BOEING CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

Consolidated Results of Operations and Financial Condition
Overview
We are a global market leader in the design, development, manufacture, sale,
service and support of commercial jetliners, military aircraft, satellites,
missile defense, human space flight and launch systems and services. We are one
of the two major manufacturers of 100+ seat airplanes for the worldwide
commercial airline industry and one of the largest defense contractors in the
U.S. While our principal operations are in the U.S., we conduct operations in an
expanding number of countries and rely on an extensive network of non-U.S.
partners, key suppliers and subcontractors.
Our strategy is centered on successful execution in healthy core businesses -
Commercial Airplanes (BCA), Defense, Space & Security (BDS) and Global Services
(BGS) - supplemented and supported by Boeing Capital (BCC). Taken together,
these core businesses have historically generated substantial earnings and cash
flow that permit us to invest in new products and services. We focus on
producing the products and providing the services that the market demands, and
continue to find new ways to improve efficiency and quality to provide a fair
return for our shareholders. BCA is committed to being the leader in commercial
aviation by offering airplanes and services that deliver superior design,
safety, efficiency and value to customers around the world. BDS integrates its
resources in defense, intelligence, communications, security, space and services
to deliver capability-driven solutions to customers at reduced costs. Our BDS
strategy is to leverage our core businesses to capture key next-generation
programs while expanding our presence in adjacent and international markets,
underscored by an intense focus on growth and productivity. BGS provides support
for commercial and defense through innovative, comprehensive and
cost-competitive product and service solutions. BCC facilitates, arranges,
structures and provides selective financing solutions for our Boeing customers.
Business Environment and Trends
The global outbreak of COVID-19, 787 production issues and associated rework,
and the residual impacts of the 737 MAX grounding continued to have significant
adverse impacts on our business in 2021. The COVID-19 pandemic has caused an
unprecedented shock to demand for air travel, creating a tremendous challenge
for our customers, our business and the entire commercial aerospace
manufacturing and services sector. The latest International Air Transport
Association (IATA) release reported that passenger traffic in 2021 recovered to
approximately 40% of 2019 levels, as international markets saw continued
reopening challenges. Additionally, global economic activity is improving, but
continues to be impacted by COVID-19, and governments continue to restrict
travel to contain the spread of the virus. While recovery is accelerating, we
continue to expect that it will remain uneven as travel restrictions and varying
regional travel protocols continue to impact air travel.
Generally, we continue to expect domestic travel to recover faster than
international travel. As a result, we expect the narrow-body market to recover
faster than the wide-body market. Also, the pace of the commercial market
recovery will be heavily dependent on COVID-19 infection rates, vaccination
rates, and government travel and other restrictions on trade and commercial
activity. Demand for dedicated freighters continues to be strong, underpinned by
a strong recovery in global trade and overall air cargo growth. Overall cargo
capacity remains challenged given the large impact that COVID-19 has had on
international passenger operations, which also carry cargo.
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Airline financial performance, which also plays a role in the demand for new
capacity, has been adversely impacted by the COVID-19 pandemic. According to
IATA, net losses for the airline industry were $138 billion in 2020 and are
expected to be approximately $52 billion in 2021. Our customers are taking
actions to combat the effects of the COVID-19 pandemic on the market by
preserving liquidity. This comes in many forms, such as deferrals of advances
and other payments to suppliers, deferrals of deliveries, reduced spending on
services and, in some cases, cancellation of orders. While the outlook is
improving and we have seen an increase in new orders in 2021, we continue to
face a challenging environment in the near- to medium-term as airlines have
adjusted to reduced traffic, which in turn has resulted in lower demand for
commercial aerospace products and services. The current environment is also
affecting the financial viability of some airlines.
We continue to expect commercial air travel to return to 2019 levels in 2023 to
2024. We expect it will take a few years beyond that for the industry to return
to long-term trend growth. To balance the supply and demand given the COVID-19
shock and to preserve our long-term potential and competitiveness, we have
reduced the production rates of several of our BCA programs. These rate
decisions are based on our ongoing assessments of the demand environment and
availability of aircraft financing. There is significant uncertainty with
respect to when commercial air traffic levels will recover, and whether, and at
what point, capacity will return to and/or exceed pre-COVID-19 levels. During
the fourth quarter of 2020, we made adjustments to our estimates regarding
timing of 777X entry into service and market demand. We continue to anticipate
that the first 777X delivery will occur in late 2023. We will closely monitor
the key factors that affect backlog and future demand for each of our commercial
aircraft programs, including customers' evolving fleet plans, the wide-body
replacement cycle and the cargo market. We will maintain a disciplined rate
management process and make adjustments as appropriate in the future.
Notwithstanding the changes we have made to production rates, risk remains that
further reductions will be required. Additionally, if we are unable to make
timely deliveries of the large number of aircraft in inventory as of
December 31, 2021, future revenues, earnings and cash flows will be adversely
impacted.
Deliveries of the 737 MAX resumed in the fourth quarter of 2020, when the
Federal Aviation Administration (FAA) rescinded the order that grounded 737 MAX
aircraft in the U.S. In addition, other non-U.S. civil aviation authorities,
including the Brazilian National Civil Aviation Agency, Transport Canada and the
European Union Aviation Safety Agency have subsequently approved return of
operations, allowing us to resume deliveries in those jurisdictions. Over 185
countries have approved the resumption of 737 MAX operations. The Civil Aviation
Administration of China issued an airworthiness directive in the fourth quarter
of 2021 outlining actions required for airlines to return to service. We expect
737 MAX deliveries to China to resume in 2022, subject to final regulatory
approvals, although risk remains around the timing and rate of those deliveries.
Orders to suspend operations of 737 MAX aircraft from non-U.S. civil aviation
authorities are still in effect in a small number of countries.
Deliveries and production have also been impacted by production issues and
associated rework. For example, deliveries of the 787 are currently paused and
the production rate has been reduced while we focus on rework of undelivered
aircraft and continue to engage in detailed discussions with the FAA regarding
required actions for resuming deliveries. Risk remains that these issues may
continue to impact the timing of airplane deliveries in inventory and/or our
ability to achieve planned production rates. Revenues, earnings and cash flows
will continue to be impacted until we are able to resume timely deliveries.
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The long-term outlook for the industry remains positive due to the fundamental
drivers of air travel demand: economic growth, increasing propensity to travel
due to increased trade, globalization and improved airline services driven by
liberalization of air traffic rights between countries. The shock from COVID-19
has reduced the near- to medium-term demand, but our Commercial Market Outlook
forecast projects a 4% growth rate for passenger and cargo traffic over a 20
year period. Based on long-term global economic growth projections of 2.7%
average annual gross domestic product (GDP) growth, we project demand for
approximately 43,610 new airplanes over the next 20 years. The industry remains
vulnerable to exogenous developments including fuel price spikes, credit market
shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics
and increased global environmental regulations.
A Continuing Resolution (CR), enacted on December 3, 2021, continues funding for
the federal government at FY21 appropriated levels through February 18, 2022.
Congress and the President must enact either full-year FY22 appropriations bills
or an additional CR to fund government departments and agencies beyond February
18, 2022 or a government shutdown could result, which may impact the Company's
operations.
At BGS, while the outlook is improving, we are continuing to see a direct impact
on our commercial supply chain business as fewer flights and more aircraft
parked result in a decreased demand for our parts and logistics
offerings. Additionally, our commercial customers are curtailing discretionary
spending, such as modifications and upgrades, and focusing on required
maintenance. Similar to BCA, we expect a multi-year recovery period for the
commercial services business. The demand outlook for our government services
business remains stable; government services comprises approximately half of BGS
revenue, which is unchanged from pre-pandemic levels.
At BDS, we continue to see a healthy market with solid demand for our major
platforms and programs both domestically and internationally. However, while we
continue to experience near-term production disruptions and inefficiencies due
to COVID-19 impacts, we saw improvements in 2021.
In addition, we are experiencing some supply chain shortages. Our suppliers are
also experiencing liquidity pressures and disruptions to their operations as a
result of COVID-19. We continue to monitor the health and stability of the
supply chain as we ramp up production. These measures and disruptions have
reduced overall productivity and adversely impacted our financial position,
results of operations and cash flows.
We continue to transform and improve our business processes. These activities
are not intended to constrain our capacity but to enable the Company to emerge
stronger and be more resilient when the market recovers. We expect that
successful execution of these measures will improve near-term liquidity and
long-term cost competitiveness.
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Consolidated Results of Operations
The following table summarizes key indicators of consolidated results of
operations:
(Dollars in millions, except per share data)
Years ended December 31,                                2021             2020            2019
Revenues                                         $62,286          $58,158         $76,559

GAAP
Loss from operations                             ($2,902)        ($12,767)        ($1,975)
Operating margins                                   (4.7)  %        (22.0)  %        (2.6)  %
Effective income tax rate                           14.8   %         17.5   %        71.8   %
Net loss attributable to Boeing Shareholders     ($4,202)        ($11,873)          ($636)
Diluted loss per share                            ($7.15)         ($20.88)         ($1.12)

Non-GAAP (1)
Core operating loss                              ($4,075)        ($14,150)        ($3,390)
Core operating margins                              (6.5  %)        (24.3  %)        (4.4  %)
Core loss per share                               ($9.44)         ($23.25)         ($3.47)


(1)These measures exclude certain components of pension and other postretirement
benefit expense. See pages 49 - 51 for important information about these
non-GAAP measures and reconciliations to the most comparable GAAP measures.
Revenues
The following table summarizes Revenues:
(Dollars in millions)
Years ended December 31,                            2021          2020          2019
Commercial Airplanes                           $19,493       $16,162       $32,255
Defense, Space & Security                       26,540        26,257        26,095
Global Services                                 16,328        15,543        18,468
Boeing Capital                                     272           261           244

Unallocated items, eliminations and other (347) (65)

  (503)
Total                                          $62,286       $58,158       $76,559


Revenues increased by $4,128 million in 2021 compared with 2020 driven by higher
revenues at BCA, BDS and BGS. BCA revenues increased by $3,331 million primarily
driven by higher 737 MAX deliveries due to recertification and return to service
in most jurisdictions and the absence of $498 million of 737 MAX customer
considerations which reduced revenues in 2020, partially offset by lower 787
deliveries in 2021. BDS revenues increased by $283 million primarily from higher
revenue on the KC-46A Tanker program and lower charges in 2021. BGS revenues
increased by $785 million primarily due to higher commercial and government
services volume.
Revenues decreased by $18,401 million in 2020 compared with 2019 primarily due
to lower revenues in our commercial airplanes and commercial services
businesses. Revenues for each of our segments have been adversely impacted by
COVID-19. BCA revenues decreased by $16,093 million due to lower deliveries
driven by the impacts of the COVID-19 pandemic, 787 production issues and the
737 MAX grounding, offset by lower charges related to estimated potential
concessions and other considerations to 737 MAX customers. BDS revenues
increased by $162 million primarily due to higher fighter aircraft
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and other volume, partially offset by the impact of higher unfavorable
cumulative contract catch-up adjustments, largely due to KC-46A Tanker charges
in 2020. BGS revenues decreased by $2,925 million primarily due to lower
commercial services revenue driven by the COVID-19 pandemic. The changes in
Unallocated items, eliminations and other primarily reflect the timing of
eliminations for intercompany aircraft deliveries, as well as reserves related
to cost accounting litigation recorded in 2019.
Revenues will continue to be significantly impacted until deliveries ramp up and
the commercial airline industry recovers from the impacts of COVID-19.
Loss From Operations
The following table summarizes Loss from operations:
(Dollars in millions)
Years ended December 31,                                2021            2020          2019
Commercial Airplanes                               ($6,475)       ($13,847)      ($6,657)
Defense, Space & Security                            1,544           1,539         2,615
Global Services                                      2,017             450         2,697
Boeing Capital                                         106              63            28
Segment operating loss                              (2,808)        (11,795)       (1,317)
Pension FAS/CAS service cost adjustment                882           1,024  

