Managerial Economics 550
Hassan Ahmed
Assignment 4: Analysis of Current Macroeconomic Situations

Professor J.Kessio
December 7, 2011

Analysis of Boeing and Bombardier according to their Stock performance, current and future sales revenue, current and future profits, and labor costs and hiring decisions.

I. Introduction

In December 2007 the united state of America entered a recession and 1.2 million employees lost their jobs by the end of first 10 months of 2008, many businesses start going out of the market leaving many people without jobs relying on the unemployment compensation. The impact of the recession wasn’t just on U.S economy but it was spread all over the world due the heavy financial relationships and exchange with the potential markets all across the world. The monopolist firms had effected also but not as much as the other firms did but they also faced a hard times.
1.1 The Current Economic Conditions The current economic conditions are picking up due to the fall in unemployment rate by 0.4 percentage point to 8.6% in November 2011 comparing with 9.3% in 2009 and 9.6% in 2010, also the interest rate currently is 0.75%. The GDP growth was -6.8% by the beginning of 2009 and 5% by the beginning of 2010 and 3.1% by the beginning of 2011, overall the economy performance is going in positive direction that will increase consumer and businesses confidence.
1.2 The Firm The firms chosen to be analyze are Boeing and Bombardier because they hold many of the monopoly characteristics such as they are price setters in a market contain five major competitors Airbus based in Europe, Boeing based in the United States, Bombardier based in Canada, Embraer based in Brazil, United Aircraft Corporation based in Russia also the strong market power and the strong barriers to enter the market and the product differentiation. II. Analysis The Boeing stock performance in last years is affected by the economy conditions and this clear when we compare the stock prices between 2008 to 2011. In May 2008 the stock price was $84.06 and in March 2009 the price dropped to $30.1 or 64.2% reflecting the beginning of recession effect on the Boeing stock market. In April 2010 the stock price was $72.43 higher than the previous year by $42.33 or increased by 140.6%. In May 2011 the price was $79.53 and increased by $7.1 or 9.8%. Overall Boeing stock performance it has affected by macroeconomic conditions and this is obvious in 2009, and one of reasons that play main role in deterioration of the stock market that many people all across the country lost their jobs and start using their savings.
The Bombardier stock price was $8.72 in June 2008 and its dropped in 2009 to $2.82 or by 67.66% reflecting the recession effect, in March 2010 the price increased to $6.17 or by %54.29, in April 2011 the price increased to $7.11 or by %15.23. Bombardier stock performance was affected by the financial crises and this clear in 2009 stock price but in 2010 its start picking up to reach $7.11 in 2011. Between 2008 and 2010 Boeing revenues are increasing reflecting that the recession did not have a huge impact on company sales due to strong demand protecting by market power. In 2008 the total current revenue was $60,909,000,000 and in 2009 the total revenue was $68,281,000,000 and in 2010 the total revenue was $64,306,000,000. The forecasters predict that air carriers in North America will purchase 7,530 air planes from Boeing over the next 20 years at market value of 760 Billion. Bombardier had almost the same behavior on total revenues, the revenues are increasing over the last three years, in 2008 the total revenue was $17,506,000,000 and in 2009 the total revenue was $19,721,000,000 and in 2010 the total revenue was $19,366,000,000.Forcasters predict that in the next 20 years Bombardier business aircraft market will grow in jets manufacture delivering total of 26,000 business jets in all segments.
In last three years Boeing profits dropped in 2009 due the increase on Research and Development expenses. In 2008 the total profit was $2,672,000,000 and in 2009 the total profit was $1,312,000,000 and in 2010 the total profit was $3,307,000,000. Forecasters predict that Boeing will gain more sales in the next 20 years which will create a growth in profit if all other conditions held constant due to replacing of retired airplanes and the growth in passenger traffic in North America and expecting high demand on 737 MAX. Bombardier profits are increasing over the last three year especially in 2009. In 2008 the total profit was $317,000,000 and in 2009 the total profit was $1,008,000,000 and in 2010 the total profit was $698,000,000. Forecasters predict that Bombardier will gain more sales in the next 20 years which will create a growth in profit if all other conditions held constant due to demand on Learjet 85, CRJ 1000 and CS series. Boeing as employer provides 164,545 jobs in the United States and internationally with high wages different from division to another, engineers paid in average between ($87,932 to $70,005) a year depends on the major and experience and average of ($29.97 to $17.17) for the assemblers per hour, also the full time employees enjoying high benefits such as health and insurance benefits, retirements benefits, education benefits and more. Bombardier is operating in 23 countries providing 65,400 jobs, engineers paid in average of ($76,000 to $67,000) a year depends on the major and experience and average of ($25.00 to $18.00) for the assemblers per hour with high benefits for all. Boeing as most of companies in the United states was effected by the recession in 2008 the company laid off 800 employees in 2008 and 4,500 employees lost their jobs in 2009 and 1000 employees also lost their jobs in 2010, but in 2011 Boeing add 1000 workers as it increase jet production. Bombardier also suffers the late financial crises, Bombardier laid off 1,360 employees in 2009 and 180 in 2010, but in 2011 the Bombardier CEO announce that they will expand the operation adding 400 high-paying jobs. Overall the aircraft industry is picking up but still the employers reducing their costs and that will have negative effect on the job creation.