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

Consolidated Results of Operations and Financial Condition
Overview
We are a global market leader in the design, development, manufacture, sale,
service and support of commercial jetliners, military aircraft, satellites,
missile defense, human space flight and launch systems and services. We are one
of the two major manufacturers of 100+ seat airplanes for the worldwide
commercial airline industry and one of the largest defense contractors in the
U.S. While our principal operations are in the U.S., we conduct operations in an
expanding number of countries and rely on an extensive network of non-U.S.
partners, key suppliers and subcontractors.
Our strategy is centered on successful execution in healthy core businesses -
Commercial Airplanes (BCA), Defense, Space & Security (BDS), and Global Services
(BGS) - supplemented and supported by Boeing Capital (BCC). Taken together,
these core businesses have historically generated substantial earnings and cash
flow that permit us to invest in new products and services. We focus on
producing the products and providing the services that the market demands, and
continue to find new ways to improve efficiency and quality to provide a fair
return for our shareholders. BCA is committed to being the leader in commercial
aviation by offering airplanes and services that deliver superior design,
safety, efficiency and value to customers around the world. BDS integrates its
resources in defense, intelligence, communications, security, space and services
to deliver capability-driven solutions to customers at reduced costs. Our BDS
strategy is to leverage our core businesses to capture key next-generation
programs while expanding our presence in adjacent and international markets,
underscored by an intense focus on growth and productivity. BGS provides support
for commercial and defense through innovative, comprehensive, and
cost-competitive product and service solutions. BCC facilitates, arranges,
structures and provides selective financing solutions for our Boeing customers.
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to
suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft
operators following two fatal 737 MAX accidents. Non-U.S. civil aviation
authorities have issued directives to the same effect. Deliveries of the 737 MAX
have been suspended until clearance is granted by the appropriate regulatory
authorities. The grounding is having a significant adverse impact on our
operations and creates significant uncertainty. We are focused on safely
returning the 737 MAX to service.


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Consolidated Results of Operations
The following table summarizes key indicators of consolidated results of
operations:
(Dollars in millions, except per share data)
Years ended December 31,                         2019           2018         2017
Revenues                                      $76,559       $101,127      $94,005

GAAP
(Loss)/earnings from operations               ($1,975 )      $11,987      $10,344
Operating margins                                (2.6 )%        11.9 %       11.0 %
Effective income tax rate                        71.8  %         9.9 %       16.3 %
Net (loss)/earnings                             ($636 )      $10,460       $8,458
Diluted (loss)/earnings per share              ($1.12 )       $17.85

$13.85

Non-GAAP (1)
Core operating (loss)/earnings                ($3,390 )      $10,660

$8,906

Core operating margins                           (4.4 %)        10.5 %        9.5 %
Core (loss)/earnings per share                 ($3.47 )       $16.01

$12.33

(1) These measures exclude certain components of pension and other postretirement

benefit expense. See page 42 - 43 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,                      2019          2018         2017
Commercial Airplanes                       $32,255       $57,499      $54,612
Defense, Space & Security                   26,227        26,392       23,938
Global Services                             18,468        17,056       14,611
Boeing Capital                                 244           274          307
Unallocated items, eliminations and other     (635 )         (94 )        537
Total                                      $76,559      $101,127      $94,005


Revenues decreased by $24,568 million in 2019 compared with 2018 primarily due
to lower revenues at BCA, partially offset by higher revenues at BGS. Lower BCA
revenues are primarily driven by lower 737 MAX deliveries and a revenue
reduction of $8,259 million recorded in 2019 for estimated potential concessions
and other considerations to customers for disruptions and associated delivery
delays related to the 737 MAX grounding, net of insurance recoveries.
Revenues increased by $7,122 million in 2018 compared with 2017 due to higher
revenues at BCA, BDS, and BGS. BCA revenues increased by $2,887 million due to
higher 737 and 787 deliveries and favorable 737 and 787 model mix, which more
than offset lower 777 and 747 deliveries. BDS revenues increased by $2,454
million primarily due to non-US contract awards for fighters, higher weapons
revenue, the final C-17 aircraft sale and higher satellites revenue. BGS
revenues increased by $2,445 million due to higher parts revenue, including the
acquisition of KLX, Inc. (KLX) in the fourth quarter of 2018.


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The changes in Unallocated items, eliminations and other in 2019, 2018 and 2017
primarily reflect the timing of eliminations for intercompany aircraft
deliveries and the sale of aircraft previously leased to customers.
Earnings From Operations
The following table summarizes Earnings from operations:
(Dollars in millions)
Years ended December 31,                           2019         2018         2017
Commercial Airplanes                            ($6,657 )     $7,830       $5,285
Defense, Space & Security                         2,608        1,657        2,383
Global Services                                   2,697        2,536        2,251
Boeing Capital                                       28           79          114
Segment operating (loss)/profit                  (1,324 )     12,102       

10,033

Pension FAS/CAS service cost adjustment           1,071        1,005        

1,127

Postretirement FAS/CAS service cost adjustment 344 322

311

Unallocated items, eliminations and other        (2,066 )     (1,442 )     (1,127 )
(Loss)/earnings from operations (GAAP)          ($1,975 )    $11,987      $10,344
FAS/CAS service cost adjustment *                (1,415 )     (1,327 )     

(1,438 ) Core operating (loss)/earnings (Non-GAAP) ** ($3,390 ) $10,660 $8,906

* 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 page 42.


Loss from operations was $1,975 million in 2019 compared with earnings from
operations of $11,987 million in 2018. The decrease of $13,962 million is
primarily due to a loss from operations at BCA of $6,657 million in 2019
compared to earnings from operations of $7,830 million in 2018, partially offset
by higher earnings at BDS and BGS in 2019 compared with 2018. BCA decreased by
$14,487 million due to lower 737 deliveries and the earnings charge for the 737
MAX grounding of $8,259 million, net of insurance recoveries. BDS earnings from
operations increased by $951 million primarily due to lower charges in 2019 for
development programs. BGS earnings from operations increased by $161 million
primarily due to higher revenues, which was partially offset by less favorable
performance and mix.
Earnings from operations increased by $1,643 million in 2018 compared with 2017
primarily due to higher earnings at BCA and BGS, which more than offset the
decrease at BDS and the change in Unallocated items, eliminations and other. BCA
earnings from operations increased by $2,545 million due to higher revenues and
improved operating margins. The increase in operating margins is primarily due
to higher 787 margins, improved cost performance and favorable delivery mix. BGS
earnings from operations increased by $285 million primarily due to higher
revenues, partially offset by higher period costs. BDS earnings from operations
decreased by $726 million as earnings growth from higher revenues was more than
offset by charges of $691 million related to winning the T-7A Red Hawk and MQ-25
competitions, as well as higher KC-46A Tanker reach-forward losses.
During 2019, 2018 and 2017, we recorded reach-forward losses on the KC-46A
Tanker program of $148 million, $736 million, and $445 million, respectively.
Core operating earnings decreased by $14,050 million in 2019 compared with 2018
primarily due to a loss from operations at BCA in 2019, partially offset by
higher earnings at BDS and BGS.


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Core operating earnings increased by $1,754 million in 2018 compared with 2017
primarily due to higher earnings at BCA and BGS, partially offset by lower
earnings at BDS and higher unallocated expenses.
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,                            2019         2018         2017
Share-based plans                                   ($65 )       ($76 )       ($77 )
Deferred compensation                               (174 )        (19 )       (240 )
Amortization of previously capitalized interest      (89 )        (92 )        (96 )
Research and development expense, net               (384 )       (132 )     

42

Customer financing impairment                       (250 )
Litigation                                          (109 )       (148 )
Eliminations and other unallocated items            (995 )       (975 )     

(756 ) Unallocated items, eliminations and other ($2,066 ) ($1,442 ) ($1,127 )

Deferred compensation expense increased by $155 million in 2019 and decreased by
$221 million in 2018, primarily driven by changes in broad stock market
conditions and our stock price.
Research and development expense increased by $252 million in 2019 and increased
by $174 million in 2018 primarily due to spending by Boeing NeXt on product
development.
In 2019, we recorded a $250 million charge related to the impairment of lease
incentives with one customer that experienced liquidity issues, and a $109
million charge related to ongoing litigation associated with recoverable costs
on U.S. government contracts. In 2018, we recorded a $148 million charge related
to the outcome of the Spirit litigation.
Eliminations and other unallocated expense increased by $20 million in 2019 and
$219 million in 2018 primarily due to timing of expense allocations.
Net periodic pension benefit costs included in Earnings from operations were as
follows:
(Dollars in millions)                                                    Pension
Years ended December 31,                                      2019          2018          2017
Allocated to business segments                             ($1,384 )     ($1,318 )     ($1,637 )
Pension FAS/CAS service cost adjustment                      1,071         

1,005 1,127 Net periodic benefit cost included in (Loss)/earnings from operations

                                              ($313 )       

($313 ) ($510 )

The pension FAS/CAS service cost adjustment recognized in Earnings from
operations in 2019, 2018, and 2017 was largely consistent across all periods.
The net periodic benefit cost included in Earnings from operations in 2019 was
consistent with 2018, as reductions in current year service cost were offset by
higher amortization of prior year service costs. The decrease in net periodic
benefit cost included in Earnings from operations in 2018 compared to 2017 was
primarily due to a lower portion of service cost recognized in Earnings from
operations.
For additional discussion related to Postretirement Plans, see Note 17 to our
Consolidated Financial Statements.


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Other Earnings Items
(Dollars in millions)
Years ended December 31,                           2019         2018         2017
(Loss)/earnings from operations                 ($1,975 )    $11,987      $10,344
Other income, net                                   438           92          123
Interest and debt expense                          (722 )       (475 )       (360 )
(Loss)/earnings before income taxes              (2,259 )     11,604       

10,107

Income tax benefit/(expense)                      1,623       (1,144 )     

(1,649 ) Net (loss)/earnings from continuing operations ($636 ) $10,460 $8,458

Other income, net increased by $346 million in 2019 primarily due to higher
non-operating pension income. Other income, net decreased by $31 million in 2018
primarily due to lower gains from foreign exchange, partially offset by higher
interest income.
The non-operating pension income included in Other income, net was $374 million
in 2019, $143 million in 2018, and $117 million in 2017. The increased income in
2019 compared to 2018 was due to lower amortization of actuarial losses,
partially offset by decreases in expected return on assets and increases in
interest cost. The increase in 2018 compared to 2017 was due to decreases in
interest cost and increases in estimated return on assets, partially offset by
higher amortization of actuarial losses.
Interest and debt expense increased by $247 million in 2019 and increased by
$115 million in 2018 as a result of higher debt balances.
For additional discussion related to Income Taxes, see Note 5 to our
Consolidated Financial Statements.

Total Costs and Expenses ("Cost of Sales")
Cost of sales, for both products and services, consists primarily of raw
materials, parts, sub-assemblies, labor, overhead and subcontracting costs. Our
BCA segment predominantly uses program accounting to account for cost of sales.
Under program accounting, cost of sales for each commercial airplane program
equals the product of (i) revenue recognized in connection with customer
deliveries and (ii) the estimated cost of sales percentage applicable to the
total remaining program. For long-term contracts, the amount reported as cost of
sales is recognized as incurred. Substantially all contracts at our BDS segment
and certain contracts at our BGS segment are long-term contracts with the U.S.
government and other customers that generally extend over several years. Costs
on these contracts are recorded as incurred. 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               2019           2018       Change             2018           2017     Change
Cost of sales          $72,093        $81,490      ($9,397 )      $81,490        $76,612       $4,878

Cost of sales as a
% of revenues             94.2 %         80.6 %       13.6 %         80.6 %         81.5 %       (0.9 )%


Cost of sales decreased by $9,397 million in 2019 compared with 2018, primarily
due to lower revenue and lower reach-forward losses. Cost of sales as a
percentage of Revenues increased in 2019 primarily due to the 737 MAX grounding.
Cost of sales increased by $4,878 million in 2018 compared with 2017, primarily
due to higher revenue and higher reach-forward losses.


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Research and Development The following table summarizes our Research and
development expense:
(Dollars in millions)
Years ended December 31,     2019       2018       2017
Commercial Airplanes       $1,956     $2,188     $2,247
Defense, Space & Security     758        788        834
Global Services               121        161        140
Other                         384        132        (42 )
Total                      $3,219     $3,269     $3,179


Research and development expense decreased by $50 million in 2019 compared with
2018 primarily due to lower spending on 777X and 737 MAX, partially offset by
higher spending by BCA and Boeing NeXt on product development.
Research and development expense increased by $90 million in 2018 compared with
2017 due to investment in product development, partially offset by lower
spending on 777X and 787-10.
Backlog
Our backlog at December 31 was as follows:
(Dollars in millions)
Years ended December 31,       2019         2018
Commercial Airplanes       $376,593     $408,140
Defense, Space & Security    63,908       61,277
Global Services              22,902       21,064
Total Backlog              $463,403     $490,481

Contractual backlog        $436,473     $462,070
Unobligated backlog          26,930      $28,411
Total Backlog              $463,403     $490,481


Contractual backlog of unfilled orders excludes purchase options, announced
orders for which definitive contracts have not been executed, and unobligated
U.S. and non-U.S. government contract funding. The decrease in contractual
backlog during 2019 was primarily due to BCA deliveries in excess of new orders
and a reduction in backlog related to orders from a customer that experienced
liquidity issues, partially offset by BDS current year contract awards in excess
of revenue recognized on contracts awarded in prior years
Unobligated backlog includes U.S. and non-U.S. government definitive contracts
for which funding has not been authorized. The decrease in unobligated backlog
in 2019 was primarily due to reclassifications to contractual backlog related to
BDS and BGS contracts partially offset by contract awards.
Additional Considerations
Export-Import Bank of the United States Many of our non-U.S. customers finance
purchases through the Export-Import Bank of the United States. The bank is
authorized through December 31, 2026.


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Global Trade We continually monitor the global trade environment for changes in
tariffs, trade agreements, sanctions or other potential geopolitical economic
developments that may impact the company.
Beginning in June 2018, the U.S. Government has imposed tariffs on steel and
aluminum imports. In response to these tariffs, several major U.S. trading
partners have imposed, or announced their intention to impose, tariffs on U.S.
goods. In May 2019, the U.S. Government, Mexico and Canada reached an agreement
to end the steel and aluminum tariffs between these countries. Passage of the
U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower
tariffs. We continue to monitor the potential for any extra costs that may
result from the remaining global tariffs.
Since 2018, the U.S. and China imposed tariffs on approximately $34 billion of
each other's exports in July 2018. Certain aircraft parts and components that
Boeing procures are subject to these tariffs. Subsequently, the U.S. imposed
tariffs on an additional $216 billion in Chinese goods, and China imposed
tariffs on an additional $76 billion worth of U.S goods. The U.S. and China
Phase I agreement in January 2020 is a positive development for overall trade
with China. Negotiations to resolve remaining trade issues continue.
Overall global trade tensions and increased market uncertainty have resulted in
fewer orders than anticipated for our commercial aircraft.
The U.S. Government continues to impose and/or consider imposing sanctions on
certain businesses and individuals in Russia. Although our operations or sales
in Russia have not been impacted to date, we continue to monitor additional
sanctions that may be imposed by the U.S. Government and any responses from
Russia that could affect our supply chain, business partners or customers.
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment Global economic growth, a primary driver for air
travel, was 2.6% in 2019, slightly below the long-term average of approximately
3%. Passenger traffic is estimated to grow by 4% to 5% in 2019, close to the
long-term average of approximately 5%. The grounding of the 737 MAX and
suspension of 737 MAX deliveries has slowed growth at certain airlines. While
growth was solid across most major world regions, there continues to be
variation between regions and airline business models. Despite some moderation
in the growth rates, airlines operating in Asia Pacific and Europe, as well as
low-cost-carriers globally, are leading the 2019 growth in passenger traffic.
Air cargo traffic growth is expected to contract this year due to weak global
trade growth.
Airline financial performance also plays a role in the demand for new capacity.
Airlines continue to focus on increasing revenue through alliances,
partnerships, new marketing initiatives, and effective leveraging of ancillary
services and related revenues. Airlines are also focusing on reducing costs and
renewing fleets to leverage more efficient airplanes. Net profits in 2019 are
expected to approximate $26 billion.
The long-term outlook for the industry continues to remain positive due to the
fundamental drivers of air travel demand: economic growth and the increasing
propensity to travel due to increased trade, globalization, and improved airline
services driven by liberalization of air traffic rights between countries. Our
20-year forecast projects a long-term average growth rate of 4.6% per year for
passenger traffic and 4.2% for cargo traffic. Based on long-term global economic
growth projections of 2.7% average annual GDP growth, we project a $6.8 trillion
market for approximately 44,000 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 and increased global environmental regulations.


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Industry Competitiveness The commercial jet airplane market and the airline
industry remain extremely competitive. Market liberalization in Europe, the
Middle East and Asia is enabling low-cost airlines to continue gaining market
share. These airlines are increasing the pressure on airfares. This results in
continued cost pressures for all airlines and price pressure on our products.
Major productivity gains are essential to ensure a favorable market position at
acceptable profit margins.
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 have significantly reduced our market share
with respect to deliveries of single aisle aircraft in 2019 and may provide
competitors with an opportunity to obtain more orders and increase market share.
We are continuing to monitor the impact of the 737 MAX grounding on our
suppliers and working to ensure that our supply chain can support our production
plans once production resumes. 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.
Additionally, other competitors from Russia, China and Japan are 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
commercial viability; others to be brought to market more quickly than otherwise
possible; and many offered for sale below market-based prices. Many competitors
have continued 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 safely returning the 737 MAX to service, improving our
products and services and continuing our cost-reduction efforts, which enhances
our ability to compete. We are also focused on taking actions to ensure that
Boeing is not harmed by unfair subsidization of competitors.


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Results of Operations
(Dollars in millions)
Years ended December 31,            2019          2018         2017
Revenues                         $32,255       $57,499      $54,612
% of total company revenues           42 %          57 %         58 %
(Loss)/earnings from operations  ($6,657 )      $7,830       $5,285
Operating margins                  (20.6 )%       13.6 %        9.7 %
Research and development          $1,956        $2,188       $2,247


Revenues
BCA revenues decreased by $25,244 million in 2019 compared with 2018 driven by
lower 737 MAX deliveries and a revenue reduction of $8,259 million that was
recorded in 2019 for estimated potential concessions and other considerations to
customers for disruptions and associated delivery delays related to the 737 MAX
grounding, net of $500 million of insurance recoveries. BCA revenues increased
by $2,887 million in 2018 compared with 2017 primarily due to higher 737 and 787
deliveries and favorable 737 and 787 model mix, which more than offset lower 777
and 747 deliveries. The 737 MAX grounding will continue to have a significant
impact on revenues until deliveries resume.
Commercial Airplanes deliveries as of December 31 were as follows:
                        737  *       747  †      767  *       777  †    787  Total
2019
Cumulative deliveries 7,439        1,555       1,176        1,627       939
Deliveries              127  (19)      7          43  (23)     45  (2)  158 

380

2018

Cumulative deliveries 7,312 1,548 1,133 1,582 781 Deliveries

               580 (18)       6          27 (10)      48       145   806
2017
Cumulative deliveries  6,732        1,542       1,106        1,534       636
Deliveries               529 (17)      14 (1)      10           74       136   763

* Intercompany deliveries identified by parentheses † Aircraft accounted for as revenues by BCA and as operating leases in consolidation identified by parentheses

Loss/Earnings From Operations
BCA loss from operations was $6,657 million in 2019 compared with earnings from
operations of $7,830 million in 2018. The decrease of $14,487 million is
primarily due to lower 737 deliveries and earnings charges related to the 737
MAX. The 737 MAX grounding and associated changes to our production rate will
continue to adversely impact 737 program and overall BCA margins.
BCA earnings from operations increased by $2,545 million in 2018 compared with
2017. The increase in operating earnings reflects higher revenues and improved
operating margins. The increase in operating margins is primarily due to higher
787 margins, improved cost performance and favorable delivery mix.