1,071

Postretirement FAS/CAS service cost adjustment         291             359  

344

Unallocated items, eliminations and other           (1,267)         (2,355) 

(2,073)

Loss from operations (GAAP)                        ($2,902)       ($12,767) 

($1,975)

FAS/CAS service cost adjustment *                   (1,173)         (1,383) 

(1,415)

Core operating loss (Non-GAAP) **                  ($4,075)       ($14,150) 

($3,390)

*  The FAS/CAS service cost adjustment represents the difference between the FAS
pension and postretirement service costs calculated under GAAP and costs
allocated to the business segments.
**  Core operating earnings is a Non-GAAP measure that excludes the FAS/CAS
service cost adjustment. See pages 49 - 51.
Loss from operations decreased by $9,865 million in 2021 compared with 2020
primarily due to lower losses at BCA and higher earnings at BGS. BCA loss from
operations decreased by $7,372 million primarily due to the absence of a $6,493
million reach-forward loss on the 777X program recorded in 2020, lower period
expenses, lower 737 MAX customer considerations and higher 737 MAX deliveries,
partially offset by a $3,460 million reach-forward loss on the 787 program in
2021. BGS earnings from operations increased by $1,567 million in 2021 compared
with 2020 primarily due to charges incurred in 2020 as a result of the COVID-19
pandemic, as well as higher commercial services volume.
Loss from operations increased by $10,792 million in 2020 compared with 2019
primarily due to increased losses at BCA and decreased earnings at BGS and BDS.
BCA loss from operations increased by $7,190 million. The loss in 2020 primarily
reflects a reach-forward loss recorded in the fourth quarter of $6,493 million
on the 777X program. BCA's loss in 2020 also reflects the absence of MAX
deliveries during the first three quarters of the year, lower wide-body
deliveries and lower program margins resulting from the COVID-19 pandemic and
787 production issues, abnormal production costs, 737NG frame fitting component
repair costs, severance costs and 737 MAX customer considerations.
The loss in 2019 primarily reflects the absence of 737 MAX deliveries in the
second, third and fourth quarters and charges of $8,259 million for estimated
737 MAX customer considerations. BDS earnings
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decreased by $1,076 million in 2020 compared with 2019, primarily due to higher
unfavorable cumulative contract catch-up adjustments, including charges of
$1,320 million on KC-46A Tanker and $168 million on VC-25B in 2020, partially
offset by $489 million of charges on Commercial Crew in 2019. The lower earnings
were also driven by lower gains on property sales compared to 2019. BGS earnings
from operations decreased by $2,247 million in 2020 compared with 2019 primarily
due to lower commercial services revenue, as well as asset impairments and
severance costs resulting from the COVID-19 market environment.
Lower commercial airplane deliveries and the COVID-19 pandemic will continue to
have a significant adverse impact on future earnings and margins until
deliveries ramp up and return to historical levels.
Core operating loss decreased by $10,075 million in 2021 compared with 2020
primarily due to lower losses at BCA and higher earnings at BGS, as described
above.
Core operating loss increased by $10,760 million in 2020 compared with 2019
primarily due to higher losses at BCA and lower earnings at BGS and BDS.
Unallocated Items, Eliminations and Other The most significant items included in
Unallocated items, eliminations and other are shown in the following table:
(Dollars in millions)
Years ended December 31,                                 2021          2020           2019
Share-based plans                                     ($174)        ($120)          ($65)
Deferred compensation                                  (126)          (93)          (174)

Amortization of previously capitalized interest (107) (95)

(89)

Research and development expense, net                  (184)         (240)          (401)
Customer financing impairment                                                       (250)
Litigation                                                                          (109)
Eliminations and other unallocated items               (676)       (1,807)  

(985)

Unallocated items, eliminations and other           ($1,267)      ($2,355)  

($2,073)

Share-based plans expense increased by $54 million in 2021 and $55 million in
2020. The higher expense in 2021 was primarily related to a one-time grant of
restricted stock units (RSUs) to most employees in December 2020. The increase
in 2020 was due to increased grants of RSUs and other share-based compensation.
Deferred compensation expense increased by $33 million in 2021, primarily driven
by changes in our stock price, and decreased by $81 million in 2020, primarily
driven by changes in broad stock market conditions and our stock price.
Research and development expense decreased by $56 million in 2021 and $161
million in 2020 primarily due to decreases in enterprise investments in product
development.
In 2019, we recorded a $250 million charge related to the impairment of lease
incentives with one customer that experienced liquidity issues and a $109
million charge related to ongoing litigation associated with recoverable costs
on U.S. government contracts.
Eliminations and other unallocated expense decreased by $1,131 million in 2021
and increased by $822 million in 2020 primarily due to earnings charges of $744
million in the fourth quarter of 2020 in anticipation of the agreement between
Boeing and the U.S. Department of Justice that was finalized in January 2021 and
higher income from operating investments in 2021. See Note 21.
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Net periodic pension benefit costs included in Loss from operations were as
follows:
(Dollars in millions)                                                                  Pension
Years ended December 31,                                               2021                    2020                2019
Allocated to business segments                                     ($885)                ($1,027)            ($1,384)
Pension FAS/CAS service cost adjustment                              882                   1,024               1,071

Net periodic pension benefit cost included in Loss from operations

                                                           ($3)                    ($3)              ($313)


The pension FAS/CAS service cost adjustment recognized in Loss from operations
in 2021 decreased by $142 million compared with 2020 due to reductions in
allocated pension cost year over year. The pension FAS/CAS service cost
adjustment recognized in Loss from operations in 2020 was largely consistent
with 2019. Net periodic benefit cost included in Loss from operations in 2021
was largely consistent with 2020. The decrease in net periodic benefit cost
included in Loss from operations in 2020 was primarily due to prior year service
cost that was included in earnings in 2019.
For additional discussion related to Postretirement Plans, see Note 16 to our
Consolidated Financial Statements.
Other Earnings Items
(Dollars in millions)
Years ended December 31,                                             2021                  2020                 2019
Loss from operations                                           ($2,902)             ($12,767)             ($1,975)
Other income, net                                                  551                   447                  438
Interest and debt expense                                       (2,682)               (2,156)                (722)
Loss before income taxes                                        (5,033)              (14,476)              (2,259)
Income tax benefit                                                 743                 2,535                1,623
Net loss from continuing operations                             (4,290)              (11,941)                (636)
Less: net loss attributable to noncontrolling interest             (88)                  (68)
Net loss attributable to Boeing Shareholders                   ($4,202)             ($11,873)               ($636)


Non-operating pension income included in Other income, net was $528 million in
2021, $340 million in 2020 and $374 million in 2019. The increased income in
2021 compared to 2020 was primarily due to lower interest cost and higher
expected return on plan assets, partially offset by higher amortization of net
actuarial losses and higher settlement charges. The decreased income in 2020
compared to 2019 was due to higher amortization of actuarial losses and lower
asset returns, partially offset by lower interest cost.
Non-operating postretirement income included in Other income, net was $1 million
in 2021, compared with expense of $16 million in 2020 and $107 million in 2019.
The increased income in 2021 compared to 2020 was due to lower interest cost.
The decreased expense in 2020 compared to 2019 was due to lower interest cost.
Interest and debt expense increased by $526 million in 2021 and increased by
$1,434 million in 2020 as a result of higher average debt balances.
For additional discussion related to Income Taxes, see Note 4 to our
Consolidated Financial Statements.
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Total Costs and Expenses ("Cost of Sales")
Cost of sales, for both products and services, consists primarily of raw
materials, parts, sub-assemblies, labor, overhead and subcontracting costs. Our
BCA segment predominantly uses program accounting to account for cost of sales.
Under program accounting, cost of sales for each commercial airplane program
equals the product of (i) revenue recognized in connection with customer
deliveries and (ii) the estimated cost of sales percentage applicable to the
total remaining program. For long-term contracts, the amount reported as cost of
sales is recognized as incurred. Substantially all contracts at our BDS segment
and certain contracts at our BGS segment are long-term contracts with the U.S.
government and other customers that generally extend over several years. Cost of
sales for commercial spare parts is recorded at average cost.
The following table summarizes cost of sales:
(Dollars in millions)
Years ended December 31                  2021                     2020             Change                     2020                     2019             Change
Cost of sales                      $59,269                  $63,843            ($4,574)                 $63,843                  $72,093            ($8,250)
Cost of sales as a % of
Revenues                              95.2  %                 109.8  %           (14.6) %                 109.8  %                  94.2  %            15.6  %


Cost of sales decreased by $4,574 million in 2021 compared with 2020, primarily
due to higher earnings charges at BCA, BDS and BGS in 2020, partially offset by
higher costs as a result of higher revenues in 2021 and the reach-forward loss
on the 787 program. Cost of sales as a percentage of Revenues decreased in 2021
compared to 2020 primarily due to higher earnings charges at BCA and BGS in 2020
and higher revenues in 2021.
Cost of sales decreased by $8,250 million in 2020 compared with 2019, primarily
due to lower revenue in 2020, partially offset by higher charges in 2020 related
to the 777X program, COVID-19 impacts, KC-46A Tanker program, abnormal
production costs at BCA and severance costs. Cost of sales as a percentage of
Revenues increased in 2020 compared to 2019 primarily due to the reach-forward
loss on the 777X program, impacts of the 737 MAX grounding and the COVID-19
pandemic, as well as severance costs.
Research and Development The following table summarizes our Research and
development expense:
(Dollars in millions)
Years ended December 31,          2021          2020          2019
Commercial Airplanes          $1,140        $1,385        $1,956
Defense, Space & Security        818           713           741
Global Services                  107           138           121
Other                            184           240           401
Total                         $2,249        $2,476        $3,219


Research and development expense decreased by $227 million in 2021 compared with
2020 primarily due to lower BCA and enterprise investments in product
development and lower spending on the 777X program.
Research and development expense decreased by $743 million in 2020 compared with
2019 primarily due to lower spending at BCA and at Boeing NeXt on product
development.
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Backlog
Our backlog at December 31 was as follows:
(Dollars in millions)
Years ended December 31,                              2021            2020
Commercial Airplanes                            $296,882        $281,588
Defense, Space & Security                         59,828          60,847
Global Services                                   20,496          20,632
Unallocated items, eliminations and other            293             337
Total Backlog                                   $377,499        $363,404

Contractual backlog                             $356,362        $339,309
Unobligated backlog                               21,137          24,095
Total Backlog                                   $377,499        $363,404


