Karmen Chan – Airplane Programs Jonathan Loh – Commercial Sales Berton Lim – Engineering, Operations & Tech. And

1. E2 - Ensuring Success: B787 Enhancing Sustainability Karmen Chan – Airplane Programs Jonathan Loh – Commercial Sales Berton Lim – Engineering, Operations & Tech. Andy Neo – Finance

2. The Current Market Outlook Outsourced Manufacturing – Growing Trend Refocusing: High Value, Core Competence Emerging Markets, Emerging Threats Countering Threats, Sustaining Advantage Standards Exogenous Events BioFuels, Emissions Standards Shorter Economic Boom-Bust Cycles

3. E2: Ensuring & Enhancing Strong New Ecosystem Ensuring Success: B787 Enhancing Sustainability Core Competence & Competitive Advantage

4. Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target ? Timeliness & Reliability Communicates and convinces customers Improved Quality Ensure

5. Ensuring Vendor Performance: Tuning-Up & Providing Suppor Execution OBJECTIVES The Boeing Vendor Tune-Up Program • Align process & quality standards • Continuous improvement in processes • Every 2 months • Periodical refresher courses • Knowledge sharing • Focus groups with MoonShine team • Global MoonShine mobile teams • Regional Mobile team to support Ensure

6. Training & Rewarding theNextGen Boeing Workforce Key concerns Recommendations Competitive compensations • Existing formula with periodical changes • A shift to variable wage- Collective Business Performance Long-term incentivization Job security • Training program: Increase skill sets to perform higher value-adding functions Ensure

7. Managing Labor & Vendor Relationships will Deliver the B787 On Time, On Target The Boeing Vendors Tune-Up Program Timeliness & Reliability Communicates and convinces customers Improved Quality Rewarding and Training NextGen Boeing Workforce Ensure

8. E2: Ensuring & Enhancing Strong New Ecosystem Ensuring Success: B787 Enhancing Sustainability Core Competence & Competitive Advantage Ensure Enhance

9. Buy-to-Build Ratio: Are we Outsourcing too much? Ensure Enhance

10. Buy-to-Build Ratio: Are we Outsourcing too much? Situation: 70% outsourcing down to approximately 60% Implication: Built up experience & complex knowledge Conclusion: Leverage on 787 experience for future Result of purchase of Vought Testing commenced Steep learning curve Leaders in Global Supply Chain Mgmt Inevitable of the future Establish leadership StarShine to support outsourcing Ensure Enhance

11. Emerging Threats: China at the Top Ensure Enhance

12. Resulting Implications of Threats Situation: Economics Influence Outsourcing Implication: Manufacturing more Overseas - BUT Solution: Focus on Higher Value Work Outsourcing not for cost Manufacturing less of an advantage tomorrow Financial Risk Reduced Allows Foothold in Key Markets Allows Focus on Core Competency Design & Systems Integration Excel in Project Mgmt Making it difficult to replicate Ensure Enhance

13. With the Threat: Our Core Competencies & Advantages will be: Ensure Enhance

14. Starshine What’s next beyond 787? • Specialised unit focusing on Project Management Excellence Nanotechnology • Enhance aircraft performance through better materials Ensure Enhance

15. StarShine: Developing Project Management Excellence Starshine • Reach new frontiers in project management • Improve programs time-to-market speed Goals Functions • Support and collaborate with program teams • Ensure good performance in order to reduce developmental delays; keep production schedule on time Ensure Enhance

16. Why StarShine? 1 Engagement • Assist, support program teams in project management • Share best practices – across industries/internally 2 Excellence • Good ideas from collaboration between experts • Timely delivery of planes, improvements in production processes 3 Epitome • Improve project management capabilities • Attain sustainable competitive advantage that are not easily replicated; create ecosystem of gold standards Ensure Enhance

17. Nanotechnology Nanotechnology • Open new frontiers with emerging technology • Explore long-term potential of enhancing aircraft performanceSource: U.S. Committee on Aeronautics Research and Technology Goals • Apply new composite materials to aircraft design • Research work with UW Centre of Nanotechnology Functions Ensure Enhance