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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. 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 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
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
BCA total backlog of $376,593 million at December 31, 2019 decreased from
$408,140 million at December 31, 2018, primarily due to deliveries in excess of
new orders and a reduction in backlog related to orders from a customer that
experienced liquidity issues. We are experiencing fewer new 737 MAX orders than
we were receiving prior to the grounding. If 737 MAX aircraft remain grounded
for an extended period of time, we may experience reductions to backlog and/or
significant order cancellations. To date, the 737 MAX grounding has not resulted
in significant order cancellations.
Accounting Quantity The accounting quantity is our estimate of the quantity of
airplanes that will be produced for delivery under existing and anticipated
contracts. The determination of the accounting quantity is limited by the
ability to make reasonably dependable estimates of the revenue and cost of
existing and anticipated contracts. It is a key determinant of the gross margins
we recognize on sales of individual airplanes throughout a program's life.
Estimation of each program's accounting quantity takes into account several
factors that are indicative of the demand for that program, including firm
orders, letters of intent from prospective customers and market studies. We
review our program accounting quantities quarterly.
The accounting quantity for each program may include units that have been
delivered, undelivered units under contract, and units anticipated to be under
contract in the reasonable future (anticipated orders). In developing total
program estimates, all of these items within the accounting quantity must be
considered.


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The following table provides details of the accounting quantities and firm
orders by program as of December 31. Cumulative firm orders represent the
cumulative number of commercial jet aircraft deliveries plus undelivered firm
orders.
                                                               Program
                                       737     †    747*     767       777      †  777X     787       †
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   (29)
2018
Program accounting quantities       10,400         1,574   1,195     1,680           **   1,600
Undelivered units under firm orders  4,708   (75)     24     111       100   (2)    326     604   (30)
Cumulative firm orders              12,020         1,572   1,244     1,682          326   1,385
2017
Program accounting quantities        9,800         1,570   1,171     1,625           **   1,400
Undelivered units under firm orders  4,613            12      98        97          326     640
Cumulative firm orders              11,345         1,554   1,204     1,631          326   1,276


† Aircraft ordered by BCC are identified in parentheses.
* At December 31, 2019, the 747 accounting quantity includes one already
completed aircraft that has not been sold and is being remarketed.
** The accounting quantity for the 777X will be determined in the year of first
airplane delivery.
Program Highlights
737 Program See the discussion of the 737 MAX Grounding and 737NG Structure
(Pickle Fork) in Note 14 to our Consolidated Financial Statements.
747 Program We are currently producing at a rate of 0.5 aircraft per month. We
believe that ending production of the 747 at the end of the current accounting
quantity would not have a material impact on our financial position, results of
operations or cash flows.
767 Program The 767 assembly line includes the commercial program and a
derivative to support the tanker program. We are increasing our combined
production rate from 2.5 to 3 per month in 2020.
777 Program The accounting quantity for the 777 program increased by 10 units
during 2019 due to the program's normal progress of obtaining additional orders
and delivering airplanes. In 2013, we launched the 777X, which features a new
composite wing, new engines and folding wing-tips. We have experienced issues in
engine design and development on the 777X. The first flight of the 777X was
completed on January 25, 2020, and first delivery is targeted for 2021. The 777
and 777X programs have a combined production rate of 5 per month. We plan to
produce more 777 models and fewer 777X models in the near term than previously
planned. We expect to deliver at an average rate of 3 per month in 2020. The
777X will have a separate program accounting quantity, which will be determined
in the year of first airplane delivery.
787 Program At the end of the first quarter of 2019, we increased the production
rate from 12 per month to 14 per month. As a result of fewer orders than
anticipated, we plan to reduce the 787 production rate to 12 per month in late
2020 and to 10 per month in early 2021. We plan to return to a production rate
of 12 per month in 2023.


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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                           2020

737 MAX 8        2011               2017

737 MAX 9        2011                    2018

737 MAX 10                          2017             2021

787-10                   2013            2018

777X                     2013                        2021



Reflects models in development during 2019
We launched the 737 MAX 7, 8 and 9 in August 2011 and the 737 MAX 10 in June
2017. We launched the 787-10 in June 2013 and the 777X in November 2013.

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. In addition, the
introduction of new aircraft and derivatives, such as the 777X, involves
increased risks associated with meeting development, production and
certification schedules. 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, 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
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
The Bipartisan Budget Act of 2019 raised the Budget Control Act limits on
federal discretionary defense and non-defense spending for fiscal years 2020 and
2021 (FY20 and FY21), reducing budget uncertainty


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and the risk of sequestration. The consolidated appropriations acts for FY20,
enacted in December 2019, provided FY20 appropriations for government
departments and agencies, including the United States Department of Defense
(U.S. DoD), the National Aeronautics and Space Administration (NASA) and the
Federal Aviation Administration (FAA).
The enacted FY20 appropriations included funding for Boeing's major programs,
such as the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22
Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, there
continues to be uncertainty with respect to future program-level appropriations
for the U.S. DoD and other government agencies, including NASA. Future budget
cuts or investment priority changes, including changes associated with the
authorizations and appropriations process, could result in reductions,
cancellations and/or delays of existing contracts or programs. Any of these
impacts could have a material effect on our results of operations, financial
position and/or cash flows.

Non-U.S. Defense Environment Overview The non-U.S. market continues to be driven
by complex and evolving security challenges and the need to modernize aging
equipment and inventories. BDS expects that it will continue to have a wide
range of opportunities across Asia, Europe and the Middle East given the diverse
regional threats. At the end of 2019, 29% of BDS backlog was attributable to
non-U.S. customers.
Results of Operations
(Dollars in millions)
Years ended December 31,        2019         2018         2017
Revenues                     $26,227      $26,392      $23,938

% of total company revenues 34 % 26 % 25 % Earnings from operations $2,608 $1,657 $2,383 Operating margins

                9.9 %        6.3 %       10.0 %


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 year, or year-to-year
comparisons of revenues, earnings and backlog 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.


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Deliveries of units for new-build production aircraft, including remanufactures
and modifications were as follows:
Years ended December 31,      2019    2018    2017
F/A-18 Models                   23      17      23
F-15 Models                     11      10      16
C-17 Globemaster III             1
CH-47 Chinook (New)             13      13       9
CH-47 Chinook (Renewed)         22      17      35
AH-64 Apache (New)              37              11
AH-64 Apache (Remanufactured)   74      23      57
KC-46 Tanker                    28
P-8 Models                      18      16      19
C-40A                            2
Total                          229      96     170

New-build satellite deliveries were as follows: Years ended December 31, 2019 2018 2017 Commercial and civil satellites 2 1 3 Military satellites

                       1      1

Revenues

BDS revenues in 2019 decreased by $165 million compared with 2018 due to timing
associated with non-U.S. contract awards for fighters and the final C-17 sale in
2018, lower revenue related to charges on Commercial Crew, and lower volume from
certain unmanned and vertical lift programs. These reductions were partially
offset by increases from new programs, including E-7 early warning aircraft,
VC-25B, T-7A Red Hawk, and MQ-25, as well as from satellites and weapons. The
unfavorable impact of cumulative contract catch-up adjustments in 2019 was $163
million higher than the comparable period in the prior year, reflecting
unfavorable adjustments on the Commercial Crew contract and less favorable
performance.
BDS revenues in 2018 increased by $2,454 million compared with 2017 primarily
due to non-US contract awards for fighters, higher weapons revenue, the final
C-17 aircraft sale and higher satellites revenue. The unfavorable impact of
cumulative contract catch-up adjustments in 2018 was $359 million higher than
the comparable period in the prior year, reflecting increased unfavorable
adjustments on the KC-46A Tanker recorded in 2018.
Earnings From Operations
BDS earnings from operations in 2019 increased by $951 million compared with
2018 primarily due to lower net charges on development programs. In 2019, BDS
recorded charges of $143 million compared with $722 million in 2018 related to
the KC-46A Tanker contract. Also during 2019, BDS recorded charges of $489
million compared with $57 million in 2018 related to the Commercial Crew
contract. In 2018, we recorded charges of $691 million related to losses on the
T-7A Red Hawk and MQ-25 contracts. The unfavorable impact of cumulative contract
catch-up adjustments in 2019 was $62 million lower than the comparable period in
the prior year, reflecting lower net unfavorable adjustments on development
programs.
BDS earnings from operations in 2018 decreased by $726 million compared with
2017 as earnings growth from higher revenues was more than offset by the higher
charges on development programs in 2018. In


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2017, BDS recorded charges of $401 million related to the KC-46A Tanker
contract. The unfavorable impact of cumulative contract catch-up adjustments in
2018 was $412 million higher than the comparable period in the prior year,
driven by higher charges on development programs in 2018.
BDS earnings from operations include equity earnings of $128 million, $147
million and $183 million primarily from our ULA and non-U.S. joint ventures in
2019, 2018 and 2017, respectively.
Backlog
Total backlog of $63,908 million at December 31, 2019 increased by 4% from
$61,277 million at December 31, 2018, primarily due to current year contract
awards in many of our programs greater than revenue recognized. Significant
orders included F/A-18 fighters, Space Launch System, P-8A Poseidon, KC-46A
Tanker, and E-7 Airborne Early Warning & Control, partially offset by revenue
recognized on contracts awarded in prior years.
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 priced proposals for new programs.
Examples of significant fixed-price development programs include Commercial
Crew, KC-46A Tanker, T-7A Red Hawk, VC-25B Presidential Aircraft, MQ-25, and
commercial and military satellites. 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. These programs have risk for reach-forward losses if our
estimated costs exceed our estimated contract revenues.
KC-46A Tanker The KC-46A Tanker is a derivative of our 767 commercial aircraft.
In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design,
develop, manufacture and deliver next generation aerial refueling tankers. The
contract contains production options for both low rate initial production (LRIP)
aircraft and full rate production aircraft. Since 2016, the USAF has authorized
five LRIP lots for a total of 67 aircraft. The Engineering, Manufacturing and
Development (EMD) contract and the five authorized LRIP lots are valued at
approximately $15 billion. If all options under the contract are exercised, we
expect to deliver 179 aircraft for a total expected contract value of
approximately $30 billion. In January 2019, we delivered the first KC-46A to the
USAF, and by December 2019, we had delivered a total of 28 aircraft.
During 2017, we recorded reach-forward losses of $445 million related to this
program, primarily reflecting higher estimated costs associated with
certification and incorporating changes into LRIP aircraft. During 2018, we
recorded additional reach-forward losses of $736 million primarily reflecting
higher estimated costs associated with certification, flight testing and change
incorporation on aircraft, as well as higher than expected effort to meet
customer requirements in order to support delivery of the initial aircraft.
During 2019, we recorded additional reach-forward losses of $148 million
reflecting higher manufacturing costs.


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As with any development program, this program remains subject to additional
reach-forward losses and/or delivery delays if we experience further production,
technical or quality issues.
Commercial Crew NASA has contracted us to design and build the CST-100 Starliner
spacecraft to transport crews to the International Space Station. On December
20, 2019 the Starliner launched and successfully landed two days later
completing an abbreviated uncrewed flight test that performed many mission
objectives before returning to Earth as the first orbital land touchdown of a
human-rated capsule in U.S. history. The flight test was abbreviated, however,
because anomalies experienced during the mission prevented docking with the
International Space Station. In the fourth quarter of 2019, we recorded an
increase to the reach-forward loss of $410 million, primarily to provision for
another uncrewed mission. Root cause analysis is underway and NASA is evaluating
the data received during the mission to determine if another uncrewed mission is
required.
T-7A Red Hawk In September 2018, we were selected by the USAF to build the next
generation training capability, known as T-7A Red Hawk (formerly T-X Trainer).
The program includes aircraft and simulators as well as support and ground
equipment. The contract is structured as an indefinite delivery/indefinite
quantity fixed-price contract with a minimum of 206 aircraft and a maximum of
475 aircraft. The EMD contract is a fixed-price contract valued at $813 million
and includes five aircraft and seven simulators, with a period of performance
that runs through 2022. The production and support contracts are structured as
options that begin with authorization from fiscal year 2022 to 2034. In
connection with winning this competition in 2018, we recorded a reach-forward
loss of $400 million associated with anticipated losses on the options for 346
aircraft that we believe are probable of being exercised. During 2019, we
completed the aircraft's critical design review. We believe that our investment
in this contract positions us for additional market opportunities for both
trainer and light attack aircraft.
MQ-25 In August 2018, we were awarded an EMD contract to build the MQ-25 for the
U.S. Navy. The EMD contract is a fixed-price contract that includes development
and delivery of four aircraft and test articles at a contract price of $805
million. In connection with winning this competition, we recognized a
reach-forward loss of $291 million. The period of performance runs from 2018
through 2024. In 2019, we conducted a successful first flight. The MQ-25 is the
U.S. Navy's first operational carrier-based unmanned aircraft, and we believe
that our investment in this contract positions us for long-term leadership in
autonomy and artificial intelligence technologies along with additional market
opportunities.
United Launch Alliance See the discussion of Indemnifications to ULA and
Financing Commitments in Notes 7 and 15 to our Consolidated Financial
Statements.
Sea Launch See the discussion of the Sea Launch receivables in Note 12 to our
Consolidated Financial Statements.
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. We expect the market to grow by
around 3.5% annually.
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.


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Government services market segments are growing on pace with related fleets, but
vary based on the utilization and age of the aircraft. The U.S. government
services market is the single largest individual market, comprising over 50
percent of the government services markets served. Over the next decade, we
expect U.S. growth to remain flat and non-U.S. fleets, led by Middle East and
Asia Pacific customers, to add rotorcraft and commercial derivative aircraft at
the fastest rates. We expect less than 20 percent of the worldwide fleet of
military aircraft to be retired and replaced over the next ten years, driving
increased demand for services to maintain aging aircraft and enhance aircraft
capability.
BGS' major customer, the U.S. government, remains subject to the spending limits
and uncertainty described on page 30, 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,        2019         2018         2017
Revenues                     $18,468      $17,056      $14,611
% of total company revenues       24 %         17 %         16 %
Earnings from operations      $2,697       $2,536       $2,251
Operating margins               14.6 %       14.9 %       15.4 %


Revenues
BGS revenues in 2019 increased by $1,412 million compared with 2018 due to the
acquisition of KLX in the fourth quarter of 2018 and government services
revenue, partially offset by lower commercial services revenue. The favorable
impact of cumulative contract catch-up adjustments in 2019 was $80 million
higher than the comparable period in the prior year.

BGS revenues in 2018 increased by $2,445 million compared with 2017 due to
growth across our services portfolio, primarily driven by higher parts revenue,
including the acquisition of KLX. The favorable impact of cumulative contract
catch-up adjustments in 2018 was $63 million lower than the comparable period in
the prior year.
Earnings From Operations
BGS earnings from operations in 2019 increased by $161 million compared with
2018. The increase in earnings from operations reflects higher revenues, which
was partially offset by less favorable performance and mix. Earnings from
operations for 2019 also includes a divestiture gain of $395 million and a
charge of $293 million related to our decision in the fourth quarter to retire
the Aviall brand and trade name. The favorable impact of cumulative contract
catch-up adjustments in 2019 was $21 million higher than the comparable period
in the prior year.

BGS earnings from operations in 2018 increased by $285 million compared with
2017 primarily due to higher revenues, partially offset by higher period costs.
The favorable impact of cumulative contract catch-up adjustments in 2018 was $25
million lower than the comparable period in the prior year.


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Backlog

BGS total backlog of $22,902 million at December 31, 2019 increased by 9% from
$21,064 million at December 31, 2018, primarily due to current year contract
awards, partially offset by revenue recognized on contracts awarded in prior
years.
Boeing Capital
Business Environment and Trends
BCC's gross customer financing and investment portfolio at December 31, 2019
totaled $2,254 million. A substantial portion of BCC's portfolio is related to
customers that we believe have less than investment-grade credit. BCC's
portfolio is also concentrated by varying degrees across Boeing aircraft product
types, most notably 717 and 747-8 aircraft.
BCC provided customer financing of $419 million and $601 million during 2019 and
2018. While we may be required to fund a number of new aircraft deliveries in
2020 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 2,200 western-built commercial
jet aircraft (8.5% of current world fleet) were parked at the end of 2019,
including both in-production and out-of-production aircraft types. Of these
parked aircraft, approximately 20% are not expected to return to service. At the
end of 2018 and 2017, 6.7% and 8.3% 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.
Results of Operations
(Dollars in millions)
Years ended December 31,  2019      2018      2017
Revenues                  $244      $274      $307
Earnings from operations   $28       $79      $114
Operating margins           11 %      29 %      37 %


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 2019 decreased by $30 million compared with 2018
primarily due to lower gains on the sale of assets. BCC's revenues in 2018
decreased by $33 million compared with 2017 primarily due to lower lease income
driven by a smaller portfolio, partially offset by gains on asset sales.
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 2019
decreased by $51 million primarily due to lower revenues and higher asset
impairment expenses. Earnings from operations in 2018 decreased by $35 million
primarily due to lower revenues.


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Financial Position
The following table presents selected financial data for BCC as of December 31:
(Dollars in millions)                                        2019         

2018

Customer financing and investment portfolio, net           $2,251

$2,790

Other assets, primarily cash and short-term investments 535 717 Total assets

$2,786

$3,507

Other liabilities, primarily deferred income taxes           $432

$523

Debt, including intercompany loans                          1,960        2,487
Equity                                                        394          497
Total liabilities and equity                               $2,786       $3,507

Debt-to-equity ratio                                     5.0-to-1     5.0-to-1



BCC's customer financing and investment portfolio at December 31, 2019 decreased
from December 31, 2018, primarily due to $720 million of note payoffs and
portfolio run-off and $250 million related to the impairment of lease
incentives, partially offset by new volume.
BCC enters into certain transactions with Boeing, 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. The $250 million impairment of lease
incentives did not result in an earnings charge in the BCC segment because of an
intercompany guarantee.
Leased aircraft with a carrying value of approximately $58 million are scheduled
to be returned off lease during 2020. We are seeking to remarket these aircraft
or have the leases extended.
Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Years ended December 31,                                 2019          2018          2017
Net (loss)/earnings                                     ($636 )     $10,460        $8,458
Non-cash items                                          2,819         2,578         2,636
Changes in working capital                             (4,629 )       2,284         2,252

Net cash (used)/provided by operating activities (2,446 ) 15,322

13,346

Net cash used by investing activities                  (1,530 )      (4,621 )      (2,058 )
Net cash provided/(used) by financing activities        5,739       (11,722 )     (11,350 )
Effect of exchange rate changes on cash and cash
equivalents                                                (5 )         (53 

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

                                    1,758        (1,074 )          18
Cash & cash equivalents, including restricted, at
beginning of year                                       7,813         8,887 

8,869

Cash & cash equivalents, including restricted, at
end of year                                            $9,571        $7,813

$8,887

Operating Activities Net cash used by operating activities was $2.4 billion
during 2019, compared with net cash provided by operating activities of $15.3
billion during 2018 and $13.3 billion in 2017. The decrease in operating cash
flows in 2019 primarily reflects the impacts of the 737 MAX grounding that is
resulting