Contractual backlog of unfilled orders excludes purchase options, announced
orders for which definitive contracts have not been executed, orders where
customers have the unilateral right to terminate, and unobligated U.S. and
non-U.S. government contract funding. The increase in contractual backlog during
2021 was primarily due to new orders, reclassifications from unobligated backlog
related to BDS and BGS contracts, increases in price escalation and reductions
in the number of existing orders that in our assessment do not meet the
accounting requirements of Accounting Standards Codification (ASC) 606 for
inclusion in backlog, partially offset by deliveries and cancellations. During
2021, we have had higher ASC 606 adjustments of 787 orders as a result of
delivery delays related to inspections and rework. If 787 aircraft deliveries
continue to be paused, we remain unable to deliver 737 MAX aircraft in China for
an extended period of time, and/or entry into service of the 777X, 737 MAX 7
and/or 737 MAX 10 is further delayed, we may experience additional reductions to
backlog and/or significant order cancellations. Additionally, we may continue to
experience fewer new orders and increased cancellations across all of our
commercial airplane programs as a result of the COVID-19 pandemic and associated
impacts on demand.
Unobligated backlog includes U.S. and non-U.S. government definitive contracts
for which funding has not been authorized. The decrease in unobligated backlog
in 2021 was primarily due to reclassifications to contractual backlog related to
BDS and BGS contracts, partially offset by contract awards.
Additional Considerations
Global Trade We continually monitor the global trade environment in response to
geopolitical economic developments, as well as changes in tariffs, trade
agreements or sanctions that may impact the company.
The global economy continues to experience significant adverse impacts due to
the COVID-19 pandemic, including a decline in overall trade in general and in
aerospace in particular. There is a great deal of uncertainty regarding the
duration, scale and localization of these impacts to the global economy and
governments are enacting a wide range of responses to mitigate the unfolding
economic impacts. We are closely monitoring the current impact and potential
future economic consequences of COVID-19 to the global economy, the aerospace
sector and our Company. These adverse economic impacts have resulted in fewer
orders than previously anticipated for our commercial aircraft.
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The current state of U.S.-China relations remains a significant watch item.
China is a very significant market for commercial airplanes and represents a
significant component of our commercial airplanes backlog. Since 2018, the U.S.
and China imposed an escalating series of tariffs on each other's imports.
Certain aircraft parts and components that Boeing procures are subject to these
tariffs. The U.S. and China entered into a Phase I agreement in January 2020.
However, as of December 31, 2021, implementation of this agreement is incomplete
and overall diplomatic relations between the U.S. and China have deteriorated.
We continue monitoring developments for potential adverse impacts to the
Company.
Beginning in June 2018, the U.S. Government has imposed tariffs on steel and
aluminum imports. In response to these tariffs, several major U.S. trading
partners have imposed, or announced their intention to impose, tariffs on U.S.
goods. In May 2019, the U.S. Government, Mexico and Canada reached an agreement
to end the steel and aluminum tariffs between these countries. Implementation of
the U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower
tariffs. In October 2021, the U.S. and European Union (EU) announced an
agreement to ease steel and aluminum tariffs. We continue to monitor the
potential for any extra costs that may result from the remaining global tariffs.
The current status of U.S.-Russia relations is creating an adverse climate for
our business. The U.S. Government continues to impose and/or consider imposing
sanctions on certain businesses and individuals in Russia. We continue to
monitor and evaluate additional sanctions and export restrictions that may be
imposed by the U.S. Government and any responses from Russia that could directly
affect our supply chain, business partners or customers. We also continue to
support the 737 MAX return to service in Russia.
The U.S. and EU have been engaged in two long-running disputes at the World
Trade Organization (WTO) relating to large civil aircraft. As part of those
disputes, in October 2019, the WTO authorized the U.S. to impose approximately
$7.50 billion in annual tariffs on EU products in connection with the EU's
provision of eight instances of launch aid subsidies to Airbus. Following this
authorization, the U.S. began to impose 15% tariffs on new Airbus airplanes
imported into the U.S. as well as fuselages that Airbus manufactures in Europe
and imports into the U.S. In October 2020, the WTO authorized the EU to impose
approximately $3.99 billion in annual tariffs on U.S. products in connection
with a tax incentive used by Boeing in Washington state that has since been
repealed. Shortly thereafter, the EU began to impose 15% tariffs on Boeing
airplanes imported into the EU. On June 15, 2021, the U.S. and EU announced that
they had reached a cooperative framework to address the large civil aircraft
disputes. As part of the framework, among other items, both sides announced an
intent to continue to suspend tariffs related to the disputes for five years.
The U.S. and U.K. announced a similar agreement on June 17, 2021.
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment See Overview to Management's Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of
the impacts of COVID-19 on the airline industry environment.
Industry Competitiveness The industry continues to adjust to the unprecedented
COVID-19 shock and subsequent economic impact, government restrictions and new
regulations. The commercial airplane market and the airline industry both remain
extremely competitive. While the impacts and responses have varied globally, the
reduction of demand and disruption in production has adversely impacted most
manufacturers in the commercial airplane industry.
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Continued access to global markets remains vital to our ability to fully realize
our sales potential and long-term investment returns. Approximately 80% of
Commercial Airplanes' total backlog, in dollar terms, is with non-U.S. airlines.
We face aggressive international competitors who are intent on increasing their
market share. They offer competitive products and have access to most of the
same customers and suppliers. The grounding of the 737 MAX and the associated
suspension of 737 MAX deliveries in multiple jurisdictions significantly reduced
our market share with respect to deliveries of single aisle aircraft in 2019,
2020 and 2021 and may provide competitors with an opportunity to obtain more
orders and increase market share. With government support, Airbus has
historically invested heavily to create a family of products to compete with
ours. After the acquisition of a majority share of Bombardier's C Series (now
A220) in 2018, Airbus continues to expand in the 100-150 seat transcontinental
market. Other competitors are also in different phases of developing commercial
jet aircraft. Some of these competitors have historically enjoyed access to
government-provided financial support, including "launch aid," which greatly
reduces the cost and commercial risks associated with airplane development
activities. This has enabled the development of airplanes without broad
commercial viability; others to be brought to market more quickly than otherwise
possible; and many offered for sale below market-based prices. Competitors
continue to make improvements in efficiency, which may result in funding product
development, gaining market share and improving earnings. This market
environment has resulted in intense pressures on pricing and other competitive
factors, and we expect these pressures to continue or intensify in the coming
years.
We are focused on improving our products and services and continuing our
business transformation efforts, which enhances our ability to compete and
positions us for market recovery. We are also focused on taking actions to
ensure that Boeing is not harmed by unfair subsidization of competitors.
Results of Operations
(Dollars in millions)
Years ended December 31,             2021            2020           2019
Revenues                       $19,493         $16,162        $32,255
% of total company revenues         31  %           28  %          42  %
Loss from operations           ($6,475)       ($13,847)       ($6,657)
Operating margins                (33.2) %        (85.7) %       (20.6) %
Research and development        $1,140          $1,385         $1,956


Revenues
BCA revenues increased by $3,331 million in 2021 compared with 2020 primarily
due to higher 737 MAX deliveries driven by recertification and return to service
in most jurisdictions and the absence of charges for 737 MAX customer
considerations which reduced revenues in 2020, partially offset by lower 787
deliveries in 2021.
BCA revenues decreased by $16,093 million in 2020 compared with 2019 due to
lower deliveries primarily driven by the impacts of the COVID-19 pandemic, 787
production issues and the 737 MAX grounding. This was partially offset by lower
charges related to estimated potential concessions and other considerations to
737 MAX customers of $498 million in 2020 compared with $8,259 million in 2019.
We resumed deliveries of 737 MAX aircraft in December 2020 following rescission
by the FAA of its grounding order. As of December 31, 2021, most non-U.S.
jurisdictions have approved return to service of the 737 MAX. 787 deliveries
have been paused since May 2021. Revenues will continue to be impacted until
deliveries of the 737 MAX ramp up, deliveries of the 787 resume and the
commercial airline industry recovers from the impacts of COVID-19.
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Commercial Airplanes deliveries as of December 31 were as follows:
                           737   *        747        767   *        777   †       787         Total
2021
Cumulative deliveries      7,745          1,567      1,238          1,677         1,006
Deliveries                   263  (16)        7         32  (13)       24            14         340
2020
Cumulative deliveries      7,482          1,560      1,206          1,653           992
Deliveries                    43 (14)         5         30 (11)        26            53         157
2019
Cumulative deliveries      7,439          1,555      1,176          1,627           939
Deliveries                   127 (19)         7         43 (23)        45 (2)       158         380


* Intercompany deliveries identified by parentheses
† Aircraft accounted for as revenues by BCA and as operating leases in
consolidation identified by parentheses
Loss From Operations
BCA loss from operations was $6,475 million in 2021 compared with $13,847
million in 2020. The 2021 loss includes a reach-forward loss on the 787 program
of $3,460 million, abnormal production costs related to 737 MAX of $1,887
million, and abnormal production costs related to the 787 program of $468
million resulting from continued production issues, inspections and rework,
partially offset by higher 737 MAX deliveries. The 2020 loss reflects the
reach-forward loss on 777X of $6,493 million and additional drivers as noted in
the paragraph below.
BCA loss from operations was $13,847 million in 2020 compared with $6,657
million in 2019. The 2020 loss reflects the reach-forward loss on 777X of $6,493
million, lower deliveries and lower program margins resulting from the COVID-19
pandemic, $2,567 million of abnormal production costs related to 737 MAX, $623
million of severance cost, $498 million of 737 MAX customer considerations, $336
million related to 737NG frame fitting component repair costs and $270 million
of abnormal production costs in the first half of 2020 from the temporary
suspension of operations in response to COVID-19, partially offset by lower
research and development spending. Lower 787 margins reflecting a reduction in
the accounting quantity in the first quarter of 2020 also contributed to lower
earnings. The 2019 loss primarily reflects the absence of 737 MAX deliveries in
the second, third and fourth quarters of 2019 and charges of $8,259 million for
estimated 737 MAX customer considerations.
Lower commercial airplane deliveries and the COVID-19 pandemic will continue to
have a significant adverse impact on future earnings and margins until
deliveries ramp up and return to historical levels.
Backlog
Our total backlog represents the estimated transaction prices on unsatisfied and
partially satisfied performance obligations to our customers where we believe it
is probable that we will collect the consideration due and where no
contingencies remain before we and the customer are required to perform. Backlog
does not include prospective orders where customer controlled contingencies
remain, such as the customer receiving approval from its board of directors,
shareholders or government or completing financing arrangements. All such
contingencies must be satisfied or have expired prior to recording a new firm
order even if satisfying such conditions is highly certain. Backlog excludes
options and BCC orders as well as orders where customers have the unilateral
right to terminate. A number of our customers may have contractual remedies,
including rights to reject individual airplane deliveries if the actual delivery
date is significantly later than the contractual delivery date. We address
customer
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claims and requests for other contractual relief as they arise. The value of
orders in backlog is adjusted as changes to price and schedule are agreed to
with customers and is reported in accordance with the requirements of ASC 606.
BCA total backlog of $296,882 million at December 31, 2021 increased from
$281,588 million at December 31, 2020, reflecting new orders in excess of
deliveries, increases in projected price escalation and decreases in the number
of existing orders that in our assessment do not meet the accounting
requirements of ASC 606 for inclusion in backlog, partially offset by aircraft
order cancellations. Aircraft order cancellations during the year ended
December 31, 2021 totaled $27,542 million and primarily relate to 737 MAX and
787 aircraft. The net ASC 606 adjustments decreased for the year ended
December 31, 2021, which resulted in an increase to backlog of $3,810 million
primarily due to 777X aircraft, partially offset by 787 aircraft. ASC 606
adjustments include consideration of aircraft orders where a customer controlled
contingency may exist, as well as an assessment of whether the customer is
committed to perform or whether it is probable that the customer will pay the
full amount of consideration when it is due. If 787 aircraft deliveries continue
to be paused, we are unable to ramp up deliveries of 737 MAX aircraft, and/or if
entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed,
we may experience additional reductions to backlog and/or significant order
cancellations. Additionally, we may continue to experience fewer new orders and
increased cancellations across all of our commercial airplane programs as a
result of the COVID-19 pandemic and associated impacts on demand.
Accounting Quantity The accounting quantity is our estimate of the quantity of
airplanes that will be produced for delivery under existing and anticipated
contracts. The determination of the accounting quantity is limited by the
ability to make reasonably dependable estimates of the revenue and cost of
existing and anticipated contracts. It is a key determinant of the gross margins
we recognize on sales of individual airplanes throughout a program's life.
Estimation of each program's accounting quantity takes into account several
factors that are indicative of the demand for that program, including firm
orders, letters of intent from prospective customers and market studies. We
review our program accounting quantities quarterly.
The accounting quantity for each program may include units that have been
delivered, undelivered units under contract and units anticipated to be under
contract in the reasonable future (anticipated orders). In developing total
program estimates, all of these items within the accounting quantity must be
considered.
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The following table provides details of the accounting quantities and firm
orders by program as of December 31. Cumulative firm orders represent the
cumulative number of commercial jet aircraft deliveries plus undelivered firm
orders. Firm orders include military derivative aircraft that are not included
in program accounting quantities. All revenues and costs associated with
military derivative aircraft production are reported in the BDS segment.
                                                     Program
                                         737            747        767        777        777X      787     †
2021
Program accounting quantities            10,400         1,574      1,243      1,750     350        1,500
Undelivered units under firm orders       3,414             6        108         58       253        411   (14)
Cumulative firm orders                   11,159         1,573      1,346      1,735       253      1,417
2020
Program accounting quantities            10,000         1,574      1,207      1,700       350      1,500
Undelivered units under firm orders       3,282             8         75         41       191        458   (22)
Cumulative firm orders                   10,764         1,568      1,281      1,694       191      1,450
2019
Program accounting quantities            10,400         1,574      1,195      1,690        **      1,600
Undelivered units under firm orders       4,398            17         94         68       309        520  (29)
Cumulative firm orders                   11,837         1,572      1,270    

