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 theU.S. While our principal operations are in theU.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) andGlobal Services (BGS) - supplemented and supported byBoeing 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 ourBoeing 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 latestInternational 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. 23 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 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 theFederal Aviation Administration (FAA ) rescinded the order that grounded 737 MAX aircraft in theU.S. In addition, other non-U.S. civil aviation authorities, including theBrazilian National Civil Aviation Agency ,Transport Canada and theEuropean 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. TheCivil 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 toChina 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 theFAA 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. 24 -------------------------------------------------------------------------------- Table of Contents 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 onDecember 3, 2021 , continues funding for the federal government at FY21 appropriated levels throughFebruary 18, 2022 .Congress and the President must enact either full-year FY22 appropriations bills or an additional CR to fund government departments and agencies beyondFebruary 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. 25 -------------------------------------------------------------------------------- Table of Contents 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 18,468Boeing 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 26 -------------------------------------------------------------------------------- Table of Contents 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 2,697Boeing 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 )
(
FAS/CAS service cost adjustment * (1,173) (1,383)
(1,415)
Core operating loss (Non-GAAP) ** ($4,075 ) ($14,150 )
(
* 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 27 -------------------------------------------------------------------------------- Table of Contents 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 )
(
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 inDecember 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 onU.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 betweenBoeing and theU.S. Department of Justice that was finalized inJanuary 2021 and higher income from operating investments in 2021. See Note 21. 28 -------------------------------------------------------------------------------- Table of Contents 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. 29 -------------------------------------------------------------------------------- Table of Contents 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 theU.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 atBoeing NeXt on product development. 30 -------------------------------------------------------------------------------- Table of Contents Backlog Our backlog atDecember 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 unobligatedU.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 inChina 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 includesU.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. 31 -------------------------------------------------------------------------------- Table of Contents The current state ofU.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, theU.S. andChina imposed an escalating series of tariffs on each other's imports. Certain aircraft parts and components thatBoeing procures are subject to these tariffs. TheU.S. andChina entered into a Phase I agreement inJanuary 2020 . However, as ofDecember 31, 2021 , implementation of this agreement is incomplete and overall diplomatic relations between theU.S. andChina have deteriorated. We continue monitoring developments for potential adverse impacts to the Company. Beginning inJune 2018 , theU.S. Government has imposed tariffs on steel and aluminum imports. In response to these tariffs, several majorU.S. trading partners have imposed, or announced their intention to impose, tariffs onU.S. goods. InMay 2019 , theU.S. Government ,Mexico andCanada reached an agreement to end the steel and aluminum tariffs between these countries. Implementation of theU.S. /Mexico /Canada Free Trade Agreement (USMCA) will also result in lower tariffs. InOctober 2021 , theU.S. andEuropean 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 ofU.S. -Russia relations is creating an adverse climate for our business. TheU.S. Government continues to impose and/or consider imposing sanctions on certain businesses and individuals inRussia . We continue to monitor and evaluate additional sanctions and export restrictions that may be imposed by theU.S. Government and any responses fromRussia that could directly affect our supply chain, business partners or customers. We also continue to support the 737 MAX return to service inRussia . TheU.S. and EU have been engaged in two long-running disputes at theWorld Trade Organization (WTO) relating to large civil aircraft. As part of those disputes, inOctober 2019 , theWTO authorized theU.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, theU.S. began to impose 15% tariffs on new Airbus airplanes imported into theU.S. as well as fuselages that Airbus manufactures inEurope and imports into theU.S. InOctober 2020 , theWTO authorized the EU to impose approximately$3.99 billion in annual tariffs onU.S. products in connection with a tax incentive used byBoeing inWashington state that has since been repealed. Shortly thereafter, the EU began to impose 15% tariffs onBoeing airplanes imported into the EU. OnJune 15, 2021 , theU.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. TheU.S. andU.K. announced a similar agreement onJune 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. 32 -------------------------------------------------------------------------------- Table of Contents 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 thatBoeing 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 inDecember 2020 following rescission by theFAA of its grounding order. As ofDecember 31, 2021 , most non-U.S. jurisdictions have approved return to service of the 737 MAX. 787 deliveries have been paused sinceMay 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. 33 -------------------------------------------------------------------------------- Table of Contents Commercial Airplanes deliveries as ofDecember 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 34 -------------------------------------------------------------------------------- Table of Contents 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 atDecember 31, 2021 increased from$281,588 million atDecember 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 endedDecember 31, 2021 totaled$27,542 million and primarily relate to 737 MAX and 787 aircraft. The net ASC 606 adjustments decreased for the year endedDecember 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. 35 -------------------------------------------------------------------------------- Table of Contents The following table provides details of the accounting quantities and firm orders by program as ofDecember 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- 36 -------------------------------------------------------------------------------- Table of Contents 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 beginFAA 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 atDecember 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 betweenMarch 2021 andMay 2021 prior to deliveries being paused inMay 2021 . Deliveries remain paused. AtDecember 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. InJuly 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 theFAA 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 theFAA 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 inSouth 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 37 -------------------------------------------------------------------------------- Table of Contents 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 theFAA .China is a significant market for the 787 program, and if the program is unable to obtain additional orders fromChina 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 38 -------------------------------------------------------------------------------- Table of Contents 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 InMay 2021 , theU.S. government released the President's budget request for fiscal year 2022 (FY22), which included$715 billion in funding for theUnited States Department of Defense (U.S. DoD ),$25 billion in funding for theNational Aeronautics and Space Administration (NASA) and$19 billion for theFAA . While the President's budget request for FY22 includes funding for a majority ofBoeing '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. InDecember 2021 ,Congress passed and the President signed the National Defense Authorization Act for FY22, which authorizes aU.S. DoD budget$25 billion higher than the budget request. A CR, enacted onDecember 3, 2021 , continues funding for the federal government at FY21 appropriated levels throughFebruary 18, 2022 .Congress and the President must enact either full-year FY22 appropriations bills or an additional CR to fund government departments and agencies beyondFebruary 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 theU.