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in lower earnings, higher inventory and lower advances and progress payments. In
addition, compensation payments to 737 MAX customers of $1.2 billion for
disruption to their operations also reduced 2019 cash from operating activities.
Cash used to fund Inventory was $12.4 billion during 2019 as we continued to
produce aircraft while deliveries were suspended. Cash provided by Advances and
progress billings was $0.7 billion in 2019, as compared with $2.6 billion in
2018. In December 2019, we announced plans to temporarily suspend production of
the 737 MAX beginning in January 2020. This will enable us to prioritize the
delivery of stored aircraft. Net cash from operating activities in future
quarters is expected to continue to be adversely impacted by the 737 MAX
grounding.
Discretionary contributions to our pension plans were insignificant in 2019 and
2018. During 2017, our discretionary contributions to our pension plans included
14.4 million shares of our common stock with an aggregate value of $3.5 billion
and $0.5 billion in cash.
Investing Activities Cash used by investing activities during 2019, 2018 and
2017 was $1.5 billion, $4.6 billion and $2.1 billion. The reduction in 2019
compared with 2018 is primarily due to acquisitions completed in the second half
of 2018 and the timing of investments. Acquisitions net of cash acquired were
$0.5 billion in 2019, compared with $3.2 billion in 2018, primarily related to
the acquisition of KLX. Proceeds from dispositions was $0.5 billion in 2019 as a
result of the divestiture of two businesses. Capital expenditures totaled $1.8
billion in 2019, relatively consistent with $1.7 billion in 2018 and 2017. We
expect capital expenditures in 2020 to be relatively consistent with 2019. Net
proceeds from investments was $0.1 billion in 2019, $0.3 billion in 2018, and
was insignificant in 2017.
Financing Activities Cash provided by financing activities was $5.7 billion
during 2019, compared with cash used by financing activities of $11.7 billion in
2018. The increase of $17.5 billion compared with 2018 primarily reflects higher
net borrowings and lower share repurchases, partially offset by higher dividend
payments in 2019. Cash used by financing activities was $11.7 billion during
2018, an increase of $0.4 billion compared with 2017, primarily due to higher
dividend payments partially offset by higher net borrowings. Net borrowings were
$13.2 billion in 2019, $1.4 billion in 2018 and $1.1 billion in 2017.
At December 31, 2019 and 2018 the recorded balance of debt was $27.3 billion and
$13.8 billion of which $7.3 billion and $3.2 billion was classified as
short-term. At December 31, 2019 and 2018 this included $2.0 billion and $2.5
billion of debt attributable to BCC, of which $0.5 billion and $0.5 billion were
classified as short-term.
During 2019 and 2018 we repurchased 6.9 million and 26.1 million shares totaling
$2.7 billion and $9.0 billion through our open market share repurchase program.
In 2019 and 2018, we had 0.6 million shares transferred to us from employees for
tax withholdings. At December 31, 2019, the amount available under the share
repurchase plan, announced on December 17, 2018, totaled $17.3 billion. Share
repurchases under this plan are currently suspended. We increased our quarterly
dividend from $1.71 to $2.055 in December 2018, which resulted in $684 million
of higher dividend payments in 2019 compared with 2018.
Capital Resources We have substantial borrowing capacity. Any future borrowings
may affect our credit ratings and are subject to various debt covenants as
described below. We have a commercial paper program that serves as a source of
short-term liquidity. At December 31, 2019, 2018, and 2017, commercial paper
borrowings totaling $6,109 million, $1,895 million and $600 million,
respectively, which were supported by unused commitments under the revolving
credit agreement. At December 31, 2019, we had $9.6 billion of unused borrowing
capacity on revolving credit line agreements. We anticipate that these credit
lines will primarily serve as backup liquidity to support our general corporate
borrowing needs.
Customer financing commitments totaled $13.4 billion and $19.5 billion at
December 31, 2019 and 2018. The decrease primarily relates to financing
commitment expirations and terminations. 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


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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.
As previously announced, we plan to acquire an 80% ownership stake in a joint
venture comprised of the commercial aircraft and services operations of Embraer
for $4.2 billion. We expect the transaction to close in the first half of 2020.
In the event we require additional funding to support strategic business
opportunities, our commercial aircraft financing commitments, unfavorable
resolution of litigation or other loss contingencies, or other business
requirements, including impacts related to the 737 MAX grounding, we expect to
meet increased funding requirements by issuing commercial paper or term debt. We
believe our ability to access external capital resources should be sufficient to
satisfy existing short-term and long-term commitments and plans, and also to
provide adequate financial flexibility to take advantage of potential strategic
business opportunities should they arise within the next year. However, there
can be no assurance of the cost or availability of future borrowings under our
commercial paper program or in the debt markets.
As of January 31, 2020, we have received commitments from a syndicate of banks
sufficient for us to enter into a $12 billion delayed draw two-year term loan
credit facility. This facility may be increased at the Company's option if the
facility is oversubscribed. The facility will enhance our liquidity and is
expected to close in February 2020.
At December 31, 2019 and 2018, our pension plans were $15.9 billion and $15.3
billion underfunded as measured under GAAP. On an Employee Retirement Income
Security Act (ERISA) basis our plans are more than 100% funded at December 31,
2019. We do not expect to make significant contributions to our pension plans in
2020. We may be required to make higher contributions to our pension plans in
future years.
At December 31, 2019, 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).
When considering debt covenants, we continue to have substantial borrowing
capacity.


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Contractual Obligations
The following table summarizes our known obligations to make future payments
pursuant to certain contracts as of December 31, 2019, and the estimated timing
thereof.
                                                         Less
                                                       than 1           1-3           3-5       After 5
(Dollars in millions)                     Total          year         years         years         years
Long-term debt (including current
portion)                                $27,476        $7,306        $2,698        $1,780       $15,692
Interest on debt                         12,408           803         1,479         1,341         8,785
Pension and other postretirement
cash requirements                         9,717           621         1,307         3,719         4,070
Finance lease obligations                   238            71            98            26            43
Operating lease obligations               1,574           287           429           249           609
Purchase obligations not recorded on
the Consolidated Statements of
Financial Position                      115,411        52,685        33,550        19,246         9,930
Purchase obligations recorded on the
Consolidated Statements of Financial
Position                                 22,315        20,867         1,423             3            22
Acquisition not recorded on the
Consolidated Statements of Financial
Position (2)                              4,200         4,200

Total contractual obligations (1) $193,339 $86,840 $40,984

$26,364 $39,151

(1) Excludes income tax matters. As of December 31, 2019, our net liability for

income taxes payable, including uncertain tax positions of $1,409 million,

was $1,262 million. Aside from $670 million of income taxes payable expected

to be paid in 2020, we are not able to reasonably estimate the timing of

future cash flows related to the remaining net liability for income taxes

     payable. For further discussion of income taxes, see Note 5 to our
     Consolidated Financial Statements.

(2) We plan to acquire an 80% ownership stake in a joint venture comprised of

the commercial aircraft and services operations of Embraer. For additional

information, see Note 2 to our Consolidated Financial Statements.

Pension and Other Postretirement Benefits Pension cash requirements are based on
an estimate of our minimum funding requirements, pursuant to 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.
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.


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Purchase Obligations 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 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 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.
Industrial Participation Agreements We have entered into various industrial
participation agreements with certain customers outside of the U.S. to
facilitate economic flow back and/or technology or skills transfer to their
businesses or government agencies as the result of their procurement of goods
and/or services from us. These commitments may be satisfied by our local
operations there, placement of direct work or vendor orders for supplies,
opportunities to bid on supply contracts, transfer of technology or other forms
of assistance. However, in certain cases, our commitments may be satisfied
through other parties (such as our vendors) who purchase supplies from our
non-U.S. customers. In certain cases, penalties could be imposed if we do not
meet our industrial participation commitments. During 2019, we incurred no such
penalties. As of December 31, 2019, we have outstanding industrial participation
agreements totaling $24.8 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.
Commercial Commitments
The following table summarizes our commercial commitments outstanding as of
December 31, 2019.
                                             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                                        $3,769         $1,657       $1,224         $180         $708
Commercial aircraft financing
commitments                                         13,377          3,506        4,324        3,570        1,977
Total commercial commitments                       $17,146         $5,163

$5,548 $3,750 $2,685

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. Based on historical
experience, we anticipate that we will not be required to fund a significant
portion of our financing commitments. However, there can be no assurances that
we will not be required to fund greater amounts than historically required. See
Note 14 to our Consolidated Financial Statements.


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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 22 to our Consolidated Financial
Statements.
Environmental Remediation We are involved with various environmental remediation
activities and have recorded a liability of $570 million at December 31, 2019.
For additional information, see Note 14 to our Consolidated Financial
Statements.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain
guarantees. For discussion of these arrangements, see Note 15 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 Generally
Accepted Accounting Principles in the United States of America (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/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 earnings per share
excludes both the FAS/CAS service cost adjustment and non-operating pension and
postretirement expenses. Non-operating pension and postretirement expenses
represent the components of net periodic benefit costs other than service cost.
Pension costs, comprising service and prior service costs computed in accordance
with GAAP are allocated to BCA and certain BGS businesses supporting commercial
customers. Pension costs allocated to BDS and BGS businesses supporting
government customers are computed in accordance with U.S. Government Cost
Accounting Standards (CAS), which employ different actuarial assumptions and
accounting conventions than GAAP. CAS costs are allocable to government
contracts. Other postretirement benefit costs are allocated to all business
segments based on CAS, which is generally based on benefits paid.
The Pension FAS/CAS service cost adjustment recognized in (loss)/earnings from
operations during 2019 was a benefit of $1,071 million, largely consistent with
a benefit of $1,005 million in 2018 and $1,127 million in 2017. The
non-operating pension expense included in Other income, net was a benefit of
$374 million in 2019, $143 million in 2018 and $117 million in 2017. The
benefits in 2019, 2018, and 2017 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 22 of this Form 10-K and see Note
23 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


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pension and other postretirement benefit cost, primarily represent costs driven
by market factors and costs not allocable to U.S. government contracts.
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,                               2019            2018 

2017

Revenues                                            $76,559        $101,127

$94,005

(Loss)/earnings from operations, as reported ($1,975 ) $11,987

$10,344

Operating margins                                      (2.6 )%         11.9 

% 11.0 %

Pension FAS/CAS service cost adjustment(1)          ($1,071 )       ($1,005 )      ($1,127 )
Postretirement FAS/CAS service cost
adjustment(1)                                         ($344 )         ($322 )        ($311 )
FAS/CAS service cost adjustment(1)                  ($1,415 )       ($1,327 )      ($1,438 )
Core operating (loss)/earnings (non-GAAP)           ($3,390 )       $10,660

$8,906

Core operating margins (non-GAAP)                      (4.4 )%         10.5 

% 9.5 %

Diluted (loss)/earnings per share, as reported ($1.12 ) $17.85

$13.85

Pension FAS/CAS service cost adjustment(1)           ($1.89 )        ($1.71 )       ($1.84 )
Postretirement FAS/CAS service cost
adjustment(1)                                        ($0.61 )        ($0.55 )       ($0.51 )
Non-operating pension expense(2)                     ($0.66 )        ($0.24 )       ($0.19 )
Non-operating postretirement expense(2)               $0.19           $0.17

$0.20

Provision for deferred income taxes on
adjustments (3)                                       $0.62           $0.49

$0.82

Core (loss)/earnings per share (non-GAAP)            ($3.47 )        $16.01

$12.33

Weighted average diluted shares (in millions)         566.0           586.2 

610.7

(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)/earnings (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)/earnings per

     share (non-GAAP).


(3)  The income tax impact is calculated using the U.S. corporate statutory tax
     rate.




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Critical Accounting Policies & Estimates
Accounting for long-term contracts
Substantially all contracts at BDS and certain contracts at BGS are long-term
contracts. Our long-term contracts typically represent a single distinct
performance obligation due to the highly interdependent and interrelated nature
of the underlying goods and/or services and the significant service of
integration that we provide.
Accounting for long-term contracts involves a judgmental process of estimating
the total sales, costs, and profit for each performance obligation. Cost of
sales is recognized as incurred and revenue is determined by adding a
proportionate amount of the estimated profit to the amount reported as cost of
sales.
Due to the size, duration and nature of many of our long-term contracts, the
estimation of total sales and costs through completion is complicated and
subject to many variables. Total sales estimates are based on negotiated
contract prices and quantities, modified by our assumptions regarding contract
options, change orders, incentive and award provisions associated with technical
performance, and price adjustment clauses (such as inflation or index-based
clauses). The majority of these long-term contracts are with the U.S. government
where the price is generally based on estimated cost to produce the product or
service plus profit. Federal Acquisition Regulations provide guidance on the
types of cost that will be reimbursed in establishing contract price. Total cost
estimates are largely based on negotiated or estimated purchase contract terms,
historical performance trends, business base and other economic projections.
Factors that influence these estimates include inflationary trends, technical
and schedule risk, internal and subcontractor performance trends, business
volume assumptions, asset utilization, and anticipated labor agreements.
Revenue and cost estimates for all significant long-term contract performance
obligations are reviewed and reassessed quarterly. Changes in these estimates
could result in recognition of cumulative catch-up adjustments to the
performance obligation's inception to date revenues, cost of sales and profit,
in the period in which such changes are made. Changes in revenue and cost
estimates could also result in a reach-forward loss or an adjustment to a
reach-forward loss, which would be recorded immediately in earnings. For the
years ended December 31, 2019 and 2018 net unfavorable cumulative catch-up
adjustments, including reach-forward losses, across all long-term contracts
decreased Earnings from operations by $111 million and $190 million. For the
year ended December 31, 2017, net favorable cumulative catch-up adjustments,
including reach-forward losses, across all long-term contracts increased
Earnings from operations by $250 million.
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 margin for all long-term contract performance obligations for all
of 2019 had been estimated to be higher or lower by 1%, it would have increased
or decreased pre-tax income for the year by approximately $330 million. In
addition, a number of our fixed price development contracts are in a
reach-forward loss position. Changes to estimated losses are recorded
immediately in earnings.


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Program Accounting
Program accounting requires the demonstrated ability to reliably estimate the
relationship of sales to costs 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 of
the revenue and cost of existing and anticipated contracts. For each program,
the amount reported as cost of sales is determined by applying the estimated
cost of sales percentage for the total remaining program to the amount of sales
recognized for airplanes delivered and accepted by the customer.
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, 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. Changes in estimates are
normally recognized on a prospective basis; however, when estimated costs to
complete a program exceed estimated revenues from undelivered units in the
accounting quantity, a loss provision is recorded in the current period for the
estimated loss on all undelivered units in the accounting quantity.
The program method of accounting allocates tooling and other non-recurring and
production costs over the accounting quantity for each program. Because of the
higher unit production costs experienced at the beginning of a new program and
substantial investment required for initial tooling and other non-recurring
costs, new commercial aircraft programs, such as the 777X program, typically
have lower initial margins than established programs. In addition, actual costs
incurred for earlier units in excess of the estimated average cost of all units
in the program accounting quantity are included within program inventory as
deferred production costs. Deferred production, unamortized tooling and other
non-recurring costs are expected to be fully recovered when all units in the
accounting quantity are delivered as the expected unit cost for later deliveries
is below the estimated average cost as learning curve and other improvements are
realized.
Due to the significance of judgment in the estimation process described above,
it is reasonably possible that changes in underlying circumstances or
assumptions could have a material effect on program gross margins. If the
combined gross margin percentages for our commercial airplane programs had been
estimated to be 1% higher or lower it would have an approximately $400 million
impact on operating earnings for the year ended December 31, 2019.
737 MAX Grounding
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to
suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft
operators following two fatal 737 MAX accidents. Non-U.S. civil aviation
authorities have issued directives to the same effect. The grounding is having a
significant adverse impact on our operations and creates significant
uncertainty.


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Multiple legal actions have been filed against us as a result of the October 29,
2018 accident of Lion Air Flight 610 and the March 10, 2019 accident of
Ethiopian Airlines Flight 302. Further, we are fully cooperating with all
ongoing governmental and regulatory investigations and inquiries relating to the
accidents and the 737 MAX, including investigations by the U.S. Department of
Justice and the Securities and Exchange Commission. We cannot reasonably
estimate a range of loss, if any, not covered by available insurance that may
result given the ongoing status of these lawsuits, investigations, and
inquiries. We have also experienced claims and/or assertions from customers and
suppliers in connection with the grounding. As a result of the grounding, we
reduced the 737 production rate from 52 per month to 42 per month in 2019 and in
December 2019, we announced plans to temporarily suspend 737 production
beginning in January 2020. We have concluded that the suspension of production
and the gradual resumption of production at low production rates will result in
abnormal production costs which will be expensed when incurred rather than
inventoried. Prior to the grounding, we had planned to increase the production
rate to 57 per month in 2019.
In the preparation of our financial statements, we have made assumptions
regarding outcomes of accident investigations and other government inquiries,
timing and conditions of return to service, the duration of the 737 MAX
production suspension and timing of future 737 production rate increases,
supplier readiness to support production rate changes, timing and sequence of
future customer deliveries as well as outcomes of negotiations with customers
impacted by the grounding. We have also made significant assumptions regarding
estimated costs expected to be incurred in 2020 and 2021 that should be included
in program inventory and those costs that should be expensed when incurred as
abnormal production costs. While these assumptions reflect our best estimate at
this time, they are highly uncertain and significantly affect the estimates
inherent in our financial statements.
The FAA and other non-U.S. civil aviation authorities will determine the timing
and conditions of the 737 MAX return to service in each relevant jurisdiction.
We have assumed that regulatory approval of the 737 MAX will enable deliveries
to resume during mid-2020. We have also assumed that, as a condition of return
to service, regulators will require 737 MAX pilots to undergo computer and
simulator training. We have assumed that we will resume 737 MAX aircraft
production at low rates in 2020 as timing and conditions of return to service
are better understood, and then we expect to gradually increase to previously
planned production rates over the next few years. We are also assuming that 737
MAX airplanes produced during the grounding and included within inventory will
be delivered over several quarters with the majority of them delivering during
the first year after the resumption of deliveries. The cumulative impacts of
changes to assumptions regarding timing of return to service and timing of
planned production rates have increased the estimated costs to produce aircraft
included in the current accounting quantity by approximately $6.3 billion, which
will be recorded in program inventory. In addition, the suspension of 737 MAX
production and lower production rates is expected to result in approximately
$4.0 billion of abnormal production costs in 2020 and 2021 that will be expensed
as incurred. The increases in the estimated costs accounted for as program
inventory will reduce 737 program and overall BCA segment operating margins in
future periods after deliveries resume. Production costs incurred while
production is suspended and a portion of production costs incurred while we
gradually increase production rates to a normal level will be expensed as
incurred as abnormal costs and will not be included in program inventory. We may
face additional costs, delays in regulatory approval of the 737 MAX and/or the
resumption of deliveries, and/or further delays in planned production rate
increases which may result in further increases in program costs and/or abnormal
production costs.
We recorded an earnings charge and corresponding liability of $6.1 billion, in
the second quarter of 2019, in connection with an estimate of potential
concessions and other considerations to customers for disruptions related to the
737 MAX grounding and associated delivery delays. The second quarter estimate of
$6.1 billion was updated in the third and fourth quarters of 2019. The remaining
liability of $7.4 billion at December 31, 2019 represents our current best
estimate of future concessions and other considerations we expect to provide to
customers. This estimate relies on the exercise of judgment by management and is
significantly impacted by the assumptions described above, as well as the status
of negotiations with


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our customers. Any delays in our ability to resume deliveries, prolonged
production suspension, further disruptions to our production system, supplier
claims or assertions, or changes to estimated concessions and other
considerations we expect to provide to customers could have a material adverse
effect on our financial position, results of operations, and/or cash flows.
Goodwill and Indefinite-Lived Intangible Impairments
We test goodwill for impairment by performing a qualitative assessment or using
a two-step impairment process. 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 operations. 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 related operations, the two-step impairment process is then performed;
otherwise, no further testing is required. For operations where the two-step
impairment process is used, we first compare the book value of net assets to the
fair value of the related operations. If the fair value is determined to be less
than book value, a second step is performed to compute the amount of the
impairment. In this process, a fair value for goodwill is estimated, based in
part on the fair value of the operations, and is compared to its carrying value.
The shortfall of the fair value below carrying value represents the amount of
goodwill impairment.
We estimate the fair values of the related operations using discounted cash
flows. Forecasts of future cash flows are based on our best estimate of future
sales and operating costs, based primarily on existing firm orders, expected
future orders, 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 assessment of goodwill as of April 1, 2019 and determined that
there is no impairment of goodwill. As of December 31, 2019, we estimated that
the fair value of each reporting unit significantly exceeded its corresponding
carrying value. Changes in our forecasts, or decreases in the value of our
common stock could cause book values of certain operations to exceed their fair
values which may result in goodwill impairment charges in future periods.
As of December 31, 2018, we had $490 million of indefinite-lived intangible
assets related to the Jeppesen and Aviall brand and trade names acquired in
business combinations. During 2019, we changed the name of the Aviall business
to Boeing Distribution Inc. and, in the fourth quarter, decided to retire the
Aviall brand and trade name. As a result we recorded an earnings charge of $293
million to write-off the Aviall indefinite-lived intangible asset. Accordingly,
as of December 31, 2019, we had an indefinite-lived intangible asset with a
carrying value of $197 million related to the Jeppesen brand and trade name.
We test these intangibles for impairment by comparing their carrying value to
current projections of discounted cash flows attributable to the brand and trade
names. Any excess carrying value over the amount of discounted cash flows
represents the amount of the impairment. A 10% decrease in the discounted cash
flows would not impact the carrying value of the Jeppesen indefinite-lived
intangible asset.