1,695 309 1,459

† Aircraft ordered by BCC are identified in parentheses.
** See 777 and 777X Programs for discussion of the 777X accounting quantity.
Program Highlights
737 Program The accounting quantity for the 737 program increased by 400 units
during 2021 due to the program's normal progress of obtaining additional orders
and delivering airplanes. See further discussion of the 737 MAX in Note 13 to
our Consolidated Financial Statements.
747 Program We are currently producing at a rate of 0.5 aircraft per month. We
expect to complete production of the 747 in the second half of 2022. We believe
that ending production of the 747 will not have a material impact on our
financial position, results of operations or cash flows.
767 Program The accounting quantity for the 767 program increased by 36 units
during 2021 due to the program's normal progress of obtaining additional orders
and delivering airplanes. The 767 assembly line includes the commercial program
and a derivative to support the tanker program. The commercial program has near
break-even gross margins. We are currently producing at a rate of 3 aircraft per
month.
777 and 777X Programs The accounting quantity for the 777 program increased by
50 units during 2021 due to the program's normal progress of obtaining
additional orders and delivering airplanes. The production rate for the combined
777/777X program is expected to increase from 2 per month to 3 per month in
2022.
In 2013, we launched the 777X-8 and 777X-9, which feature new composite wings,
new engines and folding wing-tips. The first flight of the 777X was completed
during the first quarter of 2020. In 2021, we began offering the 777X freighter
to customers and expect to receive initial orders in 2022.
During the fourth quarter of 2020, we revised the estimated first delivery date
of the 777X to late 2023 and recorded a $6.5 billion reach-forward loss on the
777X program. The revised schedule and reach-
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forward loss reflected a number of factors, including an updated assessment of
global certification requirements informed by continued discussions with
regulators and a management decision in the fourth quarter of 2020 to make
modifications to the aircraft's design, an updated assessment of COVID-19
impacts on market demand and discussions with our customers with respect to
aircraft delivery timing. These factors resulted in adjustments to production
rates and the program accounting quantity, increased change incorporation costs,
and associated customer and supply chain impacts. The initial accounting
quantity of 350 airplanes established in the fourth quarter of 2020 consists of
777X passenger airplanes and remained unchanged during 2021.
We are working towards reaching Type Inspection Authorization (TIA) which will
enable us to begin FAA certification flight testing. The timing of TIA and
certification will ultimately be determined by the regulators, and further
determinations with respect to anticipated certification requirements could
result in additional delays in entry into service and/or additional cost
increases.
We continue to anticipate that the first 777X delivery will occur in late 2023.
The 777X program has near break-even gross margins at December 31, 2021. The
level of profitability on the 777X program will be subject to a number of
factors. These factors include continued market uncertainty, the impacts of
COVID-19 on our production system as well as impacts on our supply chain and
customers, customer negotiations, further production rate adjustments for the
777X or other commercial aircraft programs, contraction of the accounting
quantity and potential risks associated with the testing program and the timing
of aircraft certification. One or more of these factors could result in
additional reach-forward losses on the 777X program in future periods.
787 Program During 2020, we experienced significant reductions in deliveries due
to the impacts of COVID-19 on our customers as well as production issues and
associated rework. During 2021 we delivered 14 aircraft between March 2021 and
May 2021 prior to deliveries being paused in May 2021. Deliveries remain paused.
At December 31, 2021 and 2020 we had approximately 110 and 80 aircraft in
inventory. We have identified production quality issues, including in our supply
chain, which have contributed to the pause in deliveries. In July 2021, we
announced that we were reprioritizing production resources to support
inspections and rework. We continue to conduct inspections and rework on
undelivered aircraft and engage in detailed discussions with the FAA regarding
required actions for resuming delivery of the 787. We are currently producing at
very low rates and expect that to continue until deliveries resume, gradually
returning to 5 per month over time. In the third quarter of 2021, we determined
that in the current environment production rates below 5 per month represent
abnormally low production rates and result in abnormal production costs, and
that inspections and rework costs on inventoried aircraft are excessive and
should also be accounted for as abnormal production costs that are required to
be expensed as incurred. In the fourth quarter of 2021, we determined that the
ongoing rework, as well as our ongoing discussions with the FAA in anticipation
of resumption of deliveries, will result in lower production rates longer than
previously expected. As a result of these impacts, we expect to incur
approximately $2 billion of abnormal production costs on a cumulative basis with
most being incurred by the end of 2023. We continue to work with customers and
suppliers regarding timing of future deliveries and production rate changes. We
are also continuing to implement changes in the production process designed to
ensure that newly-built airplanes meet our specifications and do not require
further inspections and rework. During the first quarter of 2021, we
consolidated 787 production in South Carolina, in line with our previous
assumptions, which did not have a significant financial impact on the program.
During the fourth quarter of 2021, we recorded a loss of $3.5 billion on the
program primarily due to the additional rework, as well as other actions
required to resume 787 deliveries, taking longer than
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expected. These impacts have resulted in longer than expected delivery delays
and associated customer considerations.
The timing of the resumption of deliveries and future production rates will
depend upon rework, ongoing customer and supplier engagement, production
stability and our activities with the FAA. China is a significant market for the
787 program, and if the program is unable to obtain additional orders from China
in future quarters, we may be required to further adjust production rate
assumptions. If we are required to further reduce the accounting quantity and/or
production rates, experience further delivery delays or experience other factors
that result in lower margins, the program could record additional losses and
higher abnormal production costs in future periods.
Fleet Support We provide the operators of our commercial airplanes with
assistance and services to facilitate efficient and safe airplane operation.
Collectively known as fleet support services, these activities and services
begin prior to airplane delivery and continue throughout the operational life of
the airplane. They include flight and maintenance training, field service
support, engineering services, information services and systems and technical
data and documents. The costs for fleet support are expensed as incurred and
have historically been approximately 1% of total consolidated costs of products
and services.
Program Development The following chart summarizes the time horizon between
go-ahead and planned initial delivery for major Commercial Airplanes derivatives
and programs.
Go-ahead and Initial Delivery

737 MAX 7        2011                                                           2022

737 MAX 10                                               2017                          2023

777X                               2013                                                2023


Reflects models in development during 2021
The development schedules shown above are subject to a number of uncertainties,
including changes in certification requirements. The timing of certifications
will ultimately be determined by the regulators.
Additional Considerations
The development and ongoing production of commercial aircraft is extremely
complex, involving extensive coordination and integration with suppliers and
highly-skilled labor from employees and other partners. Meeting or exceeding our
performance and reliability standards, as well as those of customers and
regulators, can be costly and technologically challenging, such as the 787
production issues and associated rework. In addition, the introduction of new
aircraft and derivatives, such as the 777X and 737 MAX derivatives, involves
increased risks associated with meeting development, production and
certification schedules. These challenges include increased global regulatory
scrutiny of all development aircraft in the wake of the 737 MAX accidents. As a
result, our ability to deliver aircraft on time, satisfy performance and
reliability standards and achieve or maintain, as applicable, program
profitability is subject to significant risks. Factors that could result in
lower margins (or a material charge if an airplane program has or is determined
to have reach-forward losses) include the following: changes to the program
accounting quantity, customer and model mix, production costs and rates, changes
to price escalation factors due to changes in the inflation rate or other
economic indicators, performance or reliability issues involving completed
aircraft, capital expenditures and other costs associated with increasing or
adding new production capacity, learning curve, additional change incorporation,
achieving anticipated cost reductions, the addition of regulatory requirements
in connection with certification in one or more jurisdictions, flight test and
certification schedules, costs, schedule and demand for new airplanes and
derivatives and status of customer claims, supplier claims or assertions and
other contractual negotiations. While we believe the cost and revenue estimates
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incorporated in the consolidated financial statements are appropriate, the
technical complexity of our airplane programs creates financial risk as
additional completion costs may become necessary or scheduled delivery dates
could be extended, which could trigger termination provisions, order
cancellations or other financially significant exposure.
Defense, Space & Security
Business Environment and Trends
United States Government Defense Environment Overview
In May 2021, the U.S. government released the President's budget request for
fiscal year 2022 (FY22), which included $715 billion in funding for the United
States Department of Defense (U.S. DoD), $25 billion in funding for the National
Aeronautics and Space Administration (NASA) and $19 billion for the FAA. While
the President's budget request for FY22 includes funding for a majority of
Boeing's programs, it did not include funding for F/A-18 Super Hornet, P-8
Poseidon and CH-47F Block II production aircraft. While there is continued
congressional support for F/A-18 and CH-47F Block II production aircraft for
FY22, there is ongoing uncertainty with respect to these and other program-level
appropriations for FY22 and future fiscal years. These programs also continue to
pursue non-U.S. sales opportunities.
In December 2021, Congress passed and the President signed the National Defense
Authorization Act for FY22, which authorizes a U.S. DoD budget $25 billion
higher than the budget request. A CR, enacted on December 3, 2021, continues
funding for the federal government at FY21 appropriated levels through February
18, 2022. Congress and the President must enact either full-year FY22
appropriations bills or an additional CR to fund government departments and
agencies beyond February 18, 2022 or a government shutdown could result, which
may impact the Company's operations. Alternatively, Congress may continue to
fund the federal government through one or more additional CRs, however, this
would continue to restrict the execution of certain program activities and delay
new programs or competitions.
Accordingly, there continues to be uncertainty with respect to program-level
appropriations for the U.S. DoD and other government agencies, including NASA,
for FY22 and beyond. Future budget cuts or investment priority changes,
including changes associated with the authorizations and appropriations process,
could result in reductions, cancellations and/or delays of existing contracts or
programs. Any of these impacts could have a material effect on our results of
operations, financial position and/or cash flows.
Non-U.S. Defense Environment Overview The non-U.S. market continues to be driven
by complex and evolving security challenges and the need to modernize aging
equipment and inventories. BDS expects that it will continue to have a wide
range of opportunities across Asia, Europe and the Middle East given the diverse
regional threats. At the end of 2021, 33% of BDS backlog was attributable to
non-U.S. customers.
Results of Operations
(Dollars in millions)
Years ended December 31,             2021           2020           2019
Revenues                       $26,540        $26,257        $26,095
% of total company revenues         43  %          45  %          34  %
Earnings from operations        $1,544         $1,539         $2,615
Operating margins                  5.8  %         5.9  %        10.0  %