18. Why Nanotechnology? 1 Impact • Relevant to most aircraft components and systemsSource: Bax and Willems Consulting • Eg: Airframes, windows 2 Improvement • Better material properties that boost functional performance • Added protection during harsh weather conditions 3 Innovation • Build up collective suite of capabilities from investment • Be the leading edge of innovation and material science development Ensure Enhance

19. E2: Ensuring & Enhancing Strong New Ecosystem Ensuring Success: B787 Enhancing Sustainability Core Competence & Competitive Advantage Ensure Enhance

20. Financial Implications with our Recommendations Incremental Profit of USD 3.5 Billion Ensure Enhance Financial

21. Reaffirmation of Our Strategy with Positive NPV NPV USD 3.63 Billion Ensure Enhance Financial

22. Financial Assumptions & Justifications Valuation Assumptions • 15 Year Time Horizon • 3 Stage Growth Model • CAGR Growth Rate of 12.96%, followed by 6% • Terminal Growth Rate of 3% • WACC of 10.71% Qualitative Assumptions • Commercial Airline to be key driver of growth • Assumed On Schedule Delivery of the 787 • Treating Nanotechnology as a call option Ensure Enhance Financial

23. Identifying the Risks SensitivityAnalysis 10,604.07 9,870.9 2,894.42 -2,622.77 -3,359.94 Ensure Enhance Financial

24. Milestone & Implementation: E2: Ensuring & Enhancing -- Due Diligence & Approval -- Planning & Development Execution & Quarterly Review -- Union Negotiations Execute & Quarterly Review -- Union Negotiations Execute & Quarterly Review -- Development & Staffing --Training & Field Trips Execution & Quarterly Review --Training & Field Trips --Training & Field Trips --Training & Field Trips Global Educational Institution Research Tie-Ups Continuation of PhantomWorks Research & Development Commercial Application for New Products & Variants-- Ensure Enhance Financial Milestones

25. Milestone & Implementation: E2: Ensuring & Enhancing Execution & Quarterly Review Execute & Quarterly Review Execute & Quarterly Review Execution & Quarterly Review --Training & Field Trips --Training & Field Trips --Training & Field Trips Global Educational Institution Research Tie-Ups Commercial Application for New Products & Variants Ensure Enhance Financial Milestones

26. E2: Ensuring & Enhancing Strong New Ecosystem Ensuring Success: B787 Enhancing Sustainability Strengthen Vendor capabilities – Tune-Up StarShine Program – Gold Standard in Project Mgmt Stabilize Labor Relations – Satisfaction & Productivity Forever New Frontiers - Nanotechnology Core Competence & Competitive Advantage Summary Ensure Enhance Financial Milestones

27. Question & Answer

28. Index – Presentation & Supplementary Slides Presentation Slides • Current Market Outlook • Overview • Tuning-Up & Providing Support • Training & Rewarding NextGen • Therefore Ensuring Success: B787 • How much are we outsourcing • Implications of outsourcing • Emerging Threat Review: China • Implications of China Threat • Our Core Competence & Advantages • What’s Next • Starshine • Why Starshine will succeed • Nanotechnolgy • Why Nanotechnology will succeed • Pro-forma Net Profit with recommendations • Positive NPV • Assumptions & Justification • Sensitivity Analysis • Implementation Supplementary Slides • Resilience & Customer Centricity • Our 787 vendors • What has been done to fix 787 program • Surveilance tools • Do we have the right partners? • Too much outsourced overseas argument • Compensation packages • Holistic packages • What is Moonshine? • BioFuels Consideration • Why not a SonicCruiser? • Outsourcing reasons • Why not Backward Integrate with Vendors?? • Airbus A350XWB v. Boeing B787 specs • Cargo Market • Importance of designing the right plane • Commercial aircraft industry analysis • StarShine Structure • StarShine roles • Nanotechnology details • DCF • Pro-Forma Income Statement • Delivery Schedule (1) • WACC Calculations • Cost of Debt Calculations • Tax rate • Boeing brief financial performance • Profit • Stability of Boeing • Opportunity costs assumptions • Growth rates • Positive trends for nano

29. Resilience to new technologies & Customer-centricity Success with new technologies • First commercial aircraft to be designed entirely on computer via CAD software system from DassaultSystemes & IBM • Success: Physical mock-up of nose section built to verify results of program and was successful • Even wider fuselage cross-section demanded by airlines • Fully flexible interior configurations • Operating costs lower than any B767 • Opted for twin-engine configuration given past design successes • Largest diameter turbofan engines of any aircraft Customer centric Approach