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Pension Plans
The majority of our employees have earned benefits under defined benefit pension
plans. Nonunion and the majority of union employees that had participated in
defined benefit pension plans transitioned to a company-funded defined
contribution retirement savings plan in 2016. Additional union employees
transitioned to company-funded defined contribution retirement savings plans
effective January 1, 2019. Accounting rules require an annual measurement of our
projected obligation and plan assets. These measurements are based upon several
assumptions, including the discount rate and the expected long-term rate of
asset return. Future changes in assumptions or differences between actual and
expected outcomes can significantly affect our future annual expense, projected
benefit obligation and Shareholders' equity.
The following table shows the sensitivity of our pension plan liability and net
periodic cost to a 25 basis point change in the discount rate as of December 31,
2019.
                              Change in discount rate      Change in discount rate
(Dollars in millions)                 Increase 25 bps              Decrease 25 bps
Pension plans
Projected benefit obligation                  ($2,231 )                     $2,778
Net periodic pension cost                         (10 )                         20


Pension cost is also 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 2019 net
periodic pension cost by $149 million.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have financial instruments that are subject to interest rate risk,
principally fixed-rate debt obligations, and customer financing assets and
liabilities. Historically, we have not experienced material gains or losses on
our customer financing assets and liabilities due to interest rate changes. As
of December 31, 2019, the impact over the next 12 months of a 100 basis point
rise in interest rates to our pre-tax earnings would not be significant. The
investors in our fixed-rate debt obligations do not generally have the right to
demand we pay off these obligations prior to maturity. Therefore, exposure to
interest rate risk is not believed to be material for our fixed-rate debt.
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk relating to receipts from
customers and payments to suppliers in foreign currencies. We use foreign
currency forward contracts to hedge the price risk associated with firmly
committed and forecasted foreign denominated payments and receipts related to
our ongoing business. Foreign currency forward contracts are sensitive to
changes in foreign currency exchange rates. At December 31, 2019, a 10% increase
or decrease in the exchange rate in our portfolio of foreign currency contracts
would have increased or decreased our unrealized losses by $226 million.
Consistent with the use of these contracts to neutralize the effect of exchange
rate fluctuations, such unrealized losses or gains would be offset by
corresponding gains or losses, respectively, in the remeasurement of the
underlying transactions being hedged. When taken together, these forward
currency contracts and the offsetting underlying commitments do not create
material market risk.


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Commodity Price Risk
We are subject to commodity price risk relating to commodity purchase contracts
for items used in production that are subject to changes in the market price. We
use commodity swaps to hedge against these potentially unfavorable price
changes. Our commodity purchase contracts and derivatives are both sensitive to
changes in the market price. At December 31, 2019, a 10% increase or decrease in
the market price in our commodity derivatives would have increased or decreased
our unrealized losses by $63 million. Consistent with the use of these contracts
to neutralize the effect of market price fluctuations, such unrealized losses or
gains would be offset by corresponding gains or losses, respectively, in the
remeasurement of the underlying transactions being hedged. When taken together,
these commodity purchase contracts and the offsetting swaps do not create
material market risk.



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Item 8. Financial Statements and Supplementary Data

                 Index to the Consolidated Financial Statements

Page

  Consolidated Statements of Operations                                     

51

  Consolidated Statements of Comprehensive Income                           

52

  Consolidated Statements of Financial Position                             

53

  Consolidated Statements of Cash Flows                                     

54

  Consolidated Statements of Equity                                         

55

  Summary of Business Segment Data                                          

56

  Note 1 - Summary of Significant Accounting Policies                       

57

  Note 2 - Acquisitions and Joint Ventures

69

  Note 3 - Goodwill and Acquired Intangibles                                

71

  Note 4 - Earnings Per Share                                               

72

  Note 5 - Income Taxes                                                     

73

  Note 6 - Accounts Receivable                                              

76

  Note 7 - Inventories                                                      

77

  Note 8 - Contracts with Customers                                         

78

  Note 9 - Customer Financing                                               

78

  Note 10 - Property, Plant and Equipment                                     81
  Note 11 - Investments                                                       82
  Note 12 - Other Assets                                                      82
  Note 13 - Leases                                                            83
  Note 14 - Liabilities, Commitments and Contingencies                      

84

  Note 15 - Arrangements with Off-Balance Sheet Risk                        

89

  Note 16 - Debt                                                            

90

  Note 17 - Postretirement Plans                                            

92

Note 18 - Share-Based Compensation and Other Compensation Arrangements

101

  Note 19 - Shareholders' Equity                                            

105

  Note 20 - Derivative Financial Instruments                                

106

  Note 21 - Fair Value Measurements                                         

109

  Note 22 - Legal Proceedings                                               

111

  Note 23 - Segment and Revenue Information                                 

111

  Note 24 - Quarterly Financial Data                                        

117

  Reports of Independent Registered Public Accounting Firm                   118




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                      The Boeing Company and Subsidiaries
                     Consolidated Statements of Operations
(Dollars in millions, except per share data)
Years ended December 31,                          2019         2018         2017
Sales of products                              $66,094      $90,229      $83,740
Sales of services                               10,465       10,898       10,265
Total revenues                                  76,559      101,127       94,005

Cost of products                               (62,877 )    (72,922 )    (68,879 )
Cost of services                                (9,154 )     (8,499 )     (7,663 )
Boeing Capital interest expense                    (62 )        (69 )        (70 )
Total costs and expenses                       (72,093 )    (81,490 )    (76,612 )
                                                 4,466       19,637       17,393

(Loss)/income from operating investments, net (4 ) 111

204

General and administrative expense              (3,909 )     (4,567 )     (4,095 )
Research and development expense, net           (3,219 )     (3,269 )     (3,179 )
Gain on dispositions, net                          691           75         

21

(Loss)/earnings from operations                 (1,975 )     11,987       10,344
Other income, net                                  438           92          123
Interest and debt expense                         (722 )       (475 )       (360 )
(Loss)/earnings before income taxes             (2,259 )     11,604       

10,107

Income tax benefit/(expense)                     1,623       (1,144 )     (1,649 )
Net (loss)/earnings                              ($636 )    $10,460

$8,458

Basic (loss)/earnings per share                 ($1.12 )     $18.05

$14.03

Diluted (loss)/earnings per share               ($1.12 )     $17.85

$13.85

See Notes to the Consolidated Financial Statements on pages 56 - 117.

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The Boeing Company and Subsidiaries
                Consolidated Statements of Comprehensive Income

(Dollars in millions)
Years ended December 31,                                    2019          2018         2017
Net (loss)/earnings                                        ($636 )     $10,460       $8,458
Other comprehensive income/(loss), net of tax:
Currency translation adjustments                             (27 )         

(86 ) 128 Unrealized gain on certain investments, net of tax of $0, ($1) and ($1)

                                              1             2            1

Derivative instruments: Unrealized (loss)/gain arising during period, net of tax of $13, $40, and ($66)

                                   (48 )        

(146 ) 119 Reclassification adjustment for loss included in net earnings, net of tax of ($7), ($8), and ($28)

                 26            30           52
Total derivative instruments, net of tax                     (22 )        (116 )        171
Defined benefit pension plans & other postretirement
benefits:
Net actuarial (loss)/gain arising during the period,
net of tax of $405, ($105), and $248                      (1,413 )         384         (495 )
Amortization of actuarial losses included in net
periodic pension cost, net of tax of ($133), ($242),
and ($272)                                                   464           

878 542 Settlements and curtailments included in net income, net of tax of $0, ($2), and $0

8

Pension and postretirement benefit/(cost) related to our equity method investments, net of tax ($5), ($6), and $5

                                                        17            22          (11 )
Amortization of prior service credits included in net
periodic pension cost, net of tax of $25, $39, and $59       (89 )        (143 )       (117 )
Prior service (credit)/cost arising during the period,
net of tax of $0, ($94), and ($14)                            (1 )         341           28
Total defined benefit pension plans & other
postretirement benefits, net of tax                       (1,022 )       1,490          (53 )
Other comprehensive (loss)/income, net of tax             (1,070 )       1,290          247
Comprehensive loss related to noncontrolling interests       (41 )         (21 )         (2 )
Comprehensive (loss)/income, net of tax                  ($1,747 )     

$11,729 $8,703

See Notes to the Consolidated Financial Statements on pages 56 - 117.

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                      The Boeing Company and Subsidiaries
                 Consolidated Statements of Financial Position
(Dollars in millions, except per share data)
December 31,                                                        2019           2018
Assets
Cash and cash equivalents                                         $9,485         $7,637
Short-term and other investments                                     545            927
Accounts receivable, net                                           3,266          3,879
Unbilled receivables, net                                          9,043         10,025
Current portion of customer financing, net                           162            460
Inventories                                                       76,622         62,567
Other current assets                                               3,106          2,335
Total current assets                                             102,229         87,830
Customer financing, net                                            2,136          2,418
Property, plant and equipment, net                                12,502    

12,645

Goodwill                                                           8,060    

7,840

Acquired intangible assets, net                                    3,338          3,429
Deferred income taxes                                                683            284
Investments                                                        1,092          1,087
Other assets, net of accumulated amortization of $580 and
$503                                                               3,585          1,826
Total assets                                                    $133,625       $117,359
Liabilities and equity
Accounts payable                                                 $15,553        $12,916
Accrued liabilities                                               22,868         14,808
Advances and progress billings                                    51,551    

50,676

Short-term debt and current portion of long-term debt              7,340          3,190
Total current liabilities                                         97,312         81,590
Deferred income taxes                                                413          1,736
Accrued retiree health care                                        4,540          4,584
Accrued pension plan liability, net                               16,276         15,323
Other long-term liabilities                                        3,422          3,059
Long-term debt                                                    19,962         10,657

Shareholders' equity: Common stock, par value $5.00 - 1,200,000,000 shares authorized; 1,012,261,159 shares issued

                            5,061          5,061
Additional paid-in capital                                         6,745          6,768
Treasury stock, at cost                                          (54,914 )      (52,348 )
Retained earnings                                                 50,644         55,941
Accumulated other comprehensive loss                             (16,153 )      (15,083 )
Total shareholders' equity                                        (8,617 )          339
Noncontrolling interests                                             317             71
Total equity                                                      (8,300 )          410
Total liabilities and equity                                    $133,625

$117,359

See Notes to the Consolidated Financial Statements on pages 56 - 117.

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                      The Boeing Company and Subsidiaries
                     Consolidated Statements of Cash Flows
(Dollars in millions)
Years ended December 31,                                     2019          2018         2017
Cash flows - operating activities:
Net (loss)/earnings                                         ($636 )     $10,460       $8,458
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Non-cash items -
Share-based plans expense                                     212           202          202
Depreciation and amortization                               2,271         2,114        2,047
Investment/asset impairment charges, net                      443            93          113
Customer financing valuation adjustments                      250            (3 )          2
Gain on dispositions, net                                    (691 )         (75 )        (21 )
Other charges and credits, net                                334           247          293
Changes in assets and liabilities -
Accounts receivable                                           603          (795 )       (840 )
Unbilled receivables                                          982        (1,826 )     (1,600 )
Advances and progress billings                                737         2,636        4,700
Inventories                                               (12,391 )         568       (1,403 )
Other current assets                                         (682 )          98          (19 )
Accounts payable                                            1,600             2          130
Accrued liabilities                                         7,781         1,117          335
Income taxes receivable, payable and deferred              (2,476 )        (180 )        656
Other long-term liabilities                                  (621 )          87           94
Pension and other postretirement plans                       (777 )        (153 )       (582 )
Customer financing, net                                       419           120        1,041
Other                                                         196           610         (260 )
Net cash (used)/provided by operating activities           (2,446 )      15,322       13,346
Cash flows - investing activities:
Property, plant and equipment additions                    (1,834 )      (1,722 )     (1,739 )
Property, plant and equipment reductions                      334           120           92
Acquisitions, net of cash acquired                           (455 )      (3,230 )       (324 )
Proceeds from dispositions                                    464
Contributions to investments                               (1,658 )      (2,607 )     (3,569 )
Proceeds from investments                                   1,759         2,898        3,607
Purchase of distribution rights                              (127 )         (69 )       (131 )
Other                                                         (13 )         (11 )          6
Net cash used by investing activities                      (1,530 )      (4,621 )     (2,058 )
Cash flows - financing activities:
New borrowings                                             25,389         8,548        2,077
Debt repayments                                           (12,171 )      (7,183 )       (953 )
Contributions from noncontrolling interests                     7           

35

Stock options exercised                                        58            81          311
Employee taxes on certain share-based payment
arrangements                                                 (248 )        (257 )       (132 )
Common shares repurchased                                  (2,651 )      (9,000 )     (9,236 )
Dividends paid                                             (4,630 )      (3,946 )     (3,417 )
Other                                                         (15 )
Net cash provided/(used) by financing activities            5,739       (11,722 )    (11,350 )
Effect of exchange rate changes on cash and cash
equivalents                                                    (5 )         

(53 ) 80 Net increase/(decrease) in cash & cash equivalents, including restricted

                                        1,758        (1,074 )         18
Cash & cash equivalents, including restricted, at
beginning of year                                           7,813         

8,887 8,869 Cash & cash equivalents, including restricted, at end of year

                                                        9,571         

7,813 8,887 Less restricted cash & cash equivalents, included in Investments

                                                    86           176           74
Cash and cash equivalents at end of year                   $9,485

$7,637 $8,813

See Notes to the Consolidated Financial Statements on pages 56 - 117.

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                      The Boeing Company and Subsidiaries
                       Consolidated Statements of Equity
                                                          Boeing shareholders
                                                                                        Accumulated
                                               Additional                                     Other            Non-

(Dollars in millions, except per Common Paid-In Treasury Retained Comprehensive controlling share data)

                           Stock       Capital        Stock    Earnings             Loss        Interest       Total
Balance at January 1, 2017           $5,061        $4,762     ($36,097 )   $41,754         ($13,623 )           $60      $1,917
Net earnings/(loss)                                                          8,458                               (2 )     8,456
Impact of ASU 2018-02                                                        2,997           (2,997 )                         -
Other comprehensive income, net of                                                              247                         247
tax of ($69)
Share-based compensation and                          238                      (35 )                                        203
related dividend equivalents
Treasury shares issued for stock                      (88 )        399                                                      311
options exercised, net
Treasury shares issued for other                     (190 )         62                                                     (128 )
share-based plans, net
Treasury shares contributed to                      2,082        1,418                                                    3,500
pension plans
Common shares repurchased                                       (9,236 )                                                 (9,236 )
Cash dividends declared ($5.97 per                                          (3,556 )                                     (3,556 )
share)
Changes in noncontrolling                                                                                        (1 )        (1 )
interests
Balance at December 31, 2017         $5,061        $6,804     ($43,454 )   $49,618         ($16,373 )           $57      $1,713
Net earnings/(loss)                                                         10,460                              (21 )    10,439
Other comprehensive income, net of                                                            1,290                       1,290
tax of ($379)
Share-based compensation and                          238                      (36 )                                        202
related dividend equivalents
Treasury shares issued for stock                      (45 )        126                                                       81
options exercised, net
Treasury shares issued for other                     (229 )        (20 )                                                   (249 )
share-based plans, net
Common shares repurchased                                       (9,000 )                                                 (9,000 )
Cash dividends declared ($7.19 per                                          (4,101 )                                     (4,101 )
share)
Changes in noncontrolling                                                                                        35          35
interests
Balance at December 31, 2018         $5,061        $6,768     ($52,348 )   $55,941         ($15,083 )           $71        $410
Net earnings/(loss)                                                           (636 )                            (41 )      (677 )
Other comprehensive income, net of                                                                                       (1,070 )
tax of $298                                                                                  (1,070 )
Share-based compensation and                                                                                                212
related dividend equivalents                          245                      (33 )
Treasury shares issued for stock                                                                                             57
options exercised, net                                (47 )        104
Treasury shares issued for other                                                                                           (240 )
share-based plans, net                               (221 )        (19 )
Common shares repurchased                                       (2,651 )                                                 (2,651 )
Cash dividends declared ($8.22 per                                                                                       (4,628 )
share)                                                                      (4,628 )
Changes in noncontrolling                                                                                                   287
interests                                                                                                       287

Balance at December 31, 2019 $5,061 $6,745 ($54,914 ) $50,644 ($16,153 ) $317 ($8,300 )

See Notes to the Consolidated Financial Statements on pages 56 - 117.

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                      The Boeing Company and Subsidiaries
                 Notes to the Consolidated Financial Statements
                        Summary of Business Segment Data

(Dollars in millions)
Years ended December 31,                      2019          2018         2017
Revenues:
Commercial Airplanes                       $32,255       $57,499      $54,612
Defense, Space & Security                   26,227        26,392       23,938
Global Services                             18,468        17,056       14,611
Boeing Capital                                 244           274          307

Unallocated items, eliminations and other (635 ) (94 ) 537 Total revenues

$76,559      $101,127

$94,005

(Loss)/earnings from operations:
Commercial Airplanes                       ($6,657 )      $7,830       $5,285
Defense, Space & Security                    2,608         1,657        2,383
Global Services                              2,697         2,536        2,251
Boeing Capital                                  28            79          114
Segment operating (loss)/profit             (1,324 )      12,102       

10,033

Unallocated items, eliminations and other (2,066 ) (1,442 ) (1,127 ) FAS/CAS service cost adjustment

              1,415         1,327        

1,438

(Loss)/earnings from operations             (1,975 )      11,987       10,344
Other income, net                              438            92          123
Interest and debt expense                     (722 )        (475 )       (360 )
(Loss)/earnings before income taxes         (2,259 )      11,604       10,107
Income tax benefit/(expense)                 1,623        (1,144 )     (1,649 )
Net (loss)/earnings                          ($636 )     $10,460       $8,458

This information is an integral part of the Notes to the Consolidated Financial Statements. See Note 23 for further segment results.

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                      The Boeing Company and Subsidiaries
                 Notes to the Consolidated Financial Statements
                  Years ended December 31, 2019, 2018 and 2017
                  (Dollars in millions, except per share data)
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements included in this report have been prepared
by management of The Boeing Company (herein referred to as "Boeing," the
"Company," "we," "us," or "our"). These statements include the accounts of all
majority-owned subsidiaries and variable interest entities that are required to
be consolidated. All significant intercompany accounts and transactions have
been eliminated. As described in Note 23, we operate in four reportable
segments: Commercial Airplanes (BCA); Defense, Space & Security (BDS), Global
Services (BGS), and Boeing Capital (BCC). Effective at the beginning of 2019,
all revenues and costs associated with military derivative aircraft production
are reported in the BDS segment. Amounts in prior periods have been reclassified
to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Operating Cycle
For classification of certain current assets and liabilities, we use the
duration of the related contract or program as our operating cycle, which is
generally longer than one year.
Standards Issued and Implemented
In the first quarter of 2019, we adopted Accounting Standards Update (ASU)
2016-02, Leases (Topic 842) and recognized on our Consolidated Statement of
Financial Position $1,064 of lease liabilities with corresponding right-of-use
assets for operating leases. Our accounting for finance leases and lessor
contracts remains substantially unchanged. The standard has no impact to cash
provided or used by operating, investing, or financing activities on our
Consolidated Statements of Cash Flows. As permitted under the standard, we
elected prospective application of the new guidance and prior periods continue
to be presented in accordance with Topic 840. We also elected the package of
practical expedients, which among other things, does not require reassessment of
lease classification. See Note 9 and 13 for additional disclosures.
In the first quarter of 2019, we adopted ASU 2017-12, Derivatives and Hedging
(Topic 815), using the modified retrospective method. The standard refines and
simplifies hedge accounting requirements for both financial and commodity risks.
The impact of the adoption was not material. See Note 20 for additional
disclosures.