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Since our operating cycle is long-term and involves many different types of
development and production contracts with varying delivery and milestone
schedules, the operating results of a particular period may not be indicative of
future operating results. In addition, depending on the customer and their
funding sources, our orders might be structured as annual follow-on contracts,
or as one large multi-year order or long-term award. As a result,
period-to-period comparisons of backlog are not necessarily indicative of future
workloads. The following discussions of comparative results among periods should
be viewed in this context.
Deliveries of units for new-build production aircraft, including remanufactures
and modifications were as follows:
                   Years ended December 31,           2021      2020      2019
                   F/A-18 Models                      21        20        23
                   F-15 Models                        16         4        11
                   C-17 Globemaster III                                    1
                   CH-47 Chinook (New)                15        27        13
                   CH-47 Chinook (Renewed)             5         3        22
                   AH-64 Apache (New)                 27        19        37
                   AH-64 Apache (Remanufactured)      56        52        74
                   KC-46 Tanker                       13        14        28
                   P-8 Models                         16        15        18

                   C-40A                                                   2
                   Total                             169       154       229


Revenues
BDS revenues in 2021 increased by $283 million compared with 2020 primarily due
to higher revenue on the KC-46A Tanker program due to new orders for 27 aircraft
received during the first quarter of 2021 and lower charges in 2021. This was
partially offset by lower revenues on rotorcraft programs, Commercial Crew and
VC-25B. Cumulative contract catch-up adjustments in 2021 were $56 million less
unfavorable than the prior year, largely due to the lower charges described
below.
BDS revenues in 2020 increased by $162 million compared with 2019 reflecting
higher revenues from fighter aircraft, Space Launch System, B-52 upgrades,
proprietary and MQ-25, partially offset by reduced volume in missile defense.
These net increases were offset by the unfavorable impact of cumulative contract
catch-up adjustments, which were $312 million higher than the comparable period
in the prior year, largely due to the KC-46A Tanker charges during 2020.
Earnings From Operations
BDS earnings from operations in 2021 increased by $5 million compared with 2020
primarily due to less unfavorable impacts from cumulative contract catch-up
adjustments, which improved $219 million from the prior year, largely due to
lower KC-46A Tanker charges in 2021 compared to 2020 and other charges in
development programs described below. The favorable change in cumulative
contract catch-up adjustments was offset primarily by lower volume and mix on
rotorcraft programs and lower equity earnings for United Launch Alliance (ULA).
During the fourth quarter of 2021, BDS increased the reach-forward loss on the
KC-46A Tanker program by $402 million primarily due to continued disruption in
the factory and in the supply chain, including impacts of COVID-19, and an
increase in costs to complete the new Remote Vision System as the customer's
requirements definition has evolved. In 2020, we recorded an additional
reach-forward loss of $1,320 million on the KC-46A Tanker program reflecting
$551 million of costs associated
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with the agreement signed in April 2020 with the U.S. Air Force to develop and
integrate the new Remote Vision System, and costs for production inefficiencies
including impacts of COVID-19 disruption.
During the third quarter of 2021, we increased the reach-forward loss on
Commercial Crew by $185 million driven by the delay in the second uncrewed
Orbital Flight Test now anticipated in 2022 and the latest assessment of
remaining work.
During the first quarter of 2021, we increased the reach-forward loss on VC-25B
by $318 million, which was largely due to COVID-19 impacts and performance
issues at a key supplier. The $168 million reach-forward loss in the first
quarter of 2020 on VC-25B was associated with engineering inefficiencies from
the COVID-19 environment.
BDS earnings from operations in 2020 decreased by $1,076 million compared with
2019 primarily due to the unfavorable impact of cumulative contract catch-up
adjustments, which were $828 million higher than the prior year, largely due to
higher charges in 2020 of $1,320 million on KC-46A Tanker and $168 million on
VC-25B, offset by $489 million in charges on Commercial Crew in 2019. The lower
earnings in 2020 also reflect lower gains on property sales compared to the same
period in 2019. These current period decreases were partially offset by the
volume increases described above.
BDS earnings from operations includes our share of income or loss from equity
method investments of $53 million, $141 million and $128 million primarily from
our ULA and non-U.S. joint ventures in 2021, 2020 and 2019, respectively.
Backlog
Total backlog of $59,828 million at December 31, 2021 was $1,019 million lower
than December 31, 2020 due to the timing of awards and revenue recognized.
Additional Considerations
Our BDS business includes a variety of development programs which have complex
design and technical challenges. Many of these programs have cost-type
contracting arrangements. In these cases, the associated financial risks are
primarily in reduced fees, lower profit rates or program cancellation if cost,
schedule or technical performance issues arise. Examples of these programs
include Ground-based Midcourse Defense, Proprietary and Space Launch System
programs.
Some of our development programs are contracted on a fixed-price basis, and BDS
customers are increasingly seeking fixed-price proposals for new programs.
Examples of significant fixed-price development programs include Commercial
Crew, KC-46A Tanker, MQ-25, T-7A Red Hawk, VC-25B, and commercial and military
satellites. A number of our ongoing fixed-price development programs have
reach-forward losses. New programs could also have risk for reach-forward loss
upon contract award and during the period of contract performance. Many
development programs have highly complex designs. As technical or quality issues
arise during development, we may experience schedule delays and cost impacts,
which could increase our estimated cost to perform the work or reduce our
estimated price, either of which could result in a material charge or otherwise
adversely affect our financial condition. These programs are ongoing, and while
we believe the cost and fee estimates incorporated in the financial statements
are appropriate, the technical complexity of these programs creates financial
risk as additional completion costs may become necessary or scheduled delivery
dates could be extended, which could trigger termination provisions, the loss of
satellite in-orbit incentive payments or other financially significant exposure.
Risk remains that we may be required to record additional reach-forward losses
in future periods.
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Global Services
Business Environment and Trends
The aerospace markets we serve include parts distribution, logistics and other
inventory services; maintenance, engineering and upgrades; training and
professional services; and information services. Prior to COVID-19, we had
expected the market to grow by around 3.5% annually, however, the pandemic is
having a direct impact on our commercial services business. See Overview to
Management's Discussion and Analysis of Financial Condition and Results of
Operations for a discussion of the impacts of COVID-19 on the airline industry
environment.
Over the long-term, as the size of the worldwide commercial airline fleet
continues to grow, so does demand for aftermarket services designed to increase
efficiency and extend the economic lives of airplanes. Airlines are using data
analytics to plan flight operations and predictive maintenance to improve their
productivity and efficiency. Airlines continue to look for opportunities to
reduce the size and cost of their spare parts inventory, frequently outsourcing
spares management to third parties.
The demand outlook for our government services business has remained stable in
2021. Government services market segments are growing on pace with related
fleets, but vary based on the utilization and age of the aircraft. The U.S.
government services market is the single largest individual market, comprising
over 50 percent of the government services markets served. Over the next decade,
we expect U.S. growth to remain flat and non-U.S. fleets, led by Middle East and
Asia Pacific customers, to add rotorcraft and commercial derivative aircraft at
the fastest rates. We expect less than 20 percent of the worldwide fleet of
military aircraft to be retired and replaced over the next ten years, driving
increased demand for services to maintain aging aircraft and enhance aircraft
capability.
BGS' major customer, the U.S. government, remains subject to the spending limits
and uncertainty described on page   39  , which could restrict the execution of
certain program activities and delay new programs or competitions.
Industry Competitiveness Aviation services is a competitive market with many
domestic and international competitors. This market environment has resulted in
intense pressures on pricing, and we expect these pressures to continue or
intensify in the coming years. Continued access to global markets remains vital
to our ability to fully realize our sales growth potential and long-term
investment returns.
Results of Operations
(Dollars in millions)
Years ended December 31,             2021           2020           2019
Revenues                       $16,328        $15,543        $18,468
% of total company revenues         26  %          27  %          24  %
Earnings from operations        $2,017           $450         $2,697
Operating margins                 12.4  %         2.9  %        14.6  %


Revenues
BGS revenues in 2021 increased by $785 million compared with 2020 due to higher
commercial and government services volume. While commercial services volume is
recovering, it remains below pre-pandemic levels. The net favorable impact of
cumulative contract catch-up adjustments in 2021 was $37 million lower than the
comparable period in the prior year. We expect the impacts of the COVID-19
pandemic to continue to have an adverse impact on BGS commercial revenues in
future quarters until the commercial airline industry environment fully
recovers.
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BGS revenues in 2020 decreased by $2,925 million compared with 2019 due to lower
commercial services revenue driven by impacts of the COVID-19 pandemic. The
favorable impact of cumulative contract catch-up adjustments in 2020 was $101
million lower than the comparable period in the prior year.
Earnings From Operations
BGS earnings from operations in 2021 increased by $1,567 million compared with
2020, primarily due to charges incurred in 2020 driven by impacts of the
COVID-19 pandemic as well as higher commercial services volume in 2021,
partially offset by an inventory write-down of $220 million recognized in the
fourth quarter of 2021 driven by revised cost estimates on certain customer
contracts. Charges in 2020 included $531 million of inventory write-downs, $178
million of related impairments of distribution rights primarily driven by
airlines' decisions to retire certain aircraft, $398 million for higher expected
credit losses primarily driven by customer liquidity issues, $115 million of
contract termination and facility impairment charges, and $72 million of
severance costs. The net favorable impact of cumulative contract catch-up
adjustments in 2021 was $98 million lower than the prior year.
BGS earnings from operations in 2020 decreased by $2,247 million compared with
2019, primarily due to lower commercial services revenue as well as the 2020
earnings charges described in the previous paragraph. The favorable impact of
cumulative contract catch-up adjustments in 2020 was consistent with the prior
year.
Backlog
BGS total backlog of $20,496 million at December 31, 2021 decreased by 1% from
$20,632 million at December 31, 2020, primarily due to revenue recognized on
contracts awarded in prior years.
Boeing Capital
Business Environment and Trends
BCC's gross customer financing and investment portfolio at December 31, 2021
totaled $1,734 million. A substantial portion of BCC's portfolio is composed of
customers that have less than investment-grade credit. BCC's portfolio is also
concentrated by varying degrees across Boeing aircraft product types, most
notably 717 and 747-8 aircraft.
BCC provided customer financing of $14 million during 2020 and none during 2021.
While we may be required to fund a number of new aircraft deliveries in 2021
and/or provide refinancing for existing bridge debt, we expect alternative
financing will be available at reasonable prices from broad and globally diverse
sources.
Aircraft values and lease rates are impacted by the number and type of aircraft
that are currently out of service. Approximately 5,300 western-built commercial
jet aircraft (20.5% of current world fleet) were parked at the end of 2021,
including both in-production and out-of-production aircraft types. Of these
parked aircraft, a larger portion are expected to be retired compared to the
pre-COVID-19 period, which directly impacts the Company in terms of number of
new aircraft deliveries and financing opportunities, the ability of existing
customers to meet current payment obligations and the value of aircraft in its
portfolio. We continue to work closely with our customers to mitigate the risk.
At the end of 2020 and 2019, 29.4% and 8.5% of the western-built commercial jet
aircraft were parked. Aircraft valuations could decline if significant numbers
of additional aircraft, particularly types with relatively few operators, are
placed out of service. See Overview to Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of the impacts of
COVID-19 on the airline industry environment.
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Results of Operations
(Dollars in millions)
Years ended December 31,       2021        2020        2019
Revenues                    $272        $261        $244
Earnings from operations    $106         $63         $28
Operating margins             39  %       24  %       11  %


