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Boeing’s brand value to nosedive by US$7.5bn as it grounds entire fleet of 737 Max aircraft

 

·         Boeing is world’s most valuable aerospace brand, value up 61% since last year to US$32.0bn but brand reputation in jeopardy, according to new Brand Finance report

·         Rolls Royce in turmoil, feeling effect of Brexit confusion, brand slips four places, value drops 3% to US$3.9 billion

·         American aerospace and defence brands performing well since President Trump’s tax rate drop; US giant General Dynamics takes off as fastest-growing aerospace brand in ranking

View the full Brand Finance Aerospace & Defence 25 2019 ranking here

Boeing’s brand will immediately feel the effects of this week’s Ethiopian Airlines crash and subsequent worldwide call to ground its 737 aircraft to the tune of US$7.5bn, according to the latest report by Brand Finance, the world’s leading independent brand valuation and strategy consultancy.

Brand Finance valued the Boeing brand on 1st Jan 2019 at US$32.0 billion. Since the incident last week, we estimate the loss to Boeing’s brand to be at US$7.5bn. The aerospace giant has already seen its shares plummet 11% since last weekend’s incident involving one of its 737 Max 8 aircraft which plummeted just 7 minutes after taking off from Addis Ababa for Nairobi, killing all 157 people on board.

Brand Finance estimates revenues solely from the 737 aircraft to be US$24.0 billion, accounting for roughly a third of Boeing’s profits. Nevertheless, the brand value gap between Boeing and Airbus remains colossal as Boeing’s brand value (up 61% to US$32.0 bn) is well over double that of Airbus (up 19% to US$ 13.0bn).

Savio D’Souza, Aviation Director of Brand Finance, commented:

“Given the importance of the 737 aircraft to the airline business, it is no surprise that the market is reacting with such immediacy. We estimate that the brand value lost by Boeing to be approximately $7.5bn and the maximum brand value loss up to US$12.5 bn.

The market tells us that the business has already lost $30bn in intangible value. This value loss could potentially increase to US$50bn based on analyst estimates.”

Boeing before the crash had an elite AAA+ brand rating, of which there were only 15 brands globally. Following the recent events, we estimate that brand rating will drop to AAA as Boeing’s reputation takes an almost immediate dent.”

David Haigh, CEO of Brand Finance, commented:

“Boeing CEO Dennis Muilenberg has been ranked the world’s 14th top CEO in our Brand Guardianship Index study which we launched at Davos earlier this year. All eyes are now on Mr Muilenberg as Boeing enters into crisis communications mode to rescue the brand.

If Boeing is to retain its status as the world’s most valuable and strongest aerospace brand, it needs to adopt a proactive rather than reactive strategy and remain wholly transparent throughout the investigation.

This could well be just a temporary blip in the long run for Boeing. We’ve seen brands such as Toyota suffer from similar high-profile reputational crises and who have since seen their brand and business value recover.”

Rolls Royce in turmoil
Rolls-Royce reported ‘expensive repairs to its Trent 1000 engine’ as well as ‘turbulence from restructuring costs and the weaker value of the Brexit-hit pound’, causing the brand to slip four places in the ranking since last year, its brand value dropping 3% to US$3.9 billion. The brand is cutting labour to improve and streamline its performance as it faces more challenges to make profit and net cash flow.

Having publicly expressed frustration at the disarray over Britain’s departure from the EU, UK aerospace brand Rolls Royce is concerned that UK competitiveness would be hit if extra parts had to be ordered and stored to mitigate the impact of any disruption caused by failure to agree trade terms.

US giants dominate aerospace and defence industry
In the face of US taxes on steel and aluminium ordered by President Trump last year, US aerospace and defence brands continue to dominate the ranking with 50% of the brands coming from the US. General corporation tax has been adjusted from 40% to 27% in Brand Finance analysis.

US aerospace brand General Dynamics has held firm in 4th place in this year’s Brand Finance Aerospace & Defence 25 2019 ranking, with its brand value up a whopping 75% since last year to US$7.6 billion. The brand has acquired CSRA and combined its business into GDIT. Considering CSRA’s annual revenue of US$5.0 billion, General Dynamics forecast jump and brand value increase is substantiated. The forecast however may not be so positive as the group is expected to deliver both underlying profit and cash flow.

In fifth place, Northrop Grumann has seen a 69% growth in its brand value, sitting at US$7.6 billion in this year’s Brand Finance Aerospace & Defence 25 2019 ranking. This can be attributed to the brand’s acquisition of Orbital ATK.

Boeing is also strongest aerospace and defence brand
Aside from calculating overall brand value, Brand Finance also determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance. Along with the level of revenues, brand strength is a crucial driver of brand value.

Boeing is the only brand in the Brand Finance Aerospace & Defence 25 2019 ranking to post the elite AAA+ brand rating. With a Brand Strength Index (BSI) score of 89.5 out of 100, Boeing is still the strongest brand in the industry.

ENDS

Note to Editors
Every year, leading brand valuation and strategy consultancy Brand Finance values the world’s biggest aerospace and defence brands. The 25 most valuable aerospace and defence brands in the world are included in the Brand Finance Aerospace & Defence 25 2019 ranking.

Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.

Additional insights, more information about the methodology, as well as definitions of key terms are available in the Brand Finance Aerospace & Defence 25 2019 ranking.

Brand Finance helped craft the internationally recognized standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671. Brand Finance is a chartered accountancy firm regulated by ICAEW and also the first brand valuation consultancy to join the International Valuation Standards Committee (IVSC).

The methodology used to produce the annual Brand Finance rankings of the most valuable and strongest brands across all sectors and countries has been certified with the Marketing Accountability Standards Board’s (MASB) Marketing Metric Audit Protocol (MMAP).

Data compiled for the Brand Finance league tables and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.

Media Contacts
Sehr Sarwar
Senior Communications Manager
T: +44 (0)2073 899 400
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s.sarwar@brandfinance.com

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About Brand Finance          
Brand Finance is the world’s leading independent brand valuation and strategy consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands. Drawing on expertise in strategy, branding, market research, visual identity, finance, tax, and intellectual property, Brand Finance helps brand owners and investors make the right decisions to maximise brand and business value.

Methodology
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Brand revenues are discounted post-tax to a net present value which equals the brand value.

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