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Revenue and Related Cost Recognition
Commercial aircraft contracts The majority of our BCA segment revenue is derived
from commercial aircraft contracts. For each contract, we determine the
transaction price based on the consideration expected to be received. We
allocate the transaction price to each commercial aircraft performance
obligation based on relative standalone selling prices adjusted by an escalation
formula as specified in the customer agreement. Revenue is recognized for each
commercial aircraft performance obligation at the point in time when the
aircraft is completed and accepted by the customer. We use program accounting to
determine the amount reported as cost of sales.
In certain situations, where an aircraft is still in our possession, and title
and risk of loss has passed to the customer (known as a bill-and-hold
arrangement), revenue will be recognized when all specific requirements for
transfer of control under a bill-and-hold arrangement have been met.
Payments for commercial aircraft sales are received in accordance with the
customer agreement, which generally includes a deposit upon order and additional
payments in accordance with a payment schedule, with the balance being due
immediately prior to or at aircraft delivery. Advances and progress billings
(contract liabilities) are normal and customary for commercial aircraft
contracts and not considered a significant financing component as they are
intended to protect us from the other party failing to adequately complete some
or all of its obligations under the contract.
Long-term contracts Substantially all contracts at BDS and certain contracts at
BGS are long-term contracts with the U.S. government and other customers that
generally extend over several years. Products sales under long-term contracts
primarily include fighter jets, rotorcraft, cybersecurity products, surveillance
suites, advanced weapons, missile defense, military derivative aircraft,
satellite systems, and modification of commercial passenger aircraft to cargo
freighters. Services sales under long-term contracts primarily include support
and maintenance agreements associated with our commercial and defense products
and space travel on Commercial Crew.
For each long-term contract, we determine the transaction price based on the
consideration expected to be received. We allocate the transaction price to each
distinct performance obligation to deliver a good or service, or a collection of
goods and/or services, based on the relative standalone selling prices. A
long-term contract will 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. While the scope and price on certain long-term contracts may be
modified over their life, the transaction price is based on current rights and
obligations under the contract and does not include potential modifications
until they are agreed upon with the customer. When applicable, a cumulative
adjustment or separate recognition for the additional scope and price may
result. Long-term contracts can be negotiated with a fixed price or a price in
which we are reimbursed for costs incurred plus an agreed upon profit. The
Federal Acquisition Regulations provide guidance on the types of cost that will
be reimbursed in establishing the price for contracts with the U.S. government.
Certain long-term contracts include in the transaction price variable
consideration, such as incentive and award fees, if specified targets are
achieved. The amount included in the transaction price represents the expected
value, based on a weighted probability, or the most likely amount.
Long-term contract revenue is recognized over the contract term (over time) as
the work progresses, either as products are produced or as services are
rendered. We generally recognize revenue over time as we perform on long-term
contracts because of continuous transfer of control to the customer. For U.S.
government contracts, this continuous transfer of control to the customer is
supported by clauses in the contract that allow the customer to unilaterally
terminate the contract for convenience, pay us for costs incurred plus a
reasonable profit and take control of any work in process. Similarly, for
non-U.S. government contracts, the customer typically controls the work in
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clauses or by our rights to payment of the transaction price associated with
work performed to date on products or services that do not have an alternative
use to the Company.
The accounting for long-term contracts involves a judgmental process of
estimating total sales, costs and profit for each performance obligation. Cost
of sales is recognized as incurred. The amount reported as revenues is
determined by adding a proportionate amount of the estimated profit to the
amount reported as cost of sales. Recognizing revenue as costs are incurred
provides an objective measure of progress on the long-term contract and thereby
best depicts the extent of transfer of control to the customer.
Changes in estimated revenues, cost of sales and the related effect on operating
income are recognized using a cumulative catch-up adjustment which recognizes in
the current period the cumulative effect of the changes on current and prior
periods based on a long-term contract's percentage-of-completion. When the
current estimates of total sales and costs for a long-term contract indicate a
loss, a provision for the entire reach-forward loss on the long-term contract is
recognized.
Net cumulative catch-up adjustments to prior years' revenue and earnings,
including certain reach-forward losses, across all long-term contracts were as
follows:
                                                          2019        2018       2017
Increase to Revenue                                        $54        $137       $559

(Decrease)/increase to (Loss)/earnings from Operations ($111 ) ($190 ) $250 (Decrease)/increase to Diluted EPS

                      ($0.06 )    ($0.29

) $0.34

Significant adjustments during the three years ended December 31, 2019 included
reach-forward losses of $148, $736 and $445 on KC-46A Tanker recorded during
2019, 2018, and 2017, as well as reach-forward losses on Commercial Crew of $489
during 2019.
Due to the significance of judgment in the estimation process, changes in
underlying assumptions/estimates, supplier performance, or circumstances may
adversely or positively affect financial performance in future periods.
Payments under long-term contracts may be received before or after revenue is
recognized. The U.S. government customer typically withholds payment of a small
portion of the contract price until contract completion. Therefore, long-term
contracts typically generate Unbilled receivables (contract assets) but may
generate Advances and progress billings (contract liabilities). Long-term
contract Unbilled receivables and Advances and progress billings are not
considered a significant financing component because they are intended to
protect either the customer or the Company in the event that some or all of the
obligations under the contract are not completed.
Commercial spare parts contracts Certain contracts at our BGS segment include
sales of commercial spare parts. For each contract, we determine the transaction
price based on the consideration expected to be received. The spare parts have
discrete unit prices that represent fair value. We generally consider each spare
part to be a separate performance obligation. Revenue is recognized for each
commercial spare part performance obligation at the point in time of delivery to
the customer. We may provide our customers with a right to return a commercial
spare part where a customer may receive a full or partial refund, a credit
applied to amounts owed, a different product in exchange, or any combination of
these items. We consider the potential for customer returns in the estimated
transaction price. The amount reported as cost of sales is recorded at average
cost. Payments for commercial spare parts sales are typically received shortly
after delivery.
Other service revenue contracts Certain contracts at our BGS segment are for
sales of services to commercial customers including maintenance, training, data
analytics and information-based services. We recognize revenue for these service
performance obligations over time as the services are rendered.


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The method of measuring progress (such as straight-line or billable amount)
varies depending upon which method best depicts the transfer of control to the
customer based on the type of service performed. Cost of sales is recorded as
incurred.
Concession Sharing Arrangements We account for sales concessions to our
customers in consideration of their purchase of products and services as a
reduction of the transaction price and the revenue that is recognized for the
related performance obligations. The sales concessions incurred may be partially
reimbursed by certain suppliers in accordance with concession sharing
arrangements. We record these reimbursements, which are presumed to represent
reductions in the price of the vendor's products or services, as a reduction in
Cost of products.
Unbilled Receivables and Advances and Progress Billings Unbilled receivables
(contract assets) arise when the Company recognizes revenue for amounts which
cannot yet be billed under terms of the contract with the customer. Advances and
progress billings (contract liabilities) arise when the Company receives
payments from customers in advance of recognizing revenue. The amount of
Unbilled receivables or Advances and progress billings is determined for each
contract.
Financial Services Revenue We record financial services revenue associated with
sales-type/finance leases, operating leases, and notes receivable.
Lease and financing revenue arrangements are included in Sales of services on
the Consolidated Statements of Operations. For sales-type/finance leases, we
record financing receivables at lease inception. A financing receivable is
recorded at the aggregate of future minimum lease payments, estimated residual
value of the leased equipment, and deferred incremental direct costs less
unearned income. Income is recognized over the life of the lease to approximate
a level rate of return on the net investment. Income recognition is generally
suspended for financing receivables at the date full recovery of income and
principal becomes not probable. Income is recognized when financing receivables
become contractually current and performance is demonstrated by the customer.
Residual values, which are reviewed periodically, represent the estimated amount
we expect to receive at lease termination from the disposition of the leased
equipment. Actual residual values realized could differ from these estimates.
Declines in estimated residual value that are deemed other-than-temporary are
recognized in the period in which the declines occur.
For operating leases, revenue on leased aircraft and equipment is recorded on a
straight-line basis over the term of the lease. Operating lease assets, included
in Customer financing, are recorded at cost and depreciated over the period that
we project we will hold the asset to an estimated residual value, using the
straight-line method. We periodically review our estimates of residual value and
recognize forecasted changes by prospectively adjusting depreciation expense.
For notes receivable, notes are recorded net of any unamortized discounts and
deferred incremental direct costs. Interest income and amortization of any
discounts are recorded ratably over the related term of the note.
Reinsurance Revenue Our wholly-owned insurance subsidiary, Astro Ltd.,
participates in a reinsurance pool for workers' compensation. The member
agreements and practices of the reinsurance pool minimize any participating
members' individual risk. Reinsurance revenues were $151, $145 and $141 during
2019, 2018 and 2017, respectively. Reinsurance costs related to premiums and
claims paid to the reinsurance pool were $150, $136 and $144 during 2019, 2018
and 2017, respectively. Revenues and costs are presented net in Cost of sales in
the Consolidated Statements of Operations.
Fleet Support
We provide assistance and support to facilitate efficient and safe aircraft
operation to the operators of all our commercial airplane models. Collectively
known as fleet support, these activities and support services


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include flight and maintenance training, field service support, engineering
support, and technical data and documents. Fleet support activity begins prior
to aircraft delivery as the customer receives training, manuals, and technical
consulting support. This activity continues throughout the aircraft's
operational life. Services provided after delivery include field service
support, consulting on maintenance, repair, and operational issues brought forth
by the customer or regulators, updating manuals and engineering data, and the
issuance of service bulletins that impact the entire model's fleet. Field
service support involves our personnel located at customer facilities providing
and coordinating fleet support activities and requests. The costs for fleet
support are expensed as incurred as Cost of services.
Research and Development
Research and development includes costs incurred for experimentation, design,
and testing, as well as bid and proposal efforts related to government products
and services which are expensed as incurred unless the costs are related to
certain contractual arrangements with customers. Costs that are incurred
pursuant to such contractual arrangements are recorded over the period that
revenue is recognized, consistent with our contract accounting policy. We have
certain research and development arrangements that meet the requirement for best
efforts research and development accounting. Accordingly, the amounts funded by
the customer are recognized as an offset to our research and development expense
rather than as contract revenues. Research and development expense included bid
and proposal costs of $214, $234 and $288 in 2019, 2018 and 2017, respectively.
Share-Based Compensation
We provide various forms of share-based compensation to our employees. For
awards settled in shares, we measure compensation expense based on the
grant-date fair value net of estimated forfeitures. For awards settled in cash,
or that may be settled in cash, we measure compensation expense based on the
fair value at each reporting date net of estimated forfeitures. The expense is
recognized over the requisite service period, which is generally the vesting
period of the award.
Income Taxes
Provisions for U.S. federal, state and local, and non-U.S. income taxes are
calculated on reported (Loss)/earnings before income taxes based on current tax
law and also include, in the current period, the cumulative effect of any
changes in tax rates from those used previously in determining deferred tax
assets and liabilities. Such provisions differ from the amounts currently
receivable or payable because certain items of income and expense are recognized
in different time periods for financial reporting purposes than for income tax
purposes. Significant judgment is required in determining income tax provisions
and evaluating tax positions.
The accounting for uncertainty in income taxes requires a more-likely-than-not
threshold for financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. We record a liability for the
difference between the benefit recognized and measured for financial statement
purposes and the tax position taken or expected to be taken on our tax return.
To the extent that our assessment of such tax positions changes, the change in
estimate is recorded in the period in which the determination is made.
Tax-related interest and penalties are classified as a component of Income tax
benefit/(expense).
Postretirement Plans
The majority 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. We also provide postretirement


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benefit plans other than pensions, consisting principally of health care
coverage to eligible retirees and qualifying dependents. Benefits under the
pension and other postretirement benefit plans are generally based on age at
retirement and years of service and, for some pension plans, benefits are also
based on the employee's annual earnings. The net periodic cost of our pension
and other postretirement plans is determined using the projected unit credit
method and several actuarial assumptions, the most significant of which are the
discount rate, the long-term rate of asset return, and medical trend (rate of
growth for medical costs). A portion of the service cost component of net
periodic pension and other postretirement income or expense is not recognized in
net earnings in the year incurred because it is allocated to production as
product costs, and reflected in inventory at the end of a reporting period.
Actuarial gains and losses, which occur when actual experience differs from
actuarial assumptions, are reflected in Shareholders' equity (net of taxes). If
actuarial gains and losses exceed ten percent of the greater of plan assets or
plan liabilities we amortize them over the average expected future lifetime of
participants. The funded status of our pension and postretirement plans is
reflected on the Consolidated Statements of Financial Position.
Postemployment Plans
We record a liability for postemployment benefits, such as severance or job
training, when payment is probable, the amount is reasonably estimable, and the
obligation relates to rights that have vested or accumulated.
Environmental Remediation
We are subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. We routinely assess, based on in-depth
studies, expert analyses and legal reviews, our contingencies, obligations, and
commitments for remediation of contaminated sites, including assessments of
ranges and probabilities of recoveries from other responsible parties and/or
insurance carriers. Our policy is to accrue and charge to current expense
identified exposures related to environmental remediation sites when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. The amount of the liability is based on our best estimate or the low
end of a range of reasonably possible exposure for investigation, cleanup, and
monitoring costs to be incurred. Estimated remediation costs are not discounted
to present value as the timing of payments cannot be reasonably estimated. We
may be able to recover a portion of the remediation costs from insurers or other
third parties. Such recoveries are recorded when realization of the claim for
recovery is deemed probable.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments, such as
commercial paper, time deposits, and other money market instruments, which have
original maturities of three months or less. We aggregate our cash balances by
bank where conditions for right of set-off are met, and reclassify any negative
balances, consisting mainly of uncleared checks, to Accounts payable. Negative
balances reclassified to Accounts payable were $101 and $127 at December 31,
2019 and 2018.
Inventories
Inventoried costs on commercial aircraft programs and long-term contracts
include direct engineering, production and tooling and other non-recurring
costs, and applicable overhead, which includes fringe benefits, production
related indirect and plant management salaries and plant services, not in excess
of estimated net realizable value. To the extent a material amount of such costs
are related to an abnormal event or are fixed costs not appropriately
attributable to our programs or contracts, they are expensed in the current
period rather than inventoried. Inventoried costs include amounts relating to
programs and contracts with long-term production cycles, a portion of which is
not expected to be realized within one


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year. Included in inventory for federal government contracts is an allocation of
allowable costs related to manufacturing process reengineering.
Commercial aircraft programs inventory includes deferred production costs and
supplier advances. Deferred production costs represent actual costs incurred for
production of early units that exceed the estimated average cost of all units in
the program accounting quantity. Higher production costs are experienced at the
beginning of a new or derivative airplane program. Units produced early in a
program require substantially more effort (labor and other resources) than units
produced later in a program because of volume efficiencies and the effects of
learning. We expect that these deferred costs will be fully recovered when all
units included in the accounting quantity are delivered as the expected unit
cost for later deliveries is below the estimated average cost of all units in
the program. Supplier advances represent payments for parts we have contracted
to receive from suppliers in the future. As parts are received, supplier
advances are amortized to work in process.
The determination of net realizable value of long-term contract costs is based
upon quarterly reviews that estimate costs to be incurred to complete all
contract requirements. When actual contract costs and the estimate to complete
exceed total estimated contract revenues, a loss provision is recorded. The
determination of net realizable value of commercial aircraft program costs is
based upon quarterly program reviews that estimate revenue and cost to be
incurred to complete the program accounting quantity. When estimated costs to
complete exceed estimated program revenues to go, a program loss provision is
recorded in the current period for the estimated loss on all undelivered units
in the accounting quantity.
Used aircraft purchased by the Commercial Airplanes segment and general stock
materials are stated at cost not in excess of net realizable value. See
'Aircraft Valuation' within this Note for a discussion of our valuation of used
aircraft. Spare parts inventory is stated at lower of average unit cost or net
realizable value. We review our commercial spare parts and general stock
materials quarterly to identify impaired inventory, including excess or obsolete
inventory, based on historical sales trends, expected production usage, and the
size and age of the aircraft fleet using the part. Impaired inventories are
charged to Cost of products in the period the impairment occurs.
Included in inventory for commercial aircraft programs are amounts paid or
credited in cash, or other consideration to certain airline customers, that are
referred to as early issue sales consideration. Early issue sales consideration
is recognized as a reduction to revenue when the delivery of the aircraft under
contract occurs. If an airline customer does not perform and take delivery of
the contracted aircraft, we believe that we would have the ability to recover
amounts paid. However, to the extent early issue sales consideration exceeds
advances and is not considered to be otherwise recoverable, it would be written
off in the current period.
Precontract Costs
We may, from time to time, incur costs in excess of the amounts required for
existing contracts. If we determine the costs are probable of recovery from
future orders, then we capitalize the precontract costs we incur, excluding
start-up costs which are expensed as incurred. Capitalized precontract costs are
included in Inventories in the accompanying Consolidated Statements of Financial
Position. Should future orders not materialize or we determine the costs are no
longer probable of recovery, the capitalized costs would be written off.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including applicable
construction-period interest, less accumulated depreciation and are depreciated
principally over the following estimated useful lives: new buildings and land
improvements, from 10 to 40 years; and new machinery and equipment, from 4 to 20
years. The principal methods of depreciation are as follows: buildings and land
improvements, 150%


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declining balance; and machinery and equipment, sum-of-the-years' digits.
Capitalized internal use software is included in Other assets and amortized
using the straight line method over 5 years. Capitalized software as a service
is included in Other assets and amortized using the straight line method over
the term of the hosting arrangement which is typically no greater than 10 years.
We periodically evaluate the appropriateness of remaining depreciable lives
assigned to long-lived assets, including assets that may be subject to a
management plan for disposition.
Long-lived assets held for sale are stated at the lower of cost or fair value
less cost to sell. Long-lived assets held for use are subject to an impairment
assessment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the carrying value is no longer
recoverable based upon the undiscounted future cash flows of the asset, the
amount of the impairment is the difference between the carrying amount and the
fair value of the asset.
Leases We determine if an arrangement is, or contains, a lease at the inception
date. Operating leases are included in Other assets, with the related
liabilities included in Accrued liabilities and Other long-term liabilities.
Assets under finance leases, which primarily represent computer equipment, are
included in Property, plant and equipment, net, with the related liabilities
included in Short-term debt and current portion of long-term debt and Long-term
debt on the Consolidated Statements of Financial Position.
Operating lease assets represent our right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make lease payments
arising from the lease. Operating lease assets and liabilities are recognized at
the lease commencement date based on the estimated present value of lease
payments over the lease term. We use our estimated incremental borrowing rate in
determining the present value of lease payments. Variable components of the
lease payments such as fair market value adjustments, utilities, and maintenance
costs are expensed as incurred and not included in determining the present
value. Our lease terms include options to extend or terminate the lease when it
is reasonably certain that we will exercise that option. Lease expense is
recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components which are accounted
for as a single lease component.
Asset Retirement Obligations
We record all known asset retirement obligations for which the liability's fair
value can be reasonably estimated, including certain asbestos removal, asset
decommissioning and contractual lease restoration obligations. Recorded amounts
are not material.
We also have known conditional asset retirement obligations, such as certain
asbestos remediation and asset decommissioning activities to be performed in the
future, that are not reasonably estimable due to insufficient information about
the timing and method of settlement of the obligation. Accordingly, these
obligations have not been recorded in the Consolidated Financial Statements. A
liability for these obligations will be recorded in the period when sufficient
information regarding timing and method of settlement becomes available to make
a reasonable estimate of the liability's fair value. In addition, there may be
conditional asset retirement obligations that we have not yet discovered (e.g.
asbestos may exist in certain buildings but we have not become aware of it
through the normal course of business), and therefore, these obligations also
have not been included in the Consolidated Financial Statements.
Goodwill and Other Acquired Intangibles
Goodwill and other acquired intangible assets with indefinite lives are not
amortized, but are tested for impairment annually and when an event occurs or
circumstances change such that it is more likely than not that an impairment may
exist. Our annual testing date is April 1.


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We test goodwill for impairment by performing a qualitative assessment or using
a two-step impairment process. If we choose to perform a qualitative assessment
and determine it is more likely than not that the carrying value of the net
assets is more than the fair value of the related operations, the two-step
impairment process is then performed; otherwise, no further testing is required.
For operations where the two-step impairment process is used, we first compare
the carrying value of net assets to the fair value of the related operations. If
the fair value is determined to be less than carrying value, a second step is
performed to compute the amount of the impairment. In this process, a fair value
for goodwill is estimated, based in part on the fair value of the operations,
and is compared to its carrying value. The shortfall of the fair value below
carrying value represents the amount of goodwill impairment.
Indefinite-lived intangibles consist of brand and trade names acquired in
business combinations. We test these intangibles for impairment by comparing
their carrying value to current projections of discounted cash flows
attributable to the brand and trade names. Any excess carrying value over the
amount of discounted cash flows represents the amount of the impairment.
Our finite-lived acquired intangible assets are amortized on a straight-line
basis over their estimated useful lives as follows: developed technology, from 2
to 14 years; product know-how, from 6 to 30 years; customer base, from 3 to 17
years; distribution rights, from 3 to 27 years; and other, from 1 to 32 years.
We evaluate the potential impairment of finite-lived acquired intangible assets
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the carrying value is no longer recoverable based
upon the undiscounted future cash flows of the asset, the amount of the
impairment is the difference between the carrying amount and the fair value of
the asset.
Investments
Time deposits are held-to-maturity investments that are carried at cost.
Available-for-sale debt securities include commercial paper, U.S. government
agency securities, and corporate debt securities. Available-for-sale debt
securities are recorded at fair value, and unrealized gains and losses are
recorded, net of tax, as a component of accumulated other comprehensive income.
Realized gains and losses on available-for-sale debt securities are recognized
based on the specific identification method. Available-for-sale debt securities
are assessed for impairment quarterly.
The equity method of accounting is used to account for investments for which we
have the ability to exercise significant influence, but not control, over an
investee. Significant influence is generally deemed to exist if we have an
ownership interest in the voting stock of an investee of between 20% and 50%.
The cumulative earnings approach is used for cash flow classification of
distributions received from equity method investments.
Other Equity investments are recorded at fair value, with gains and losses
recorded through net earnings. Equity investments without readily determinable
fair value are measured at cost, less impairments, plus or minus observable
price changes. Equity investments without readily determinable fair value are
assessed for impairment quarterly.
We classify investment income and loss on our Consolidated Statements of
Operations based on whether the investment is operating or non-operating in
nature. Operating investments align strategically and are integrated with our
operations. Earnings from operating investments, including our share of income
or loss from equity method investments, dividend income from other equity
investments, and any impairments or gain/loss on the disposition of these
investments, are recorded in Income from operating investments, net.
Non-operating investments are those we hold for non-strategic purposes. Earnings
from non-operating investments, including interest and dividends on marketable
securities, and any impairments or gain/loss on the disposition of these
investments are recorded in Other income/(loss), net.