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 acrossAsia ,Europe and theMiddle 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 % 39
-------------------------------------------------------------------------------- Table of Contents 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 forUnited 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 40 -------------------------------------------------------------------------------- Table of Contents with the agreement signed inApril 2020 with theU.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 OrbitalFlight 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 atDecember 31, 2021 was$1,019 million lower thanDecember 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. 41 -------------------------------------------------------------------------------- Table of Contents 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. TheU.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 expectU.S. growth to remain flat and non-U.S. fleets, led byMiddle East andAsia 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, theU.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. 42 -------------------------------------------------------------------------------- Table of Contents 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 atDecember 31, 2021 decreased by 1% from$20,632 million atDecember 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 atDecember 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 acrossBoeing 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. 43 --------------------------------------------------------------------------------
Table of Contents 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 ofDecember 31 : (Dollars in millions) 2021
2020
Customer financing and investment portfolio, net$1,720
Other assets, primarily cash and short-term investments 462
402
Total assets$2,182
Other liabilities, primarily income taxes$347
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 atDecember 31, 2021 decreased fromDecember 31, 2020 , primarily due to$241 million of note payoffs and portfolio run-off. BCC enters into certain transactions with otherBoeing 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. 44 -------------------------------------------------------------------------------- Table of Contents 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
$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 betweenBoeing and theU.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 45 -------------------------------------------------------------------------------- Table of Contents for 737 MAX customer considerations atDecember 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 endedDecember 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 endedDecember 31, 2021 and 2020 were primarily due to reductions in commercial purchases from suppliers. The increase for the year endedDecember 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 inMarch 2020 to suspend the declaration or payment of dividends until further notice. During the twelve months endedDecember 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 endedDecember 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 endedDecember 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. AtDecember 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 atDecember 31, 2021 and 2020, of which$0.3 billion and$0.9 billion were classified as short-term. During the years endedDecember 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 sinceApril 2019 . InMarch 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 endedDecember 31, 2021 , we paid no dividends, compared with$1.2 billion and$4.6 billion in 2020 and 2019. InMarch 2020 , the Company announced that our dividend will be suspended until further notice. 46 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 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. AtDecember 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 inOctober 2022 ,$5.3 billion expires inMarch 2023 and$3.2 billion expires inOctober 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 ofFebruary 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. AtDecember 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. 47 -------------------------------------------------------------------------------- Table of Contents 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. AtDecember 31, 2021 and 2020, our pension plans were$7.8 billion and$13.7 billion underfunded as measured under Generally Accepted Accounting Principles inthe United States of America (GAAP). On an ERISA basis our plans are more than 100% funded atDecember 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 theU.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 ofDecember 31, 2021 , we have outstanding industrial participation agreements 48 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 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 atDecember 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 atDecember 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/ 49 -------------------------------------------------------------------------------- Table of Contents 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 withU.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 toU.S. government contracts. 50 -------------------------------------------------------------------------------- Table of Contents 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 theU.S. corporate statutory tax rate. 51 -------------------------------------------------------------------------------- Table of Contents 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 theU.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 endedDecember 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. 52 -------------------------------------------------------------------------------- Table of Contents 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 atDecember 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 beginFAA 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 atDecember 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. 53 -------------------------------------------------------------------------------- Table of Contents 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 sinceMay 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 ofFAA 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 theFAA 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 ofApril 1, 2021 and determined that there was no impairment of goodwill. As ofDecember 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 effectiveJanuary 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 54 -------------------------------------------------------------------------------- Table of Contents 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 AllowanceThe Company has deferred income tax assets of$11,258 million atDecember 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 atDecember 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 atDecember 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. 55
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