30. Vendors for B787 Project United States Europe Japan/Korea China Boeing Charleston (announced as Vought Aircraft Industries) Spirit Aerosystems Inc Hamilton Sundstrand Rockwell Collins Honeywell Goodrich General Electric Moog Inc Toray Industries Fuji Heavy Industries Kawasaki Heavy Industries Mitsubishi Heavy Industries Panasonic Bridgestone Korean Airlines - Aerospace Division Shenyang Aircraft Coporation BHA Aero Composites Manufacturing Hafel Aviation, Harbin Chendu Aircraft AleniaAeronautica GE Aviation Messier-Dowty DassaultSystèmes Eaton Aerospace Rolls-Royce Thales GKN Aerospace

31. What has been done? • Virtual collaboration environments supporting development activities by suppliers in multiple countries. • Product lifecycle management software allows for collaboration through design and development phase in performing all engineering tasks and capturing design errors prior to production • RFID and unique identification and maintenance and inspection data conforming to industry standards • Surveillance Tools to monitor • Ad-hoc, short term quick fixes

32. Surveillance Tools to Monitor Vendors’ Performance Source: http://www.boeingsuppliers.com

33. Do we have the right partners? • Purpose of outsourcing • Asia Pacific • Boeing & Japan • Japan responsible for approximately 35% of designing and manufacturing airframe structures for B787 • R&D work on new tech for Boeing, including composites for B787 • Japanese government subsidy: up to USD$3billion • Boeing & China • Gain access to new markets: China will be the world‘s second largest market for new commercial airplanes with a projected demand for 2,600 aircraft valued at $213 billion over the next 20 years. • Source: Boeing Current Market Outlook 2009 Yes, foothold in Asia Pac established, but faced with challenges from individual host countries and Airbus

34. Do we have the right partners? • Asia Pacific • Airbus engages in industrial offset agreements with older Airbus models • More difficulties faced in Japan than in China • Boeing’s involvement in Japan: Establish leadership position in wing design and composite tech  Ability to deliver quality products, which is on par with US and European manufacturers

35. Do we have the right partners? • However, • Utilizing learning points to refine global supply chain concept • Difficult to control lower-tier vendors’ quality and process • Not to backward integrate, but align and standardize process and quality standards throughout entire supplier network • Cascade from first-tier vendors • Best done with Starshine • Supply chain problems attributed to new revolutionary process AND product • Same manufacturer for 777 and 787: Vought Aircraft Industries • Vendor for 777- Aircraft Structural Components: Nose beams, bulkheads, longerons, edge frames • Vendor for 787- Aft Fuselage • But, inadequate vendor capabilities to cope with new technology required  Boeing had to buy out Vought’s share and follow up with changes.

36. Too much outsourced overseas? • Supply Chain problems that ensued • Design Issues • Weight Issues • Engine Issues • Certification Issues • Production Issues • Travelled Work • Lay-up Rates • Ramp Up • Schedule Issues • Parts Shortages • • Fastener Shortage • • Travelled Work • • Conformity and Quality Assurance Issues • • Configuration Control • • Shop Floor Control • • Late Definition • • Engineering Changes • • Production Ramp-up Issues

37. Too much outsourced overseas? • EXAMPLE: Travelled Work (Production Issues) 1. Assembly work was found to be completed incorrectly only after assemblies reached the final assembly line. Root causes are: • Oversight not adequate for the high level of outsourcing in assembly and integration • Qualification of low-wage, trained-on-the-job workers that had no previous aerospace experience 2. Significant amount of change engineering work • Inadequate supplier capabilities in design, e.g. Vought had no engineering department when selected • Oversight not adequate for the high level of outsourcing in detailed design • Weight growth and subsequent weight saving changes • Producitbility improvements 3. Late Definition • Boeing admitted responsibility for a shortfall in wiring shipments • Late specification indicated by supplier as root cause Source: Boeing 787 Lessons Learnt, October 2008, BurkhardDomke, Head of Engineering Intelligence, Airbus A need to implement more stringent selection and due diligence in checking first-tier vendor’s supplier network for future projects