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Derivatives

All derivative instruments are recognized in the financial statements and
measured at fair value regardless of the purpose or intent of holding them. We
use derivative instruments to principally manage a variety of market risks. For
derivatives designated as hedges of the exposure to changes in fair value of the
recognized asset or liability or a firm commitment (referred to as fair value
hedges), the gain or loss is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item attributable to the
risk being hedged. The effect of that accounting is to include in earnings the
extent to which the hedge is not effective in achieving offsetting changes in
fair value. For our cash flow hedges, the derivative's gain or loss is initially
reported in comprehensive income and is subsequently reclassified into earnings
in the same period or periods during which the hedged forecasted transaction
affects earnings. We have agreements to purchase and sell aluminum to address
long-term strategic sourcing objectives and international business requirements.
These agreements are derivatives for accounting purposes but are not designated
for hedge accounting treatment. We also hold certain derivative instruments for
economic purposes that are not designated for hedge accounting treatment. For
these aluminum agreements and for other derivative instruments not designated
for hedge accounting treatment, the changes in their fair value are recorded in
earnings immediately.
Aircraft Valuation
Used aircraft under trade-in commitments and aircraft under repurchase
commitments In conjunction with signing a definitive agreement for the sale of
new aircraft (Sale Aircraft), we have entered into trade-in commitments with
certain customers that give them the right to trade in used aircraft at a
specified price upon the purchase of Sale Aircraft. Additionally, we have
entered into contingent repurchase commitments with certain customers wherein we
agree to repurchase the Sale Aircraft at a specified price, generally 10 to 15
years after delivery of the Sale Aircraft. Our repurchase of the Sale Aircraft
is contingent upon a future, mutually acceptable agreement for the sale of
additional new aircraft. If we execute an agreement for the sale of additional
new aircraft, and if the customer exercises its right to sell the Sale Aircraft
to us, a contingent repurchase commitment would become a trade-in commitment.
Our historical experience is that contingent repurchase commitments infrequently
become trade-in commitments.
Exposure related to trade-in commitments may take the form of:
(1)     adjustments to revenue for the difference between the contractual

trade-in price in the definitive agreement and our best estimate of the

fair value of the trade-in aircraft as of the date of such agreement,

        which would be recognized upon delivery of the Sale Aircraft, and/or


(2)     charges to cost of products for adverse changes in the fair value of
        trade-in aircraft that occur subsequent to signing of a definitive
        agreement for Sale Aircraft but prior to the purchase of the used
        trade-in aircraft. Estimates based on current aircraft values would be
        included in Accrued liabilities.


The fair value of trade-in aircraft is determined using aircraft-specific data
such as model, age and condition, market conditions for specific aircraft and
similar models, and multiple valuation sources. This process uses our assessment
of the market for each trade-in aircraft, which in most instances begins years
before the return of the aircraft. There are several possible markets in which
we continually pursue opportunities to place used aircraft. These markets
include, but are not limited to, the resale market, which could potentially
include the cost of long-term storage; the leasing market, with the potential
for refurbishment costs to meet the leasing customer's requirements; or the
scrap market. Trade-in aircraft valuation varies significantly depending on
which market we determine is most likely for each aircraft. On a quarterly
basis, we update our valuation analysis based on the actual activities
associated with placing each aircraft into a market or using current published
third-party aircraft valuations based on the type and age of the aircraft,
adjusted for individual attributes and known conditions.


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Used aircraft acquired by the Commercial Airplanes segment are included in
Inventories at the lower of cost or net realizable value as it is our intent to
sell these assets. To mitigate costs and enhance marketability, aircraft may be
placed on operating lease. While on operating lease, the assets are included in
Customer financing.
Customer financing Customer financing includes operating lease equipment, notes
receivable, and sales-type/finance leases. Sales-type/finance leases are treated
as receivables, and allowances for losses are established as necessary.
We assess the fair value of the assets we own, including equipment under
operating leases, assets held for sale or re-lease, and collateral underlying
receivables, to determine if their fair values are less than the related assets'
carrying values. Differences between carrying values and fair values of
sales-type/finance leases and notes and other receivables, as determined by
collateral value, are considered in determining the allowance for losses on
receivables.
We use a median calculated from published collateral values from multiple
third-party aircraft value publications based on the type and age of the
aircraft to determine the fair value of aircraft. Under certain circumstances,
we apply judgment based on the attributes of the specific aircraft or equipment,
usually when the features or use of the aircraft vary significantly from the
more generic aircraft attributes covered by outside publications.
Impairment review for assets under operating leases and held for sale or
re-lease We evaluate for impairment assets under operating lease or assets held
for sale or re-lease when events or changes in circumstances indicate that the
expected undiscounted cash flow from the asset may be less than the carrying
value. We use various assumptions when determining the expected undiscounted
cash flow, including our intentions for how long we will hold an asset subject
to operating lease before it is sold, the expected future lease rates, lease
terms, residual value of the asset, periods in which the asset may be held in
preparation for a follow-on lease, maintenance costs, remarketing costs and the
remaining economic life of the asset. We record assets held for sale at the
lower of carrying value or fair value less costs to sell.
When we determine that impairment is indicated for an asset, the amount of
impairment expense recorded is the excess of the carrying value over the fair
value of the asset.
Allowance for losses on customer financing receivables We record the potential
impairment of customer financing receivables in a valuation account, the balance
of which is an accounting estimate of probable but unconfirmed losses. The
allowance for losses on receivables relates to two components of receivables:
(a) receivables that are evaluated individually for impairment and (b) all other
receivables.
We determine a receivable is impaired when, based on current information and
events, it is probable that we will be unable to collect amounts due according
to the original contractual terms of the receivable agreement, without regard to
any subsequent restructurings. Factors considered in assessing collectability
include, but are not limited to, a customer's extended delinquency, requests for
restructuring and filings for bankruptcy. We determine a specific impairment
allowance based on the difference between the carrying value of the receivable
and the estimated fair value of the related collateral we would expect to
realize.
We review the adequacy of the allowance attributable to the remaining
receivables (after excluding receivables subject to a specific impairment
allowance) by assessing both the collateral exposure and the applicable
cumulative default rate. Collateral exposure for a particular receivable is the
excess of the carrying value of the receivable over the fair value of the
related collateral. A receivable with an estimated fair value in excess of the
carrying value is considered to have no collateral exposure. The applicable
cumulative default rate is determined using two components: customer credit
ratings and weighted average remaining contract term. Internally assigned credit
ratings, our credit quality indicator, are determined for


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each customer in the portfolio. Those ratings are updated based upon public
information and information obtained directly from our customers.
We have entered into agreements with certain customers that would entitle us to
look beyond the specific collateral underlying the receivable for purposes of
determining the collateral exposure as described above. Should the proceeds from
the sale of the underlying collateral asset resulting from a default condition
be insufficient to cover the carrying value of our receivable (creating a
shortfall condition), these agreements would, for example, permit us to take the
actions necessary to sell or retain certain other assets in which the customer
has an equity interest and use the proceeds to cover the shortfall.
Each quarter we review customer credit ratings, published historical credit
default rates for different rating categories, and multiple third-party aircraft
value publications as a basis to validate the reasonableness of the allowance
for losses on receivables. There can be no assurance that actual results will
not differ from estimates or that the consideration of these factors in the
future will not result in an increase or decrease to the allowance for losses on
receivables.
Warranties
In conjunction with certain product sales, we provide warranties that cover
factors such as non-conformance to specifications and defects in material and
design. The majority of our warranties are issued by our Commercial Airplanes
segment. Generally, aircraft sales are accompanied by a 3 to 4-year standard
warranty for systems, accessories, equipment, parts, and software manufactured
by us or manufactured to certain standards under our authorization. These
warranties are included in the programs' estimate at completion. On occasion we
have made commitments beyond the standard warranty obligation to correct
fleet-wide major issues of a particular model, resulting in additional accrued
warranty expense. Warranties issued by our BDS segment principally relate to
sales of military aircraft and weapons systems. These sales are generally
accompanied by a six month to two-year warranty period and cover systems,
accessories, equipment, parts, and software manufactured by us to certain
contractual specifications. Estimated costs related to standard warranties are
recorded in the period in which the related product delivery occurs. The
warranty liability recorded at each balance sheet date reflects the estimated
number of months of warranty coverage outstanding for products delivered times
the average of historical monthly warranty payments, as well as additional
amounts for certain major warranty issues that exceed a normal claims level.
Estimated costs of these additional warranty issues are considered changes to
the initial liability estimate.
We provide guarantees to certain commercial airplane customers which include
compensation provisions for failure to meet specified aircraft performance
targets. We account for these performance guarantees as warranties. The
estimated liability for these warranties is based on known and anticipated
operational characteristics and forecasted customer operation of the aircraft
relative to contractually specified performance targets, and anticipated
settlements when contractual remedies are not specified. Estimated payments are
recorded as a reduction of revenue at delivery of the related aircraft. We have
agreements that require certain suppliers to compensate us for amounts paid to
customers for failure of supplied equipment to meet specified performance
targets. Claims against suppliers under these agreements are included in
Inventories and recorded as a reduction in Cost of products at delivery of the
related aircraft. These performance warranties and claims against suppliers are
included in the programs' estimate at completion.
Supplier Penalties
We record an accrual for supplier penalties when an event occurs that makes it
probable that a supplier penalty will be incurred and the amount is reasonably
estimable. Until an event occurs, we fully anticipate accepting all products
procured under production-related contracts.


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Guarantees

We record a liability in Accrued liabilities for the fair value of guarantees
that are issued or modified after December 31, 2002. For credit guarantees, the
liability is equal to the present value of the expected loss. We determine the
expected loss by multiplying the creditor's default rate by the guarantee amount
reduced by the expected recovery, if applicable, for each future period the
credit guarantee will be outstanding. If at inception of a guarantee, we
determine there is a probable related contingent loss, we will recognize a
liability for the greater of (a) the fair value of the guarantee as described
above or (b) the probable contingent loss amount.
Standards Issued and Not Yet Implemented
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326). The new standard is effective
for reporting periods beginning after December 15, 2019. The standard replaces
the incurred loss impairment methodology under current GAAP with a methodology
that reflects expected credit losses and requires the use of a forward-looking
expected credit loss model for accounts receivables, loans, and other financial
instruments. The standard requires a modified retrospective approach through a
cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective. We plan to adopt the
new credit loss standard effective January 1, 2020. We do not expect the new
credit loss standard to have a material effect on our financial position,
results of operations or cash flows.

Note 2 - Acquisitions and Joint Ventures
Strategic Partnership with Embraer
During the first quarter of 2019, we entered into definitive transaction
documents with respect to a strategic partnership with Embraer S.A.
(Embraer). The partnership contemplates that the parties enter into a joint
venture comprising the commercial aircraft and services operations of Embraer,
in which Boeing will acquire an 80 percent ownership stake for $4,200, as well
as a joint venture to promote and develop new markets for the multi-mission,
medium airlift C-390 Millennium, in which Boeing will hold a 49 percent
ownership stake.
Embraer shareholders approved the transaction, which remains subject to
regulatory approvals and other customary closing conditions. We are actively
engaged with the European Commission and have obtained unconditional clearance
to close in all other required jurisdictions, including the United States,
China, and Japan. In Brazil, the Administrative Council for Economic Defense
(CADE)'s General-Superintendence (SG) has provided unconditional approval; the
decision will become final in mid-February unless a review is requested by CADE
Commissioners. We continue to be engaged with the European Commission as it
progresses its Phase II investigation of the transaction. Pending timely
resolution of the remaining regulatory approvals, the transaction is expected to
close in the first half of 2020. If the transaction is not completed due to
failure to obtain antitrust approvals, we would be required to pay a termination
fee of $100.


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KLX Inc.
On October 9, 2018, we acquired all the outstanding shares of KLX Inc. (KLX).
KLX is a global provider of aviation parts and services in the aerospace
industry. Its capabilities include distribution and supply chain services. The
KLX acquisition is intended to accelerate growth in our services business by
allowing Boeing to offer commercial, defense, business and general aviation
customers a broader range of offerings. The results of KLX's operations have
been included in our Global Services segment from the acquisition date. KLX's
revenues and earnings from operations from October 9, 2018 through December 31,
2018 were $356 and $50.
The final allocation of the purchase price was as follows:
Cash and cash equivalents      $225
Accounts receivable             260
Inventories                   1,298
Other current assets             43
Property, plant & equipment      36
Goodwill                      2,056
Intangible assets               963
Other assets                     78
Current liabilities            (350 )
Other long-term liabilities    (113 )
Long-term debt               (1,210 )
Total net assets acquired    $3,286



The goodwill has been allocated to the Global Services and Commercial Airplanes
segments based on revenue synergies expected to be realized from the integration
of KLX's products and services and expected cost synergies primarily resulting
from the consolidation of procurement spending and functional support.
Approximately $533 of the acquired goodwill and intangible assets is deductible
for tax purposes. The acquired intangible assets primarily relate to customer
and supplier relationships and have a weighted-average useful life of 17.5
years.


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Note 3 - Goodwill and Acquired Intangibles
Changes in the carrying amount of goodwill for the years ended December 31, 2019
and 2018 were as follows:
                                                  Defense,
                                Commercial         Space &          Global
                                 Airplanes        Security        Services           Other          Total
Balance at January 1, 2018            $992          $3,074          $1,493                         $5,559
KLX acquisition                        249                           1,861                          2,110
Other acquisitions                                     180               3                            183
Goodwill adjustments                                                   (12 )                          (12 )

Balance at December 31, 2018 $1,241 $3,254 $3,345

                        $7,840
KLX acquisition adjustments                                            (51 )                          (51 )
Acquisitions                            72                             188             $62            322
Dispositions                                                           (49 )                          (49 )
Goodwill adjustments                                   (10 )             8                             (2 )

Balance at December 31, 2019 $1,313 $3,244 $3,441

            $62         $8,060



As of December 31, 2019 and 2018, we had indefinite-lived intangible assets with
carrying amounts of $197 and $490 relating to trade names. During 2019, we
recorded an impairment of $293 within Cost of Sales, as a result of our decision
to retire the Aviall brand and trade name. As of December 31, 2019, we had
indefinite-lived intangible assets with a carrying amount of $202 related to in
process research and development.
The gross carrying amounts and accumulated amortization of our acquired
finite-lived intangible assets were as follows at December 31:
                                2019                          2018
                         Gross                         Gross
                      Carrying      Accumulated     Carrying      Accumulated
                        Amount     Amortization       Amount     Amortization
Distribution rights     $2,989           $1,262       $2,879           $1,101
Product know-how           553              354          536              324
Customer base            1,364              599        1,284              523
Developed technology       653              485          595              439
Other                      280              200          218              186
Total                   $5,839           $2,900       $5,512           $2,573

Amortization expense for acquired finite-lived intangible assets for the years ended December 31, 2019 and 2018 was $331 and $272. Estimated amortization expense for the five succeeding years is as follows:

                                2020     2021     2022     2023     2024

Estimated amortization expense $320 $298 $287 $259 $248

During 2019 and 2018, we acquired $563 and $1,133 of finite-lived intangible assets, of which $30 and $0 related to non-cash investing and financing transactions.

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Note 4 - Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method,
which is an earnings allocation method that determines earnings per share for
common shares and participating securities. The undistributed earnings are
allocated between common shares and participating securities as if all earnings
had been distributed during the period. Participating securities and common
shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings
available to participating securities, divided by the basic weighted average
common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings
available to participating securities, divided by the diluted weighted average
common shares outstanding.
The elements used in the computation of basic and diluted earnings per share
were as follows:
(In millions - except per share amounts)
Years ended December 31,                                2019         2018   

2017

Net (loss)/earnings                                    ($636 )    $10,460

$8,458

Less: earnings available to participating securities                    7   

6

Net (loss)/earnings available to common shareholders ($636 ) $10,453

$8,452

Basic

Basic weighted average shares outstanding              566.0        579.9   

603.2

Less: participating securities                           0.6          0.7   

0.7

Basic weighted average common shares outstanding 565.4 579.2

602.5

Diluted

Basic weighted average shares outstanding              566.0        579.9   

603.2

Dilutive potential common shares(1)                                   6.3   

7.5

Diluted weighted average shares outstanding            566.0        586.2   

610.7

Less: participating securities                           0.6          0.7   

0.7

Diluted weighted average common shares outstanding 565.4 585.5

610.0

Net (loss)/earnings per share:
Basic                                                 ($1.12 )     $18.05     $14.03
Diluted                                                (1.12 )      17.85      13.85

(1) Diluted (loss)/earnings per share includes any dilutive impact of stock

     options, restricted stock units, performance-based restricted stock units
     and performance awards.




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As a result of incurring a net loss for the year ended December 31, 2019,
potential common shares of 4.1 million were excluded from diluted loss per share
because the effect would have been antidilutive. In addition, the following
table includes the number of shares that may be dilutive potential common shares
in the future. These shares were not included in the computation of diluted
(loss)/earnings per share because the effect was either antidilutive or the
performance condition was not met.
(Shares in millions)
Years ended December 31,                 2019    2018    2017
Performance awards                        2.8     2.5     4.1

Performance-based restricted stock units 0.6 0.3 0.5

Note 5 - Income Taxes
The components of earnings before income taxes were:
Years ended December 31,     2019         2018        2017
U.S.                      ($2,792 )    $11,166      $9,660
Non-U.S.                      533          438         447
Total                     ($2,259 )    $11,604     $10,107

Income tax (benefit)/expense consisted of the following: Years ended December 31,

               2019        2018        2017
Current tax (benefit)/expense
U.S. federal                          ($308 )    $1,873      $1,276
Non-U.S.                                169         169         149
U.S. state                             (161 )        97          23
Total current                          (300 )     2,139       1,448
Deferred tax (benefit)/expense
U.S. federal                           (953 )      (996 )       204
Non-U.S.                                 (3 )        (4 )         3
U.S. state                             (367 )         5          (6 )
Total deferred                       (1,323 )      (995 )       201

Total income tax (benefit)/expense ($1,623 ) $1,144 $1,649

Net income tax payments were $837, $1,326 and $896 in 2019, 2018 and 2017, respectively.

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The following is a reconciliation of the U.S. federal statutory tax to actual
income tax expense:
Years ended December 31,                2019                    2018                    2017
                                 Amount       Rate        Amount      Rate        Amount      Rate
U.S. federal statutory tax         ($474 )    21.0  %     $2,437      21.0  %     $3,537      35.0  %
Research and development
credits                             (382 )    16.9          (207 )    (1.8 )        (162 )    (1.6 )
Audit settlements(1)                (371 )    16.4          (412 )    (3.6 )
Foreign derived intangible
income(2)                           (229 )    10.1          (549 )    (4.7 )
Excess tax benefits(3)              (180 )     8.0          (181 )    (1.6 )        (207 )    (2.1 )
Other provision adjustments           66      (3.0 )          91       1.0            26       0.3
Tax deductible dividends             (53 )     2.4           (48 )    (0.4 )         (68 )    (0.7 )
Tax on non-US activities              43      (1.9 )          40       0.3           (95 )    (0.9 )
State income tax provision,
net of effects on U.S. federal
tax                                  (43 )     1.9            84       0.7            17       0.2
Impact of Tax Cuts and Jobs
Act(4)                                                      (111 )    (1.0 )      (1,271 )   (12.6 )
U.S. manufacturing activity
tax benefit                                                                 

(128 ) (1.3 ) Income tax (benefit)/expense ($1,623 ) 71.8 % $1,144 9.9 % $1,649 16.3 %

(1) In the fourth quarter of 2019, we recorded a tax benefit of $371 related to

the settlement of state tax audits spanning 15 tax years. In the third

quarter of 2018, we recorded a tax benefit of $412 related to the settlement

of the 2013-2014 federal tax audit.