Revenues
BCC segment revenues consist principally of lease income from equipment under
operating lease, interest income from financing receivables and notes, and other
income. BCC's revenues in 2021 increased by $11 million compared with 2020, and
revenues in 2020 increased by $17 million compared with 2019 primarily due to
gains on re-lease of assets, partially offset by portfolio run-off.
Earnings From Operations
BCC's earnings from operations are presented net of interest expense, provision
for (recovery of) losses, asset impairment expense, depreciation on leased
equipment and other operating expenses. Earnings from operations in 2021
increased by $43 million compared with 2020 primarily due to higher revenues,
lower provision for losses, and lower interest and asset impairment expenses.
Earnings from operations in 2020 increased by $35 million compared with 2019
primarily due to higher revenues, lower asset impairment expenses and lower
interest expenses.
Financial Position
The following table presents selected financial data for BCC as of December 31:
(Dollars in millions)                                             2021      

2020

Customer financing and investment portfolio, net              $1,720

$1,961

Other assets, primarily cash and short-term investments 462

402

Total assets                                                  $2,182

$2,363

Other liabilities, primarily income taxes                       $347

$392

Debt, including intercompany loans                             1,525         1,640
Equity                                                           310           331
Total liabilities and equity                                  $2,182        $2,363

Debt-to-equity ratio                                          4.9-to-1        5-to-1


BCC's customer financing and investment portfolio at December 31, 2021 decreased
from December 31, 2020, primarily due to $241 million of note payoffs and
portfolio run-off.
BCC enters into certain transactions with other Boeing segments, reflected in
Unallocated items, eliminations and other, in the form of intercompany
guarantees and other subsidies that mitigate the effects of certain credit
quality or asset impairment issues on the BCC segment.
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Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Years ended December 31,                                                2021                  2020                 2019
Net loss                                                          ($4,290)             ($11,941)               ($636)
Non-cash items                                                      7,851                10,866                2,819
Changes in assets and liabilities                                  (6,977)              (17,335)              (4,629)
Net cash used by operating activities                              (3,416)              (18,410)              (2,446)
Net cash provided/(used) by investing activities                    9,324               (18,366)              (1,530)
Net cash (used)/provided by financing activities                   (5,600)               34,955                5,739

Effect of exchange rate changes on cash and cash equivalents (39)

                  85                   (5)

Net increase/(decrease) in cash & cash equivalents, including restricted

                                                            269                (1,736)               1,758

Cash & cash equivalents, including restricted, at beginning of year

                                                             7,835                 9,571                7,813

Cash & cash equivalents, including restricted, at end of year $8,104

              $7,835               $9,571


Operating Activities Net cash used by operating activities was $3.4 billion
during 2021, compared with $18.4 billion during 2020 and $2.4 billion during
2019. The reduction in cash used by operating activities in 2021 compared with
2020 is primarily driven by lower net loss and improved changes in assets and
liabilities. Non-cash items in 2021 include the $3.5 billion reach-forward loss
on the 787 program which was recorded as a reduction to inventory, as well as
$1.2 billion of treasury shares issued to fund Company contributions to the
401(k) plan and $0.8 billion of share-based plans expense reflecting a one-time
stock grant to most employees in lieu of 2021 salary increases. The changes in
assets and liabilities reflect the significant increase in commercial airplane
inventory in 2020 driven by lower deliveries due to the COVID-19 pandemic and
the 737 MAX grounding. In 2021, inventory growth slowed as the continued buildup
of 787 aircraft caused by production issues and 777X inventory growth was
partially offset by a decrease in 737 MAX inventory following the resumption of
deliveries. Compensation payments to 737 MAX customers totaled $2.5 billion and
$2.2 billion in 2021 and 2020. In the first quarter of 2021, we paid $0.7
billion consistent with the terms of the Deferred Prosecution Agreement between
Boeing and the U.S. Department of Justice. Additionally, in 2021, we received
income tax refunds of $1.7 billion. Cash provided by Advances and progress
billings was $2.5 billion in 2021, as compared with Cash used by Advances and
progress billings of $1.1 billion in 2020. The pause in 787 deliveries and the
residual impacts of the 737 MAX grounding are expected to continue to have a
significant impact on our operating cash flows until 787 deliveries resume and
737 MAX deliveries ramp up.
The decrease in operating cash flows in 2020 compared to 2019 is primarily
driven by our net loss in 2020 and changes in assets and liabilities, partially
offset by an increase in non-cash items. Non-cash items include the $6.5 billion
reach-forward loss on the 777X program in 2020, which was recorded as a
reduction to inventory. The year-over-year increase in non-cash items also
reflects higher inventory write-downs and higher allowances for expected credit
losses in 2020. The changes in assets and liabilities reflect increases in
commercial airplane inventory due to the large number of undelivered aircraft in
2019 resulting from the 737 MAX grounding, and in 2020 due to the 737 MAX
grounding, 787 production issues and COVID-19 impacts. Cash used by Advances and
progress billings was $1.1 billion in 2020, as compared with $0.7 billion
provided by Advances and progress billings in 2019. The changes in assets and
liabilities in 2020 also reflect lower accounts payable due to reductions in
commercial purchases from suppliers and lower supply chain financing.
Compensation payments to 737 MAX customers totaled $2.2 billion during 2020 and
$1.2 billion during 2019. The accrued liability
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for 737 MAX customer considerations at December 31, 2019 resulted in a $7.4
billion favorable change to assets and liabilities in 2019.
Payables to suppliers who elected to participate in supply chain financing
programs declined by $1.5 billion and $1.9 billion for the years ended December
31, 2021 and 2020, and increased by $2.6 billion in 2019. Supply chain financing
is not material to our overall liquidity. The declines for the years ended
December 31, 2021 and 2020 were primarily due to reductions in commercial
purchases from suppliers. The increase for the year ended December 31, 2019
reflects a combination of higher purchases, an extension of payment terms with
certain suppliers and increased utilization of our supply chain financing
programs.
Investing Activities Cash provided by investing activities during 2021 was $9.3
billion, compared with cash used by investing activities of $18.4 billion and
$1.5 billion during 2020 and 2019. The increase in cash inflows in 2021 compared
to 2020 is primarily due to $27.1 billion of higher net proceeds from
investments. The increase in cash outflows in 2020 compared to 2019 is primarily
due to $17.4 billion of higher net contributions to investments. Net proceeds
from investments were $9.8 billion in 2021, compared with net contributions to
investments of $17.3 billion in 2020 and net proceeds from investments of $0.1
billion in 2019. Capital expenditures totaled $1.0 billion in 2021, compared
with $1.3 billion in 2020 and $1.8 billion in 2019. We reduced our capital
expenditures in 2021 and 2020 as we managed our liquidity throughout the
pandemic and 737 MAX grounding. We expect capital expenditures in 2022 to be
higher than in 2021.
Financing Activities Cash used by financing activities was $5.6 billion during
2021, compared with cash provided by financing activities of $35.0 billion
during 2020 and $5.7 billion in 2019. The decrease of $40.6 billion compared
with 2020 primarily reflects net debt repayments in 2021 compared with net
borrowings in 2020. The increase of $29.3 billion in 2020 compared with 2019
primarily reflects higher net borrowings, lower share repurchases and lower
dividend payments, which reflects the Company's decision in March 2020 to
suspend the declaration or payment of dividends until further notice. During the
twelve months ended December 31, 2021, debt repayments net of new borrowings
were $5.6 billion, primarily due to $13.8 billion of repayments of our two-year
delayed draw term loan credit agreement, partially offset by $9.8 billion of
fixed rate senior notes issued in the first quarter of 2021. During the twelve
months ended December 31, 2020, new borrowings net of repayments were $36.3
billion, primarily due to $29.9 billion of fixed rate senior notes issued in
2020 and $13.8 billion of new borrowings under a two-year delayed draw term loan
agreement entered into in the first quarter of 2020. During the twelve months
ended December 31, 2019, new borrowings net of repayments were $13.2 billion,
primarily due to the issuance of $10.5 billion of fixed rate senior notes in
2019. For further discussion see Liquidity Matters in Note 1 to our Consolidated
Financial Statements.
At December 31, 2021 and 2020 debt balances totaled $58.1 billion and $63.6
billion, of which $1.3 billion and $1.7 billion were classified as short-term.
This included $1.5 billion and $1.6 billion of debt attributable to BCC at
December 31, 2021 and 2020, of which $0.3 billion and $0.9 billion were
classified as short-term.
During the years ended December 31, 2021 and 2020, we did not repurchase any
shares through our open market share repurchase program compared to repurchases
of 6.9 million shares in 2019 totaling $2.7 billion. Share repurchases under
this plan have been suspended since April 2019. In March 2020, the Board of
Directors terminated its prior authorization to repurchase shares of the
Company's outstanding common stock. We had 0.3 million, 0.6 million and 0.6
million shares transferred to us from employee tax withholdings in 2021, 2020
and 2019, respectively. During the year ended December 31, 2021, we paid no
dividends, compared with $1.2 billion and $4.6 billion in 2020 and 2019. In
March 2020, the Company announced that our dividend will be suspended until
further notice.
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Capital Resources The impacts of the COVID-19 pandemic, 787 production issues
and associated rework, and residual impacts of the 737 MAX grounding are having
a significant negative impact on our liquidity and ongoing operations and
creating significant uncertainty. We have and are continuing to take significant
actions to manage and preserve our liquidity. For further discussion see
Liquidity Matters in Note 1 to our Consolidated Financial Statements.
The following table summarizes certain cash requirements for known contractual
and other obligations as of December 31, 2021, and the estimated timing thereof.
See Note 12 for future operating lease payments.
(Dollars in millions)                                           Current               Long-term                Total

Long-term debt (including current portion)                       $1,300                $57,389                $58,689
Interest on debt                                                  2,365                 33,658                 36,023
Pension and other postretirement                                    594                  4,100                  4,694

Purchase obligations                                             53,041                 53,702                106,743
737 MAX customer concessions and consideration(1)                   800                    200                  1,000


