Enterprise Risk Management at Boeing

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Themes: -
Period : 2003
Organization : -
Pub Date : 2003
Countries : USA
Industry : -

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Case Code : ERMT-002
Case Length : 11 Pages
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Political Risks

Any war or terrorist event would have a very negative impact on the airline industry. External business environment risks for Boeing included
» Adverse governmental export and import policies,
» Factors that resulted in significant and prolonged disruption to air travel worldwide,
» Other factors that affected the economic viability of the commercial airline industry.

Examples included the volatility of aircraft fuel prices, global trade policies, worldwide political stability and economic growth, acts of aggression that had an impact on the perceived safety of commercial flight and competition from Airbus.

The Military Aircraft and Missile Systems and the Space and Communications segments were subject to changing priorities and reduction in the US Government defence and space budget. Government contracts could be terminated by unilateral government action (termination for convenience) or failure to perform (termination for default).

Civil, criminal or administrative proceedings involving fines, compensatory and treble damages, restitution, forfeiture and suspension of debarment from government contracts might result due to violation of business rules and other irregularities.

Boeing's primary defence customer was the US government. Following September 11 military action in Afghanistan and the ongoing threat of terrorism, near term Department of Defence (DoD) budgets had increased and longer-range defence budget forecasts had been revised upwards. However, Boeing itself did not expect DoD procurement to increase significantly in view of the softer global economy.

Environmental Risks

Boeing's operations were subject to various federal and state environment laws. Areas of concern included discharge of hazardous materials and remediation of contaminated sites. The company had been involved in related legal proceedings, claims and remediation obligations since the 1980s.

Boeing routinely assessed its contingencies, obligations and commitments for remediation of contaminated sites, based on in-depth studies, expert analyses and legal reviews. Boeing generally accrued or expensed exposures related to environmental remediation sites immediately, based on estimates of investigation, cleanup and monitoring costs to be incurred.

Because of the regulatory complexities and risk of unidentified contaminated sites and circumstances, the potential existed for environmental remediation costs to be materially different from the estimated costs. However, based on all known facts and expert analyses, Boeing believed it was unlikely that environmental contingencies would have a material adverse impact on Boeing's financial position or operating results and cash flow trends.

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