(2) On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted. The TCJA

revised the U.S. corporate income tax by, among other things, lowering the

rate from 35% to 21% effective January 1, 2018, implementing a territorial

tax system and imposing a one-time tax on deemed repatriated earnings of

non-U.S. subsidiaries. The TCJA also enacted provisions which effectively

     apply a lower U.S. tax rate to intangible income derived from serving
     non-U.S. markets. In 2019 and 2018, we recorded tax benefits related to
     foreign derived intangible income of $229 and $549.

(3) In 2019, 2018 and 2017, we recorded excess tax benefits related to employee

share-based payments of $180, $181 and $207, respectively.

(4) In accordance with U.S. Securities and Exchange Commission Staff Accounting

Bulletin No. 118 (SAB 118), in the fourth quarter of 2017, we recorded

provisional tax benefits of $1,430 related to the remeasurement of our net

U.S. deferred tax liabilities to reflect the reduction in the corporate tax

rate and a provisional tax expense of $159 related to tax on non-U.S.

activities resulting from the TCJA. During the fourth quarter of 2018 and in

accordance with SAB 118, the Company completed its accounting for the

provisional amounts recognized at December 31, 2017 and recorded an

incremental benefit related to refinements to these provisional amounts

     which was not significant.





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Significant components of our deferred tax assets/(liabilities) at December 31 were as follows:

                                                                   2019     

2018

Inventory and long-term contract methods of income recognition

                                                     ($6,048 )     ($5,422 )
Pension benefits                                                  3,495     

3,344

737 MAX customer concessions and other considerations             1,626

Fixed assets, intangibles and goodwill (net of valuation allowance of $16 and $16)

                                        (1,560 )      (1,616 )
Retiree health care benefits                                      1,120     

1,124

Other employee benefits                                             849     

873

Accrued expenses and reserves                                       627     

411

Net operating loss, credit and capital loss carryovers (net of valuation allowance of $102 and $77)(1)

                          595     

258

Customer and commercial financing                                  (268 )        (309 )
Other                                                              (166 )        (115 )
Net deferred tax assets/(liabilities)(2)                           $270

($1,452 )

(1) Of the deferred tax asset for net operating loss and credit carryovers,

$251 expires on or before December 31, 2039 and $344 may be carried over
      indefinitely.


(2)   Included in the net deferred tax assets/(liabilities) as of December 31,

2019 and 2018 are deferred tax assets in the amounts of $4,589 and $4,275

related to Accumulated other comprehensive loss.

Net deferred tax assets/(liabilities) at December 31 were as follows:

                                          2019         2018
Deferred tax assets                    $10,722       $8,835
Deferred tax liabilities               (10,334 )    (10,194 )
Valuation allowance                       (118 )        (93 )

Net deferred tax assets/(liabilities) $270 ($1,452 )

The deferred tax assets are reduced by a valuation allowance if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
The TCJA one-time repatriation tax and Global Intangible Low Tax Income
liabilities effectively taxed the undistributed earnings previously deferred
from U.S. income taxes. We have not provided for foreign withholding tax on the
undistributed earnings from our non-U.S. subsidiaries because such earnings are
considered to be indefinitely reinvested. If such earnings were to be
distributed, any foreign withholding tax would not be significant.
As of December 31, 2019 and 2018, the amounts accrued for the payment of income
tax-related interest and penalties included in the Consolidated Statements of
Financial Position were not significant. The amounts of interest included in the
Consolidated Statements of Operations were not significant for the years ended
December 31, 2019, 2018 and 2017.


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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

                                                    2019        2018        

2017

Unrecognized tax benefits - January 1             $2,412      $1,736

$1,557

Gross increases - tax positions in prior periods 100 87

3

Gross decreases - tax positions in prior periods (1,418 ) (410 )

  (44 )
Gross increases - current-period tax positions       344       1,208        

220

Gross decreases - current period tax positions (1 ) Settlements

                                           39        (206 )
Statute Lapse                                                     (3 )
Unrecognized tax benefits - December 31           $1,476      $2,412

$1,736

As of December 31, 2019, 2018 and 2017, the total amount of unrecognized tax
benefits was $1,476, $2,412 and $1,736, respectively, of which $1,287, $1,405
and $1,568 would affect the effective tax rate, if recognized. As of December
31, 2019, these amounts are primarily associated with the amount of research tax
credits claimed, uncertainties in the TCJA, tax basis adjustments and the U.S.
manufacturing activity tax benefit.
Federal income tax audits have been settled for all years prior to 2015. The
Internal Revenue Service (IRS) began the 2015-2017 federal tax audit in the
first quarter of 2019. We are also subject to examination in major state and
international jurisdictions for the 2007-2018 tax years. We believe appropriate
provisions for all outstanding tax issues have been made for all jurisdictions
and all open years.
Audit outcomes and the timing of audit settlements are subject to significant
uncertainty. It is reasonably possible that within the next 12 months
unrecognized tax benefits related to federal matters under audit may decrease by
up to $710 based on current estimates.
Note 6 - Accounts Receivable, net
Accounts receivable at December 31 consisted of the following:
                                 2019        2018
U.S. government contracts(1)   $1,121      $1,877
Commercial Airplanes               29          51
Global Services(2)              1,967       1,783
Defense, Space, & Security(2)     220         222
Other                               2           3
Less valuation allowance          (73 )       (57 )
Total                          $3,266      $3,879



(1)  Includes foreign military sales through the U.S. government


(2)  Excludes U.S. government contracts

Accounts receivable expected to be collected after one year are not material.

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Note 7 - Inventories
Inventories at December 31 consisted of the following:
                                                                   2019     

2018

Long-term contracts in progress                                  $1,187

$2,129

Commercial aircraft programs                                     66,016     

52,753

Commercial spare parts, used aircraft, general stock
materials and other                                               9,419         7,685
Total                                                           $76,622       $62,567



Long-Term Contracts in Progress
Long-term contracts in progress includes Delta launch program inventory that is
being sold at cost to United Launch Alliance (ULA) under an inventory supply
agreement that terminates on March 31, 2021. The inventory balance was $176 and
$227 at December 31, 2019 and 2018. See indemnifications to ULA in Note 15.
Included in inventories are capitalized precontract costs of $711 at December
31, 2019, primarily related to the KC-46A Tanker and Commercial Crew, and $644
at December 31, 2018 primarily related to KC-46A Tanker. See Note 14.
Commercial Aircraft Programs
At December 31, 2019 and 2018, commercial aircraft programs inventory included
the following amounts related to the 737 program: $1,313 and $463 of deferred
production costs and $521 and $471 of unamortized tooling and other
non-recurring costs. At December 31, 2019, $1,829 of 737 deferred production
costs, unamortized tooling and other non-recurring costs are expected to be
recovered from units included in the program accounting quantity that have firm
orders and $5 is expected to be recovered from units included in the program
accounting quantity that represent expected future orders.
At December 31, 2019 and 2018, commercial aircraft programs inventory included
the following amounts related to the 777X program: $5,628 and $3,067 of work in
process and $2,914 and $2,512 of unamortized tooling and other non-recurring
costs.
At December 31, 2019 and 2018, commercial aircraft programs inventory included
the following amounts related to the 787 program: $24,772 and $27,852 of work in
process (including deferred production costs of $18,716 and $22,967), $2,202 and
$2,453 of supplier advances, and $2,092 and $2,638 of unamortized tooling and
other non-recurring costs. At December 31, 2019, $14,386 of 787 deferred
production costs, unamortized tooling and other non-recurring costs are expected
to be recovered from units included in the program accounting quantity that have
firm orders and $6,422 is expected to be recovered from units included in the
program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or
other consideration (early issue sales consideration) to airline customers
totaling $2,863 and $2,844 at December 31, 2019 and 2018.


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Note 8 - Contracts with Customers
Unbilled receivables decreased from $10,025 at December 31, 2018 to $9,043 at
December 31, 2019, primarily driven by timing of billings at BDS and BGS.
Advances and progress billings increased from $50,676 at December 31, 2018 to
$51,551 at December 31, 2019, primarily driven by advances on orders received in
excess of revenue recognized at BDS, BGS, and BCA.
Revenues recognized for the years ended December 31, 2019 and 2018 from amounts
recorded as Advances and progress billings at the beginning of each year were
$16,778 and $24,737.
Certain commercial airplane customers are experiencing liquidity issues and
seeking additional capital. Should these customers fail to address their
liquidity issues, accounts receivable, unbilled receivables and certain
inventory could become impaired. In addition we would have to remove contracts
related to these customers from backlog and remarket any undelivered aircraft.
The following table summarizes our contract assets under long-term contracts
that were unbillable or related to outstanding claims as of December 31:
                                              Unbilled             Claims
                                           2019        2018     2019     2018
Current                                  $6,931      $7,178       $9       $1

Expected to be collected after one year 2,112 2,847 14 2 Total

$9,043     $10,025      $23       $3



Unbilled receivables related to commercial customer incentives expected to be
collected after one year were $211 and $150 at December 31, 2019 and 2018.
Unbilled receivables related to claims are items that we believe are earned, but
are subject to uncertainty concerning their determination or ultimate
realization.
Note 9 - Customer Financing
Customer financing primarily relates to our BCC segment. Customer financing
consisted of the following at December 31:
                                                                     2019   

2018

Financing receivables:
Investment in sales-type/finance leases                            $1,029       $1,125
Notes                                                                 443          730
Total financing receivables                                         1,472        1,855

Operating lease equipment, at cost, less accumulated depreciation of $235 and $203

                                         834          782
Operating lease incentive                                                          250
Gross customer financing                                            2,306        2,887
Less allowance for losses on receivables                               (8 )         (9 )
Total                                                              $2,298       $2,878




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The components of investment in sales-type/finance leases at December 31 were as follows:

                                             2019        2018
Minimum lease payments receivable            $799        $908
Estimated residual value of leased assets     393         425
Unearned income                              (163 )      (208 )
Total                                      $1,029      $1,125

Operating lease equipment primarily includes large commercial jet aircraft. Financing receivable balances evaluated for impairment at December 31 were as follows:

                                         2019       2018

Individually evaluated for impairment $400 $409 Collectively evaluated for impairment 1,072 1,446 Total financing receivables

$1,472     $1,855



We determine a receivable is impaired when, based on current information and
events, it is probable that we will be unable to collect amounts due according
to the original contractual terms. At December 31, 2019 and 2018, we
individually evaluated for impairment customer financing receivables of $400 and
$409, of which $388 and $398 were determined to be impaired. We recorded no
allowance for losses on these impaired receivables as the collateral values
exceeded the carrying values of the receivables.
Income recognition is generally suspended for financing receivables at the date
full recovery of income and principal becomes not probable. Income is recognized
when financing receivables become contractually current and performance is
demonstrated by the customer. The average recorded investment in impaired
financing receivables for the year ended December 31, 2019 was $392, and the
related interest income was insignificant.
The change in the allowance for losses on financing receivables for the years
ended December 31, 2019, 2018 and 2017, consisted of the following:
                                             2019      2018      2017
Beginning balance - January 1                 ($9 )    ($12 )    ($10 )

Customer financing valuation benefit/(cost) 1 3 (2 ) Ending balance - December 31

                  ($8 )     ($9 )    ($12 )

Collectively evaluated for impairment ($8 ) ($9 ) ($12 )

The adequacy of the allowance for losses is assessed quarterly. Three primary
factors influencing the level of our allowance for losses on customer financing
receivables are customer credit ratings, default rates and collateral values. We
assign internal credit ratings for all customers and determine the
creditworthiness of each customer based upon publicly available information and
information obtained directly from our customers. Our rating categories are
comparable to those used by the major credit rating agencies.


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Our financing receivable balances at December 31 by internal credit rating
category are shown below:
Rating categories                                2019       2018
BBB                                              $573       $883
BB                                                385        430
B                                                 122        135
CCC                                               392        407

Total carrying value of financing receivables $1,472 $1,855

At December 31, 2019, our allowance related to receivables with ratings of B, BB
and BBB. We applied default rates that averaged 22.1%, 5.3% and 0.6%,
respectively, to the exposure associated with those receivables.
Customer Financing Exposure
Customer financing is collateralized by security in the related asset. The value
of the collateral is closely tied to commercial airline performance and overall
market conditions and may be subject to reduced valuation with market decline.
Declines in collateral values could result in asset impairments, reduced finance
lease income, and an increase in the allowance for losses. Our customer
financing collateral is concentrated in 747-8 and out-of-production aircraft.
Generally, out-of-production aircraft have experienced greater collateral value
declines than in-production aircraft.

The majority of customer financing carrying values are concentrated in the following aircraft models at December 31:

                                                                  2019     

2018

717 Aircraft ($124 and $204 accounted for as operating leases)    $736     $918
747-8 Aircraft ($130 and $132 accounted for as operating leases)   475      477
737 Aircraft ($240 and $263 Accounted for as operating leases)     263      290
777 Aircraft ($236 and $60 accounted for as operating leases)      240      

68

MD-80 Aircraft (Accounted for as sales-type finance leases)        186      204
757 Aircraft ($22 and $24 accounted for as operating leases)       182      200
747-400 Aircraft ($31 and $45 Accounted for as operating leases)    90      116



As part of selected lease transactions, Boeing may provide incentives to
commercial customers. At December 31, 2018, Customer Financing included $250 of
lease incentives with one customer that experienced liquidity issues. In the
first quarter of 2019, we concluded that these lease incentives were impaired
and recorded a charge of $250.
Charges related to customer financing asset impairment for the years ended
December 31 were as follows:
                2019     2018     2017
Boeing Capital   $53       $1      $13
Other Boeing     217       38       30
Total           $270      $39      $43





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Lease income recorded in Revenue on the Consolidated Statements of Operations
for the year ended December 31, 2019 included $62 from sales-type/finance leases
and $139 from operating leases, of which $8 related to variable operating lease
payments.
As of December 31, 2019, undiscounted cash flows for notes receivable,
sales-type/finance and operating leases over the next five years and thereafter
are as follows:
                                                           Notes        Sales-type/finance          Operating
                                                      receivable                    leases             leases
Year 1                                                      $382                      $191               $130
Year 2                                                         7                       141                103
Year 3                                                        37                       127                 89
Year 4                                                        17                       118                 74
Year 5                                                                                  98                 58
Thereafter                                                                             124                 41
Total lease receipts                                         443                       799                495
Less imputed interest                                                                 (163 )
Estimated unguaranteed residual values                                                 393
Total                                                       $443                    $1,029               $495




At December 31, 2019 and December 31, 2018 unguaranteed residual values were
$393 and $425. Guaranteed residual values at December 31, 2019 were not
significant.
Note 10 - Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
                                        2019         2018
Land                                    $527         $546

Buildings and land improvements 14,288 14,109 Machinery and equipment

               15,723       15,221
Construction in progress               1,306        1,337

Gross property, plant and equipment 31,844 31,213 Less accumulated depreciation (19,342 ) (18,568 ) Total

$12,502      $12,645



Depreciation expense was $1,567, $1,556 and $1,548 for the years ended December
31, 2019, 2018 and 2017, respectively. Interest capitalized during the years
ended December 31, 2019, 2018 and 2017 totaled $83, $81 and $110, respectively.
During 2019 and 2018, we acquired $128 and $78 of property, plant and equipment
through non-cash investing and financing transactions. Accounts payable related
to purchases of property, plant and equipment were $256 and $338 for the years
ended December 31, 2019 and 2018.


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Note 11 - Investments Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following at December 31:

                                          2019       2018
Equity method investments (1)           $1,031     $1,048
Time deposits                               50        255

Available for sale debt instruments 405 491 Equity and other investments

                65         44

Restricted cash & cash equivalents (2) 86 176 Total

$1,637     $2,014

(1) Dividends received were $164 and $325 during 2019 and 2018. Retained

earnings at December 31, 2019 include undistributed earnings from our equity

     method investments of $156.


(2)  Reflects amounts restricted in support of our workers' compensation
     programs, employee benefit programs, and insurance premiums.


Equity Method Investments
Our equity method investments consisted of the following as of December 31:
                                                         Ownership
                                   Segment              Percentages       Investment Balance
                                                                              2019         2018
United Launch Alliance               BDS                    50%               $771         $768
Other                      BCA, BDS, BGS and Other                             260          280
Total equity method investments                                             $1,031       $1,048



Note 12 - Other Assets
Sea Launch
At December 31, 2019 and 2018, Other assets included $244 of receivables related
to our former investment in the Sea Launch venture which became payable by
certain Sea Launch partners following Sea Launch's bankruptcy filing in June
2009. The net amounts owed to Boeing by each of the partners are as follows:
S.P. Koroley Rocket and Space Corporation Energia of Russia (RSC Energia) -
$111, PO Yuzhnoye Mashinostroitelny Zavod of Ukraine - $89 and KB Yuzhnoye of
Ukraine - $44.
In 2013, we filed an action in the United States District Court for the Central
District of California seeking reimbursement from the other Sea Launch
partners. In 2016, the United States District Court for the Central District of
California issued a judgment in favor of Boeing. Later that year, we reached an
agreement which we believe will enable us to recover the outstanding receivable
balance from RSC Energia over the next several years. In the fourth quarter of
2019, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of
the U.S. District Court. We continue to pursue collection efforts against the
former Ukrainian partners in connection with the court judgment. We continue to
believe the partners have the financial wherewithal to pay and intend to pursue
vigorously all of our rights and remedies. In the event we are unable to secure
reimbursement from RSC Energia and the Ukrainian Sea Launch partners, we could
incur additional charges.


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Note 13 - Leases
Our operating lease assets primarily represent manufacturing and research and
development facilities, warehouses, and offices. Total operating lease expense
was $326 for the year ended December 31, 2019, of which $55 was attributable to
variable lease expenses.
For the year ended December 31, 2019, cash payments against operating lease
liabilities totaled $277 and non-cash transactions totaled $371 to recognize
operating assets and liabilities for new leases.
Supplemental Consolidated Statement of Financial Position information related to
leases was as follows:
                                               December 31
                                                      2019
Operating leases:
Operating lease right-of-use assets                 $1,182

Current portion of lease liabilities                   252
Non-current portion of lease liabilities               978
Total operating lease liabilities                   $1,230

Weighted average remaining lease term (years)            9
Weighted average discount rate                        3.35 %



Maturities of operating lease liabilities for the next five years are as
follows:
                         Operating leases
2020                                 $287
2021                                  235
2022                                  194
2023                                  151
2024                                   98
Thereafter                            609
Total lease payments                1,574
Less imputed interest                (344 )
Total                              $1,230



As of December 31, 2019, we have entered into an operating lease that has not
yet commenced of $160, primarily related to research and development and
manufacturing facilities. This lease will commence in 2020 with a lease term of
15 years.


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Payments due under operating leases net of sublease amounts and non-cancellable future rentals under ASC 840 as of December 31, 2018 were as follows:

                        Operating leases
2019                                $272
2020                                 232
2021                                 194
2022                                 165
2023                                 126
Thereafter                           849
Total lease payments              $1,838

Note 14 - Liabilities, Commitments and Contingencies Accrued Liabilities Accrued liabilities at December 31 consisted of the following:

                                                          2019        2018
Accrued compensation and employee benefit costs         $5,582      $6,841
737 MAX customer concessions and other considerations    7,389
Environmental                                              570         555
Product warranties                                       1,267       1,127
Forward loss recognition                                 1,681       1,488
Dividends payable                                        1,159       1,160
Income taxes payable                                       670         485
Other                                                    4,550       3,152
Total                                                  $22,868     $14,808



737 MAX Grounding
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to
suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft
operators following two fatal 737 MAX accidents. Non-U.S. civil aviation
authorities have issued directives to the same effect. Deliveries of the 737 MAX
have been suspended until clearance is granted by the appropriate regulatory
authorities. In addition, multiple legal actions have been filed against us as a
result of the accidents. We also are fully cooperating with U.S. government
investigations related to the accidents and the 737 MAX program, including
investigations by the U.S. Department of Justice and the Securities and Exchange
Commission. We cannot reasonably estimate a range of loss, if any, not covered
by available insurance that may result given the ongoing status of these law
suits, investigations and inquiries.
We have developed software and pilot training updates for the 737 MAX and
continue to work with the FAA and non-U.S. civil aviation authorities to
complete remaining steps toward certification and readiness for return to
service including addressing their questions on the software updates and how
pilots will interact with the airplane controls and displays in different flight
scenarios. We have assumed that computer and simulator training will be required
and as a result, we have provisioned for certain training costs.


