Staying Aloft in the New Normal

When he was named Boeing's treasurer in April 2008, David Dohnalek could not have imagined the liquidity issues the company would be facing a scant six months later. Boeing does half its business with the U.S. government through defense contracts and the other half with commercial customers. The company, with $68 billion in 2009 revenue, normally has strong working capital thanks to how it structures its contracts.

But September 2008 was anything but normal. First, the machinists union went out on strike, grounding plane production. A week later, Lehman Brothers declared bankruptcy, sending the capital markets into a tailspin.

David Dohnalek

Recognizing that liquidity was key, Boeing's treasury "rolled up its sleeves" and instituted changes to improve cash management and forecasting, Dohnalek says. While some improvements were technology-based, most involved monitoring metrics and coordinating among the company's global business units. "We did a number of value-stream mapping exercises, where you break down a process into its elements to see where it can be improved," says Dohnalek, 51. The result? Boeing's working capital position improved by $2 billion beyond its goal.

But that was just one challenge facing Boeing. It needed to raise $7.5 billion to invest in ongoing research and development, and to complete the design and certification of its 737 Dreamliner and the 747-8. Rather than raise all the money at once, treasury tapped the market in four separate deals. "We took this step approach to take advantage of the improving bond rate environment which we thought was going to happen during the year," says Dohnalek. Boeing also wanted to demonstrate to rating agencies that it could digest the debt. The strategy paid off: The company achieved some of the lowest coupons in its history.

Another achievement was Boeing's pension plan, which had 15% returns in 2009 thanks to a timely shift to a liability-driven investment (LDI) strategy. The company went from investing its pension assets according to the traditional 65% equity, 30% bond split to allocating more than 50% to bonds and just 25% to 30% to equities. "By doing that, we saved some $4 billion in asset value," says Dohnalek, given the plunge in equities last year. The pension plan was 88% funded as of yearend 2009.

While Boeing is feeling a tailwind as the economy mends, Dohnalek has no intention of letting up on the best practices he instituted. "We sometimes get the question [from the business units]: 'When can we stop doing these daily calls, when can we get back to normal?'" Dohnalek says. His answer? "This is the new normal."


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