(1)  For further discussion, see Note 13 to our Consolidated Financial
Statements.
We expect to be able to fund our cash requirements through cash and short-term
investments and cash provided by operations, as well as continued access to
capital markets. At December 31, 2021, we had $8.1 billion of cash, $8.2 billion
of short-term investments, and $14.7 billion of unused borrowing capacity on
revolving credit line agreements. We anticipate that these revolving credit
lines will remain undrawn and primarily serve as backup liquidity to support our
general corporate borrowing needs. Of the $14.7 billion of unused borrowing
capacity, $6.3 billion expires in October 2022, $5.3 billion expires in March
2023 and $3.2 billion expires in October 2024.
Our debt balances have increased significantly since 2019, and we are continuing
to actively manage our liquidity. In 2021, we repaid $13.8 billion that was
outstanding under our two-year delayed draw term loan credit agreement that had
a final maturity date of February 6, 2022.
Our increased debt balance resulted in downgrades to our credit ratings in 2020,
and our ratings remained unchanged in 2021. We expect to be able to access
capital markets when we require additional funding in order to pay off existing
debt, address further impacts to our business related to market developments,
fund outstanding financing commitments or meet other business requirements. A
number of factors could cause us to incur increased borrowing costs and to have
greater difficulty accessing public and private markets for debt. These factors
include disruptions or declines in the global capital markets and/or a decline
in our financial performance, outlook or credit ratings, including impacts
described above related to the COVID-19 pandemic and/or associated changes in
demand for our products and services. These risks will be particularly acute if
we are subject to further credit rating downgrades. The occurrence of any or all
of these events may adversely affect our ability to fund our operations and
financing or contractual commitments.
Any future borrowings may affect our credit ratings and are subject to various
debt covenants. At December 31, 2021, we were in compliance with the covenants
for our debt and credit facilities. The most restrictive covenants include a
limitation on mortgage debt and sale and leaseback transactions as a percentage
of consolidated net tangible assets (as defined in the credit agreements) and a
limitation on consolidated debt as a percentage of total capital (as defined in
the credit agreements). When considering debt covenants, we continue to have
substantial borrowing capacity.
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Pension and Other Postretirement Benefits Pension cash requirements are based on
an estimate of our minimum funding requirements, pursuant to Employee Retirement
Income Security Act (ERISA) regulations, although we may make additional
discretionary contributions. Estimates of other postretirement benefits are
based on both our estimated future benefit payments and the estimated
contributions to plans that are funded through trusts.
At December 31, 2021 and 2020, our pension plans were $7.8 billion and $13.7
billion underfunded as measured under Generally Accepted Accounting Principles
in the United States of America (GAAP). On an ERISA basis our plans are more
than 100% funded at December 31, 2021. We do not expect to make significant
contributions to our pension plans in 2022. We may be required to make higher
contributions to our pension plans in future years.
In the fourth quarter of 2020, we contributed $3 billion of our common stock to
our pension fund. In the fourth quarter of 2020, we also began using our common
stock in lieu of cash to fund Company contributions to our 401(k) plans for the
foreseeable future. Under this approach, common stock is contributed to our
401(k) plans following each pay period. We expect this measure to further enable
the Company to conserve cash. We have retained an independent fiduciary to
manage and liquidate stock contributed to these plans at its discretion.
Purchase Obligations Purchase obligations represent contractual agreements to
purchase goods or services that are legally binding; specify a fixed, minimum or
range of quantities; specify a fixed, minimum, variable or indexed price
provision; and specify approximate timing of the transaction. Purchase
obligations include amounts recorded as well as amounts that are not recorded on
the Consolidated Statements of Financial Position.
Purchase obligations not recorded on the Consolidated Statements of Financial
Position include agreements for inventory procurement, tooling costs,
electricity and natural gas contracts, property, plant and equipment, customer
financing equipment and other miscellaneous production related obligations. The
most significant obligation relates to inventory procurement contracts. We have
entered into certain significant inventory procurement contracts that specify
determinable prices and quantities, and long-term delivery timeframes. In
addition, we purchase raw materials on behalf of our suppliers. These agreements
require suppliers and vendors to be prepared to build and deliver items in
sufficient time to meet our production schedules. The need for such arrangements
with suppliers and vendors arises from the extended production planning horizon
for many of our products. A significant portion of these inventory commitments
is supported by firm contracts with customers and/or has historically resulted
in settlement through reimbursement from customers for penalty payments to the
supplier should the customer not take delivery. These amounts are also included
in our forecasts of costs for program and contract accounting. Some inventory
procurement contracts may include escalation adjustments. In these limited
cases, we have included our best estimate of the effect of the escalation
adjustment in the amounts disclosed in the table above.
Purchase obligations recorded on the Consolidated Statements of Financial
Position primarily include accounts payable and certain other current and
long-term liabilities including accrued compensation.
We have entered into various industrial participation agreements with certain
customers outside of the U.S. to facilitate economic flow back and/or technology
or skills transfer to their businesses or government agencies as the result of
their procurement of goods and/or services from us. These commitments may be
satisfied by our local operations there, placement of direct work or vendor
orders for supplies, opportunities to bid on supply contracts, transfer of
technology or other forms of assistance. However, in certain cases, our
commitments may be satisfied through other parties (such as our vendors) who
purchase supplies from our non-U.S. customers. In certain cases, penalties could
be imposed if we do not meet our industrial participation commitments. During
2021, we incurred no such penalties. As of December 31, 2021, we have
outstanding industrial participation agreements
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totaling $25.5 billion that extend through 2034. Purchase order commitments
associated with industrial participation agreements are included in purchase
obligations in the table above. To be eligible for such a purchase order
commitment from us, a non-U.S. supplier must have sufficient capability to meet
our requirements and must be competitive in cost, quality and schedule.
Off-Balance Sheet Arrangements We are a party to certain off-balance sheet
arrangements including certain guarantees. For discussion of these arrangements,
see Note 14 to our Consolidated Financial Statements.
Commercial Commitments
The following table summarizes our commercial commitments outstanding as of
December 31, 2021.
                                                 Total Amounts
                                             Committed/Maximum            Less than                 1-3                 4-5               After 5
(Dollars in millions)                           Amount of Loss               1 year               years               years                 years
Standby letters of credit and surety
bonds                                           $3,634                  $1,969               $1,451                 $60                 $154
Commercial aircraft financing
commitments                                     12,905                   2,034                6,094               2,904                1,873
Total commercial commitments                   $16,539                  $4,003               $7,545              $2,964               $2,027


Commercial aircraft financing commitments include commitments to provide
financing related to aircraft on order, under option for deliveries or proposed
as part of sales campaigns or refinancing with respect to delivered aircraft,
based on estimated earliest potential funding dates. Customer financing
commitments totaled $12.9 billion and $11.5 billion at December 31, 2021 and
2020. The increase relates to new financing commitments. We anticipate that we
will not be required to fund a significant portion of our financing commitments
as we continue to work with third party financiers to provide alternative
financing to customers. Historically, we have not been required to fund
significant amounts of outstanding commitments. However, there can be no
assurances that we will not be required to fund greater amounts than
historically required. See Note 13 to our Consolidated Financial Statements.
Contingent Obligations
We have significant contingent obligations that arise in the ordinary course of
business, which include the following:
Legal Various legal proceedings, claims and investigations are pending against
us. Legal contingencies are discussed in Note 21 to our Consolidated Financial
Statements.
Environmental Remediation We are involved with various environmental remediation
activities and have recorded a liability of $605 million at December 31, 2021.
For additional information, see Note 13 to our Consolidated Financial
Statements.
Non-GAAP Measures
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Our Consolidated Financial Statements are prepared in accordance with GAAP which
we supplement with certain non-GAAP financial information. These non-GAAP
measures should not be considered in isolation or as a substitute for the
related GAAP measures, and other companies may define such measures differently.
We encourage investors to review our financial statements and publicly-filed
reports in their entirety and not to rely on any single financial measure. Core
operating earnings, core operating margin and core earnings per share exclude
the FAS/CAS service cost adjustment. The FAS/
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CAS service cost adjustment represents the difference between the Financial
Accounting Standards (FAS) pension and postretirement service costs calculated
under GAAP and costs allocated to the business segments. Core earnings per share
excludes both the FAS/CAS service cost adjustment and non-operating pension and
postretirement expenses. Non-operating pension and postretirement expenses
represent the components of net periodic benefit costs other than service cost.
Pension costs, comprising service and prior service costs computed in accordance
with GAAP are allocated to BCA and certain BGS businesses supporting commercial
customers. Pension costs allocated to BDS and BGS businesses supporting
government customers are computed in accordance with U.S. Government Cost
Accounting Standards (CAS), which employ different actuarial assumptions and
accounting conventions than GAAP. CAS costs are allocable to government
contracts. Other postretirement benefit costs are allocated to all business
segments based on CAS, which is generally based on benefits paid.
The Pension FAS/CAS service cost adjustments recognized in Loss from operations
were benefits of $882 million in 2021, $1,024 million in 2020 and $1,071 million
in 2019. The lower benefits in 2021 were primarily due to reductions in
allocated pension cost year over year. The non-operating pension expense
included in Other income, net was a benefit of $528 million in 2021, $340
million in 2020 and $374 million in 2019. The higher benefits in 2021 were
primarily due to lower interest cost and higher expected return on plan assets,
partially offset by higher amortization of actuarial losses and higher
settlement charges. The benefits in 2020 and 2019 reflect expected returns in
excess of interest cost and amortization of actuarial losses.
For further discussion of pension and other postretirement costs, see the
Management's Discussion and Analysis on page 29 of this Form 10-K and see Note
22 to our Consolidated Financial Statements. Management uses core operating
earnings, core operating margin and core earnings per share for purposes of
evaluating and forecasting underlying business performance. Management believes
these core earnings measures provide investors additional insights into
operational performance as unallocated pension and other postretirement benefit
cost primarily represent costs driven by market factors and costs not allocable
to U.S. government contracts.
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Reconciliation of GAAP Measures to Non-GAAP Measures
The table below reconciles the non-GAAP financial measures of core operating
earnings, core operating margin and core earnings per share with the most
directly comparable GAAP financial measures of earnings from operations,
operating margins and diluted earnings per share.
(Dollars in millions, except per share data)
Years ended December 31,                                               2021                       2020                      2019
Revenues                                                         $62,286                    $58,158                   $76,559
Loss from operations, as reported                                ($2,902)                  ($12,767)                  ($1,975)
Operating margins                                                   (4.7) %                   (22.0) %                   (2.6) %

Pension FAS/CAS service cost adjustment(1)                         ($882)                   ($1,024)                  ($1,071)
Postretirement FAS/CAS service cost adjustment(1)                   (291)                      (359)                     (344)
FAS/CAS service cost adjustment(1)                               ($1,173)                   ($1,383)                  ($1,415)
Core operating loss (non-GAAP)                                   ($4,075)                  ($14,150)                  ($3,390)
Core operating margins (non-GAAP)                                   (6.5) %                   (24.3) %                   (4.4) %

Diluted loss per share, as reported                               ($7.15)                   ($20.88)                   ($1.12)
Pension FAS/CAS service cost adjustment(1)                         (1.50)                     (1.80)                    (1.89)
Postretirement FAS/CAS service cost adjustment(1)                  (0.49)                     (0.63)                    (0.61)
Non-operating pension expense(2)                                   (0.91)                     (0.60)                    (0.66)
Non-operating postretirement expense(2)                                                        0.03                      0.19
Provision for deferred income taxes on adjustments (3)              0.61                       0.63                      0.62
Core loss per share (non-GAAP)                                    ($9.44)                   ($23.25)                   ($3.47)

Weighted average diluted shares (in millions)                      588.0                      569.0                     566.0


(1)FAS/CAS service cost adjustment represents the difference between the FAS
pension and postretirement service costs calculated under GAAP and costs
allocated to the business segments. This adjustment is excluded from Core
operating loss (non-GAAP).
(2)Non-operating pension and postretirement expenses represent the components of
net periodic benefit costs other than service cost. These expenses are included
in Other income, net and are excluded from Core loss per share (non-GAAP).
(3)The income tax impact is calculated using the U.S. corporate statutory tax
rate.
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Critical Accounting Policies & Estimates
Accounting for Long-term Contracts
Substantially all contracts at BDS and certain contracts at BGS are long-term
contracts. Our long-term contracts typically represent a single distinct
performance obligation due to the highly interdependent and interrelated nature
of the underlying goods and/or services and the significant service of
integration that we provide.
Accounting for long-term contracts involves a judgmental process of estimating
the total sales, costs, and profit for each performance obligation. Cost of
sales is recognized as incurred, and revenue is determined by adding a
proportionate amount of the estimated profit to the amount reported as cost of
sales.
Due to the size, duration and nature of many of our long-term contracts, the
estimation of total sales and costs through completion is complicated and
subject to many variables. Total sales estimates are based on negotiated
contract prices and quantities, modified by our assumptions regarding contract
options, change orders, incentive and award provisions associated with technical
performance, and price adjustment clauses (such as inflation or index-based
clauses). The majority of these long-term contracts are with the U.S. government
where the price is generally based on estimated cost to produce the product or
service plus profit. Federal Acquisition Regulations provide guidance on the
types of cost that will be reimbursed in establishing contract price. Total cost
estimates are largely based on negotiated or estimated purchase contract terms,
historical performance trends, business base and other economic projections.
Factors that influence these estimates include inflationary trends, technical
and schedule risk, internal and subcontractor performance trends, business
volume assumptions, COVID-19 disruptions, asset utilization and anticipated
labor agreements.
Revenue and cost estimates for all significant long-term contract performance
obligations are reviewed and reassessed quarterly. Changes in these estimates
could result in recognition of cumulative catch-up adjustments to the
performance obligation's inception to date revenues, cost of sales and profit in
the period in which such changes are made. Changes in revenue and cost estimates
could also result in a reach-forward loss or an adjustment to a reach-forward
loss which would be recorded immediately in earnings. For the years ended
December 31, 2021, 2020 and 2019, net unfavorable cumulative catch-up
adjustments across all long-term contracts increased loss from operations by
$880 million, $942 million and $111 million, respectively. The cumulative
catch-up adjustments in 2021 were primarily due to losses recognized on the
KC-46A Tanker, VC-25B and Commercial Crew programs. These are all fixed-price
development programs, and there is ongoing risk that similar losses may have to
be recognized in future periods on these and/or other programs.

