the balance sheet most effectively as well as help invest company cash, manage pension plan assets, hedge foreign exchange risk, and facilitate access to capital markets when the company wants to issue stocks and bonds.

Banks are also important to foreign military sales. Transactions such as Boeing's sale of F-15Ks to South Korea and Airborne Early Warning and Control aircraft to Turkey likely wouldn't have been completed without letters of credit from groups of banks, or "syndicates," guaranteeing $1.2 billion in advanced payments, in the case of South Korea, and over $700 million in credit assurances in the case of Turkey. 

"Good working relationships with financial institutions are an essential part of Boeing's efforts to manage the balance sheet, optimize company financings, and support the profitable growth of our businesses," Roggekamp said. "They really are among our most valued partners." You can bank on it.

anne.f.eisele@boeing.com