38. Compensation Packages: Learning Points from 2008 Strikes’ Settlements • Estimated $685 million pretax profits lost in the Machinists’ Strike’s first 24 days (Boeing’s third quarter earnings, 2008) • Adding in extra expenses incurred to recover to pre-strike rates of production • Paying suppliers for overtime • Expedited shipping etc • Why Boeing needs to avoid a repeat of 2008 Strikes Source: The Seattle Times, Boeing, IAM (http://seattletimes.nwsource.com/html/boeingaerospace/2008319765_machinists28.html) • Key concerns of workforce “Leadership at the International Association of Machinists and Aerospace Workers had said Boeing's offer fell short in areas such as job-security commitments, cost of living adjustment rates and medical-plan expenses.”

39. Compensation Packages: Learning Points from 2008 Strikes’ Settlements

40. Holistic Compensation • Kerr (1975) recognized the existence of a divergence of goals and motives among members of the organization which led to non-similar outcomes. Often, subordinates respond to reward systems by displaying behavior they perceive as rewarding. The need for aligned performance and reward cultures with Boeing’ corporate growth strategies • Go further than simply telling workforce, but to genuinely understand why these objectives mattered to the business. • Launch compensation program and refine based on workforce's experiences and inputs

41. Boeing: Moonshine Shop • WHAT IS THE MOONSHINE SHOP? • A lean manufacturing team that uses fast and inexpensive prototyping to develop and prove a concept, prior to full implementation • Purpose: “to be creative, to solve problems, be creative with solutions” • Combined: • Lean manufacturing principles • Cross-disciplinary teamwork • Iterative, prototyping approach to new product and process design • Changes to existing products and processes Brainstorming Try-storming

42. Boeing: Moonshine Shop • SUCCESS? • Hay Loader on the Assembly Line • The old crane & container process took one day-shift crew of 15 people & one night-shift crew of 15, with a total of 16 hours to install one set of passenger seats  Cost and time savings: Took 4 people 28-32 minutes to install a full set of seats

43. BioFuels: The Complication of Delivery • Relies on cooperation of multiple parties – engine makers, airlines, energy co, aircraft manufacturers, airport operators, regulatory bodies • Infrastructure to implement it requires investment and commitment • BUT we recognize it diversifies source of fuels, green and responsible

44. BioFuels • Future is already present – nothing groundbreaking, successful test flights aplenty • BUT standards yet to be decided, testing, regulatory approval all in process • GTL the most feasible near term alternative conventional fuel – BUT not environmentally friendly • Summary: Continue focus on developing and ensuring leadership in 2nd Gen BioFuels that can be used in aviation

45. Why not revive the SonicCruiser? • Developed for speed, timeliness, and range • Example for a Sydney-NYC Mission, it shaves 3hours per flight in a usual 21hr long flight • The range of 9000nm, possibly 10,000 is demanded most premium customers ceteris paribus • Cost despite mass production volumes of jetliners will increase from increase fuel consumption -- 15-20% more fuel burn- counter intuitive @ this point in time • shorter economic boom-bust cycles make sonic cruisers @ this point in time a risk airlines not willing to take • But possible in medium term • Fuel technology for biofuels/alternatives/conventional fuel stablises to some new standard for aviation industry • Material costs for largely composite frame deflated - moore's law • Enough demand from consumers for speed, timeliness, willing to pay for airlines to order

46. Reasons for Outsourcing • Subsidies in developmental costs flowing from host country governments – indirectly subsidizing the development costs • Partnership, alliance, equity alliance with local partners to enable deals to flow through (esp. Japan, China) • Manufacturing no longer sustainable competitive advantage • Focus is now on systems integration, design and other higher value chain work

47. Why not Backward Integration? • Integration time of at least 2-3 years disruptive to production focus on 787 • Current critical issues resolved, thus enabling testing and certification process to begin • Cultural and organization integration issues that will complicate integration • Countries like Japan, China have foreign ownership restrictions on local companies

48. A350XWB v. B787

49. Cargo Airline: A Tight Market Rising Fuel Costs Yields low due to Competitors No Customer Volume Overcapacity Tough Conditions Shine Wears Off Cargo Market

50. Importance of building right plane for airline industry