Due to the significance of judgment in the estimation process described above,
it is likely that materially different earnings could be recorded if we used
different assumptions or if the underlying circumstances were to change. Changes
in underlying assumptions/estimates, supplier performance, or circumstances may
adversely or positively affect financial performance in future periods. If the
combined gross margins for our profitable long-term contracts had been estimated
to be higher or lower by 1% during 2021, it would have increased or decreased
pre-tax income for the year by approximately $300 million.
Program Accounting
Program accounting requires the demonstrated ability to reliably estimate
revenues, costs and gross profit margin for the defined program accounting
quantity. A program consists of the estimated number of units (accounting
quantity) of a product to be produced in a continuing, long-term production
effort for delivery under existing and anticipated contracts. The determination
of the accounting quantity is limited by the ability to make reasonably
dependable estimates.
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Factors that must be estimated include program accounting quantity, sales price,
labor and employee benefit costs, material costs, procured part costs, major
component costs, overhead costs, program tooling and other non-recurring costs,
and warranty costs. Estimation of the accounting quantity for each program takes
into account several factors that are indicative of the demand for the
particular program, such as firm orders, letters of intent from prospective
customers and market studies. Total estimated program sales are determined by
estimating the model mix and sales price for all unsold units within the
accounting quantity, added together with the sales prices for all undelivered
units under contract. The sales prices for all undelivered units within the
accounting quantity include an escalation adjustment for inflation that is
updated quarterly. Cost estimates are based largely on negotiated and
anticipated contracts with suppliers, historical performance trends, and
business base and other economic projections. Factors that influence these
estimates include production rates, internal and subcontractor performance
trends, customer and/or supplier claims or assertions, asset utilization,
anticipated labor agreements, COVID-19 disruptions, and inflationary or
deflationary trends.
To ensure reliability in our estimates, we employ a rigorous estimating process
that is reviewed and updated on a quarterly basis. This includes reassessing the
accounting quantity. Changes in estimates of program gross profit margins are
normally recognized on a prospective basis; however, when estimated costs to
complete a program plus costs already included in inventory exceed estimated
revenues from the program, a loss is recorded in the current period. Reductions
to the estimated loss are included in the gross profit margin for undelivered
units in the accounting quantity whereas increases to the estimated loss are
recorded as an earnings charge in the period in which the loss is determined.
The 747, 767 and 777X programs have near break-even margins, and the 787 program
has zero margin at December 31, 2021. Adverse changes to the revenue and/or cost
estimates for these programs could result in additional earnings charges in
future periods.
777X Program During the fourth quarter of 2020, we revised the estimated first
delivery date of the 777X to late 2023 and recorded a $6.5 billion reach-forward
loss on the 777X program. The revised schedule and reach-forward loss reflected
a number of factors, including an updated assessment of global certification
requirements informed by continued discussions with regulators and a management
decision in the fourth quarter of 2020 to make modifications to the aircraft's
design, an updated assessment of COVID-19 impacts on market demand and
discussions with our customers with respect to aircraft delivery timing. These
factors resulted in adjustments to production rates and the program accounting
quantity, increased change incorporation costs, and associated customer and
supply chain impacts. The initial accounting quantity of 350 airplanes
established in the fourth quarter of 2020 consists of 777X passenger airplanes
and remained unchanged during 2021.
We are working towards reaching TIA which will enable us to begin FAA
certification flight testing. The timing of TIA and certification will
ultimately be determined by the regulators, and further determinations with
respect to anticipated certification requirements could result in additional
delays in entry into service and/or additional cost increases.
We continue to anticipate that the first 777X delivery will occur in late 2023.
The 777X program has near break-even gross margins at December 31, 2021. The
level of profitability on the 777X program will be subject to a number of
factors. These factors include continued market uncertainty, the impacts of
COVID-19 on our production system as well as impacts on our supply chain and
customers, customer negotiations, further production rate adjustments for the
777X or other commercial aircraft programs, contraction of the accounting
quantity and potential risks associated with the testing program and the timing
of aircraft certification. One or more of these factors could result in
additional reach-forward losses on the 777X program in future periods, which may
be material.
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787 Program The 787 program's production issues and delivery pause result in
significant uncertainties regarding the revenue and cost estimates for the 787
program. Deliveries have remained paused since May 2021. During the fourth
quarter of 2021, we recorded a loss of $3.5 billion on the program primarily due
to rework driving longer delivery delays than were previously expected and
associated customer considerations. The estimate of customer considerations is
based on a number of factors, including our current assumptions regarding timing
of FAA approval enabling resumption of deliveries, estimated timing of
completion of inspections and rework to enable deliveries in future periods,
estimated timing of production rate increases as well as customer and market
assessments. We continue to conduct inspections and rework and engage in
detailed discussions with the FAA regarding required actions for resuming
delivery of the 787. Our program revenue and cost estimates reflect the
assumption that production rates will remain very low until deliveries resume,
gradually returning to 5 per month over time. We have also assumed lower
forecasted revenues due to delayed deliveries. Our program assumptions reflect
our current best estimate. However, if the program experiences further delivery
delays or other factors such as additional inspections or rework that result in
lower revenue or higher cost estimates, we could record additional losses in
future periods, which may be material.
Goodwill Impairments
We test goodwill for impairment by performing a qualitative assessment or
quantitative test. If we choose to perform a qualitative assessment, we evaluate
economic, industry and company-specific factors as an initial step in assessing
the fair value of the reporting unit. If we determine it is more likely than not
that the carrying value of the net assets is more than the fair value of the
reporting unit, then a quantitative test is performed; otherwise, no further
testing is required. For reporting units where the quantitative test is used, we
compare the carrying value of net assets to the estimated fair value of the
reporting unit. If the fair value is determined to be less than carrying value,
the shortfall up to the carrying value of the goodwill represents the amount of
goodwill impairment.
We generally estimate the fair values of our reporting units using a combination
of discounted cash flows and market-based valuation methodologies such as
comparable public company trading values. Forecasts of future cash flows are
based on our best estimate of future sales, operating costs and changes in
working capital. These forecasts reflect existing firm orders, expected future
orders, expected production rates and delivery profiles, contracts with
suppliers, labor agreements and general market conditions. Changes in these
forecasts could significantly change the amount of impairment recorded, if any.
The cash flow forecasts are adjusted by an appropriate discount rate derived
from our market capitalization plus a suitable control premium at the date of
evaluation. Therefore, changes in the stock price may also affect the amount of
impairment recorded, if any.
We completed our annual assessment of goodwill as of April 1, 2021 and
determined that there was no impairment of goodwill. As of December 31, 2021, we
estimated that the fair value of each reporting unit significantly exceeded its
corresponding carrying value. Changes in our forecasts, discount rates or
decreases in the value of our common stock could cause book values to exceed
their fair values which may result in goodwill impairment charges in future
periods.
Pension Plans
Many of our employees have earned benefits under defined benefit pension plans.
Nonunion and the majority of union employees that had participated in defined
benefit pension plans transitioned to a company-funded defined contribution
retirement savings plan in 2016. Additional union employees transitioned to
company-funded defined contribution retirement savings plans effective January
1, 2019. Accounting rules require an annual measurement of our projected
obligation and plan assets. These measurements are based upon several
assumptions, including the discount rate and the expected long-term rate of
asset return. Future changes in assumptions or differences between actual and
expected
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outcomes can significantly affect our future annual expense, projected benefit
obligation and Shareholders' equity.
The projected benefit obligation is sensitive to discount rates. The projected
benefit obligation would decrease by $2,240 million or increase by $2,530
million if the discount rate increased or decreased by 25 basis points. A 25
basis point change in the discount rate would not have a significant impact on
pension cost. However, net periodic pension cost is sensitive to changes in the
expected long-term rate of asset return. A decrease or increase of 25 basis
points in the expected long-term rate of asset return would have increased or
decreased 2021 net periodic pension cost by $155 million. See Note 16 of the
Notes to our Consolidated Financial Statements, which includes the discount rate
and expected long-term rate of asset return assumptions for the last three
years.
Deferred Income Taxes - Valuation Allowance
The Company has deferred income tax assets of $11,258 million at December 31,
2021 that can be used in future years to offset taxable income and reduce income
taxes payable. The Company has deferred income tax liabilities of $8,976 million
at December 31, 2021 that will partially offset deferred income tax assets and
result in higher taxable income in future years and increase income taxes
payable. Tax law determines whether future reversals of temporary differences
will result in taxable and deductible amounts that offset each other in future
years. The particular years in which temporary differences result in taxable or
deductible amounts generally are determined by the timing of the recovery of the
related asset or settlement of the related liability.
On a quarterly basis, we assess the likelihood that we will be able to recover
our deferred tax assets against future sources of taxable income and reduce the
carrying amounts of deferred tax assets by recording a valuation allowance if,
based on the available evidence, it is more likely than not (defined as a
likelihood of more than 50%) that all or a portion of such assets will not be
realized.
This assessment takes into account both positive and negative evidence. A recent
history of financial reporting losses is heavily weighted as a source of
objectively verifiable negative evidence. Due to our recent history of losses,
we determined we could not include future projected earnings in our analysis.
Rather, we use systematic and logical methods to estimate when deferred tax
liabilities will reverse and generate taxable income and when deferred tax
assets will reverse and generate tax deductions. The selection of methodologies
and assessment of when temporary differences will result in taxable or
deductible amounts involves significant management judgment and is inherently
complex and subjective. We believe that the methodologies we use are reasonable
and can be replicated on a consistent basis in future periods.
Deferred tax liabilities represent the assumed source of future taxable income
and the majority are assumed to generate taxable amounts during the next five
years. Deferred tax assets include amounts related to pension and other
postretirement benefits that are assumed to generate significant deductible
amounts beyond five years. The Company's valuation allowance of $2,423 million
at December 31, 2021 primarily relates to pension and other postretirement
benefit obligation deferred tax assets that are assumed to reverse beyond the
period in which reversals of deferred tax liabilities are assumed to occur.
During 2021, the Company decreased the valuation allowance by $671 primarily due
to favorable pension remeasurement. Until the Company generates sustained levels
of profitability, additional valuation allowances may have to be recorded with
corresponding adverse impacts on earnings and/or other comprehensive income.
For additional information regarding income taxes, see Note 4 of the Notes to
the Consolidated Financial Statements.
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