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Prior to the grounding, the 737 production rate was 52 per month and we had
planned to increase the rate to 57 per month during 2019. Beginning in the
second quarter of 2019, we reduced the production rate to 42 per month. We have
continued to produce at a rate of 42 per month through December 2019, which has
resulted in approximately 400 airplanes in inventory as of December 31, 2019. In
December 2019, we announced the temporary suspension of 737 MAX production
beginning in January 2020 due to a number of factors, including the 737 MAX
grounding continuing longer than expected, our decision to prioritize delivery
of stored aircraft, and uncertainty about the timing and conditions of return to
service and global training approvals. We have assumed that we will resume 737
MAX aircraft production at low rates in 2020 as timing and conditions of return
to service are better understood, and then we expect to gradually increase to
previously planned production rates over the next few years. We have assumed
that regulatory approval will enable 737 MAX deliveries to resume during
mid-2020. The cumulative impacts of changes to assumptions regarding timing of
return to service and timing of planned production rates and deliveries have
increased the estimated costs to produce and deliver aircraft included in the
current accounting quantity by approximately $6,300, which will be recorded in
program inventory. This will result in lower 737 program margins in future
periods after deliveries resume. In addition, the suspension of 737 MAX
production and abnormally low production rates once production resumes will
result in approximately $4,000 of abnormal production costs during 2020 and 2021
that will be expensed as incurred.
We are working with our customers to minimize the impact to their operations
from grounded and undelivered aircraft. During the second quarter of 2019, we
recorded an earnings charge (reduction in revenue) and a corresponding liability
of $6,110 in connection with estimated potential concessions and other
considerations to customers for disruptions related to the 737 MAX grounding and
associated delivery delays. We have insurance coverage for up to $500 of costs
arising due to grounded aircraft and have received $500 from our insurance
carriers, which partially offset the earnings charges. We continue to reassess
the liability for estimated potential concessions and other considerations to
customers on a quarterly basis, and in the third and fourth quarters of 2019, we
recorded additional charges totaling $2,649. This reassessment includes updating
estimates to reflect revised return to service and updated delivery and
production rate assumptions, as well as latest information based on engagements
with 737 MAX customers. The liability represents our current best estimate of
future concessions and other considerations to customers, and is necessarily
based on a series of assumptions.
The following table summarizes changes in the 737 MAX customer concessions and
other considerations liability during 2019.
                                                               2019

Beginning balance - January 1 Initial liability recorded in the second quarter of 2019 $6,110 Reductions for payments made

                                 (1,237 )
Reductions for concessions and other in-kind considerations    (133 )
Changes in estimates                                          2,649
Ending balance - December 31                                 $7,389



We have also recorded additional expenses of $328 as a result of the 737 MAX
grounding. These expenses include costs related to storage, pilot training and
software updates.
The FAA and other non-U.S. civil aviation authorities will determine the timing
and conditions of return to service. Our assumptions reflect our current best
estimate, but actual timing and conditions of return to service and resumption
of deliveries could differ from this estimate, the effect of which could be
material. We are unable at this time to reasonably estimate potential future
additional financial impacts or a range of loss, if any, due to continued
uncertainties related to the timing and conditions of return to service, future
changes to the production rate, supply chain impacts or the results of
negotiations with particular customers. Any such impacts, including any changes
in our estimates, could have a material adverse effect on our


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financial position, results of operations, and/or cash flows. For example, we
expect that, in the event that we are unable to resume aircraft deliveries
consistent with our assumptions, the continued absence of revenue, earnings, and
cash flows associated with 737 MAX deliveries would continue to have the most
material impact on our operating results. In the event that future production
rate increases occur at a slower rate or take longer than we are currently
assuming we expect that the growth in inventory and other cash flow impacts
associated with production would decrease. However, while any prolonged
production suspension or delays in planned production rate increases could
mitigate the impact on our liquidity it could significantly increase the overall
expected costs to produce aircraft included in the accounting quantity, which
would reduce 737 program margins and/or increase abnormal production costs in
the future.
737NG Structure (Pickle Fork)
During the third quarter of 2019, we detected cracks in the "pickle forks," a
component of the structure connecting the wings to the fuselages, of three
737-800NGs we were converting into freighters. We notified the FAA, which issued
a directive requiring that 737NG airplanes with over 30,000 flight cycles be
inspected for this condition by October 10, 2019, and that airplanes with over
22,600 flight cycles be inspected over the next 1,000 flight cycles. To date,
all airplanes with over 30,000 flight cycles and approximately half of the
airplanes with over 22,600 flights cycles have been inspected and this condition
has been found on a small percentage of aircraft, and those aircraft will be
repaired. A small percentage of airplanes with fewer than 22,600 flight cycles
have also been inspected. We have estimated the number of aircraft that will
have to be repaired in the future and provisioned for the estimated costs of
completing the repairs. We recognized charges of $135 in 2019 for current and
projected future aircraft repairs. However, we cannot estimate a range of
reasonably possible losses, if any, in excess of amounts recognized due to the
ongoing nature of the inspections and repairs and pending the completion of
investigations into the cause of the condition.
Environmental
The following table summarizes environmental remediation activity during the
years ended December 31, 2019 and 2018.
                               2019      2018
Beginning balance - January 1  $555      $524
Reductions for payments made    (47 )     (37 )
Changes in estimates             62        68

Ending balance - December 31 $570 $555

The liabilities recorded represent our best estimate or the low end of a range
of reasonably possible costs expected to be incurred to remediate sites,
including operation and maintenance over periods of up to 30 years. It is
reasonably possible that we may incur charges that exceed these recorded amounts
because of regulatory agency orders and directives, changes in laws and/or
regulations, higher than expected costs and/or the discovery of new or
additional contamination. As part of our estimating process, we develop a range
of reasonably possible alternate scenarios that includes the high end of a range
of reasonably possible cost estimates for all remediation sites for which we
have sufficient information based on our experience and existing laws and
regulations. There are some potential remediation obligations where the costs of
remediation cannot be reasonably estimated. At December 31, 2019 and 2018, the
high end of the estimated range of reasonably possible remediation costs
exceeded our recorded liabilities by $1,077 and $796.


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Product Warranties
The following table summarizes product warranty activity recorded during the
years ended December 31, 2019 and 2018.
                                         2019        2018
Beginning balance - January 1          $1,127      $1,211
Additions for current year deliveries     188         232
Reductions for payments made             (249 )      (193 )
Changes in estimates                      201        (123 )
Ending balance - December 31           $1,267      $1,127



Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new aircraft
(Sale Aircraft), we have entered into trade-in commitments with certain
customers that give them the right to trade in used aircraft at a specified
price upon the purchase of Sale Aircraft. The probability that trade-in
commitments will be exercised is determined by using both quantitative
information from valuation sources and qualitative information from other
sources. The probability of exercise is assessed quarterly, or as events trigger
a change, and takes into consideration the current economic and airline industry
environments. Trade-in commitments, which can be terminated by mutual consent
with the customer, may be exercised only during the period specified in the
agreement, and require advance notice by the customer.
Trade-in commitment agreements at December 31, 2019 have expiration dates from
2020 through 2026. At December 31, 2019 and 2018, total contractual trade-in
commitments were $1,407 and $1,519. As of December 31, 2019 and 2018, we
estimated that it was probable we would be obligated to perform on certain of
these commitments with net amounts payable to customers totaling $711 and $522
and the fair value of the related trade-in aircraft was $678 and $485.
Financing Commitments
Financing commitments related to aircraft on order, including options and those
proposed in sales campaigns, and refinancing of delivered aircraft, totaled
$13,377 and $19,462 as of December 31, 2019 and 2018. The estimated earliest
potential funding dates for these commitments as of December 31, 2019 are as
follows:
              Total
2020         $3,506
2021          2,981
2022          1,343
2023          2,163
2024          1,407
Thereafter    1,977
            $13,377



As of December 31, 2019, all of these financing commitments relate to customers
we believe have less than investment-grade credit. We have concluded that no
reserve for future potential losses is required for these financing commitments
based upon the terms, such as collateralization and interest rates, under which
funding would be provided.


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Funding Commitments
We have commitments to make additional capital contributions of $246 to joint
ventures over the next eight years.
Standby Letters of Credit and Surety Bonds
We have entered into standby letters of credit and surety bonds with financial
institutions primarily relating to the guarantee of our future performance on
certain contracts. Contingent liabilities on outstanding letters of credit
agreements and surety bonds aggregated approximately $3,769 and $3,761 as of
December 31, 2019 and 2018.
Company Owned Life Insurance
McDonnell Douglas Corporation insured its executives with Company Owned Life
Insurance (COLI), which are life insurance policies with a cash surrender value.
Although we do not use COLI currently, these obligations from the merger with
McDonnell Douglas are still a commitment at this time. We have loans in place to
cover costs paid or incurred to carry the underlying life insurance policies. As
of December 31, 2019 and 2018, the cash surrender value was $448 and $466 and
the total loans were $431 and $447. As we have the right to offset the loans
against the cash surrender value of the policies, we present the net asset in
Other assets on the Consolidated Statements of Financial Position as of December
31, 2019 and 2018.
United States Government Defense Environment Overview
The Bipartisan Budget Act of 2019 raised the Budget Control Act limits on
federal discretionary defense and non-defense spending for fiscal years 2020 and
2021 (FY20 and FY21), reducing budget uncertainty and the risk of sequestration.
The consolidated appropriations acts for FY20, enacted in December 2019,
provided FY20 appropriations for government departments and agencies, including
the United States Department of Defense (U.S. DoD), the National Aeronautics and
Space Administration (NASA) and the FAA.
The enacted FY20 appropriations included funding for Boeing's major programs,
such as the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22
Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, there
continues to be uncertainty with respect to future program-level appropriations
for the U.S. DoD and other government agencies, including NASA. 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.

BDS Fixed-Price Development Contracts
Fixed-price development work is inherently uncertain and subject to significant
variability in estimates of the cost and time required to complete the work. BDS
fixed-price contracts with significant development work include Commercial Crew,
KC-46A Tanker, T-7A Red Hawk (formerly T-X Trainer), VC-25B Presidential
Aircraft, MQ-25, and commercial and military satellites. The operational and
technical complexities of these contracts create financial risk, which could
trigger termination provisions, order cancellations or other financially
significant exposure. Changes to cost and revenue estimates could result in
lower margins or material charges for reach-forward losses. For example, we have
recorded reach-forward losses of $148 on KC-46A Tanker and $489 on Commercial
Crew in 2019. Moreover, our fixed-price development programs remain subject to
additional reach-forward losses if we experience further production, technical
or quality issues, schedule delays, or increased costs.


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KC-46A Tanker
In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design,
develop, manufacture and deliver four next generation aerial refueling tankers.
This EMD contract is a fixed-price incentive fee contract and involves highly
complex designs and systems integration. Since 2016, the USAF has authorized
five low rate initial production (LRIP) lots for a total of 67 aircraft. The EMD
contract and authorized LRIP lots are valued at approximately $15 billion.
At December 31, 2019, we had approximately $331 of capitalized precontract costs
and $225 of potential termination liabilities to suppliers.
Recoverable Costs on Government Contracts
Our final incurred costs for each year are subject to audit and review for
allowability by the U.S. government, which can result in payment demands related
to costs they believe should be disallowed. We work with the U.S. government to
assess the merits of claims and where appropriate reserve for amounts disputed.
If we are unable to satisfactorily resolve disputed costs, we could be required
to record an earnings charge and/or provide refunds to the U.S. government.
Note 15 - Arrangements with Off-Balance Sheet Risk
We enter into arrangements with off-balance sheet risk in the normal course of
business, primarily in the form of guarantees.
The following table provides quantitative data regarding our third party
guarantees. The maximum potential payments represent a "worst-case scenario,"
and do not necessarily reflect amounts that we expect to pay. Estimated proceeds
from collateral and recourse represent the anticipated values of assets we could
liquidate or receive from other parties to offset our payments under guarantees.
The carrying amount of liabilities represents the amount included in Accrued
liabilities.
                                                          Estimated
                                       Maximum          Proceeds from          Carrying
                                      Potential          Collateral/           Amount of
                                      Payments             Recourse           Liabilities
December 31,                         2019     2018        2019     2018         2019   2018
Contingent repurchase commitments  $1,570   $1,685      $1,570   $1,685
Indemnifications to ULA:
Contributed Delta inventory            30       52
Inventory supply agreement             34       85
Questioned costs                      317      317                               $48
Credit guarantees                      92      106          36       51           16    $16



Contingent Repurchase Commitments The repurchase price specified in contingent
repurchase commitments is generally lower than the expected fair value at the
specified repurchase date. Estimated proceeds from collateral/recourse in the
table above represent the lower of the contracted repurchase price or the
expected fair value of each aircraft at the specified repurchase date.
Indemnifications to ULA In 2006, we agreed to indemnify ULA through December 31,
2020 against potential non-recoverability and non-allowability of $1,360 of
Boeing Delta launch program inventory included in contributed assets plus $1,860
of inventory subject to an inventory supply agreement which ends on March 31,
2021. See Note 7. ULA has yet to consume $30 of contributed inventory.


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In June 2011, the Defense Contract Management Agency (DCMA) notified ULA that it
had determined that $271 of deferred support costs are not recoverable under
government contracts. In December 2011, the DCMA notified ULA of the potential
non-recoverability of an additional $114 of deferred production costs. ULA and
Boeing believe that all costs are recoverable and in November 2011, ULA filed a
certified claim with the USAF for collection of deferred support and production
costs. The USAF issued a final decision denying ULA's certified claim in May
2012. In 2012, Boeing and ULA, through its subsidiary United Launch Services,
filed a suit in the Court of Federal Claims seeking recovery of the deferred
support and production costs from the U.S. government, which subsequently
asserted a counterclaim for credits that it alleges were offset by deferred
support cost invoices. We believe that the U.S. government's counterclaim is
without merit. The discovery phase of the litigation completed in 2017. The
parties have since agreed to engage in alternative dispute resolution, and the
court has stayed the litigation pending that process. If, contrary to our
belief, it is determined that some or all of the deferred support or production
costs are not recoverable, we could be required to record pre-tax losses up to
$269 and make indemnification payments to ULA for up to $317 of the costs
questioned by the DCMA.
Other Indemnifications In conjunction with our sales of Electron Dynamic
Devices, Inc. and Rocketdyne Propulsion and Power businesses and our BCA
facilities in Wichita, Kansas and Tulsa and McAlester, Oklahoma, we agreed to
indemnify, for an indefinite period, the buyers for costs relating to
pre-closing environmental conditions and certain other items. We are unable to
assess the potential number of future claims that may be asserted under these
indemnifications, nor the amounts thereof (if any). As a result, we cannot
estimate the maximum potential amount of future payments under these indemnities
and therefore, no liability has been recorded. To the extent that claims have
been made under these indemnities and/or are probable and reasonably estimable,
liabilities associated with these indemnities are included in the environmental
liability disclosure in Note 14.
Credit Guarantees We have issued credit guarantees where we are obligated to
make payments to a guaranteed party in the event that the original lessee or
debtor does not make payments or perform certain specified services. Generally,
these guarantees have been extended on behalf of guaranteed parties with less
than investment-grade credit and are collateralized by certain assets. Current
outstanding credit guarantees expire through 2036.
Industrial Revenue Bonds
Industrial Revenue Bonds (IRB) issued by St. Louis County were used to finance
the purchase and/or construction of real and personal property at our St. Louis
site. Tax benefits associated with IRBs include a twelve-year property tax
abatement and sales tax exemption from St. Louis County. We record these
properties on our Consolidated Statements of Financial Position. We have also
purchased the IRBs and therefore are the bondholders as well as the
borrower/lessee of the properties purchased with the IRB proceeds. The
liabilities and IRB assets are equal and are reported net in the Consolidated
Statements of Financial Position.
As of December 31, 2019 and 2018, the assets and liabilities associated with the
IRBs were $271.
Note 16 - Debt
In the first quarter of 2019, we issued $1,500 of fixed rate senior notes
consisting of $400 due March 1, 2024 that bear an annual interest rate of 2.8%,
$400 due March 1, 2029 that bear an annual interest rate of 3.2%, $400 due March
1, 2039 that bear an annual interest rate of 3.5%, and $300 due March 1, 2059
that bear an annual interest rate of 3.825%. The notes are unsecured senior
obligations and rank equally in right of payment with our existing and future
unsecured and unsubordinated indebtedness. The net proceeds of the issuance
totaled $1,451, after deducting underwriting discounts, commissions and offering
expenses.


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In the second quarter of 2019, we issued $3,500 of fixed rate senior notes
consisting of $600 due May 1, 2022 that bear an annual interest rate of 2.7%,
$650 due May 1, 2026 that bear an annual interest rate of 3.1%, $600 due March
1, 2029 that bear an annual interest rate of 3.2%, $850 due May 1, 2034 that
bear an annual interest rate of 3.6%, and $800 due May 1, 2049 that bear an
annual interest rate of 3.9%. The notes are unsecured senior obligations and
rank equally in right of payment with our existing and future unsecured and
unsubordinated indebtedness. The net proceeds of the issuance totaled $3,454,
after deducting underwriting discounts, commissions and offering expenses.
In the third quarter of 2019, we issued $5,500 of fixed rate senior notes
consisting of $750 due August 1, 2021 that bear an annual interest rate of 2.3%,
$1,000 due February 1, 2027 that bear an annual interest rate of 2.7%, $750 due
February 1, 2030 that bear an annual interest rate of 2.95%, $750 due February
1, 2035 that bear an annual interest rate of 3.25%, $1,250 due February 1, 2050
that bear an annual interest rate of 3.75%, and $1,000 due August 1, 2059 that
bear an annual interest rate of 3.95%. The notes are unsecured senior
obligations and rank equally in right of payment with our existing and future
unsecured and unsubordinated indebtedness. The net proceeds of the issuance
totaled $5,442, after deducting underwriting discounts, commissions and offering
expenses.
Interest incurred, including amounts capitalized, was $867, $624 and $541 for
the years ended December 31, 2019, 2018 and 2017, respectively. Interest expense
recorded by BCC is reflected as Boeing Capital interest expense on our
Consolidated Statements of Operations. Total Company interest payments were
$973, $616 and $527 for the years ended December 31, 2019, 2018 and 2017,
respectively.
We have $9,600 currently available under credit line agreements, of which $3,200
is a 364-day revolving credit facility expiring in October 2020, $3,200 expires
in October 2022, and $3,200 expires in October 2024. The 364-day credit facility
has a one-year term out option which allows us to extend the maturity of any
borrowings one year beyond the aforementioned expiration date. We continue to be
in full compliance with all covenants contained in our debt or credit facility
agreements.
Short-term debt and current portion of long-term debt at December 31 consisted
of the following:
                               2019       2018
Unsecured debt securities    $1,099     $1,151
Non-recourse debt and notes      21         25
Finance lease obligations        71         57
Commercial paper              6,109      1,895
Other notes                      40         62
Total                        $7,340     $3,190





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Debt at December 31 consisted of the following:

                                               2019        2018
Unsecured debt securities
1.65% - 4.88% due through 2059              $17,404      $7,538
5.80% - 6.88% due through 2043                1,740       2,388
7.25% - 8.75% due through 2043                1,639       1,638
Commercial paper                              6,109       1,895

Non-recourse debt and notes
6.98% notes due through 2021                     37          62
Finance lease obligations due through 2044      229         156
Other notes                                     144         170
Total debt                                  $27,302     $13,847



At December 31, 2019 and 2018, commercial paper borrowings totaling $6,109 and
$1,895, with a weighted-average interest rate of 2.2% and 2.5%, were supported
by unused commitments under the revolving credit agreement.
Total debt at December 31 is attributable to:
                 2019        2018
BCC            $1,960      $2,487
Other Boeing   25,342      11,360
Total debt    $27,302     $13,847



At December 31, 2019, $37 of debt (non-recourse debt) was collateralized by
customer financing assets totaling $186.
Scheduled principal payments for debt and minimum finance lease obligations for
the next five years are as follows:
                                     2020       2021       2022     2023    

2024

Debt                               $7,306     $1,484     $1,214     $780    

$1,000

Minimum finance lease obligations $71 $56 $42 $20

$6

Note 17 - Postretirement Plans
The majority of our employees have earned benefits under defined benefit pension
plans. Nonunion and the majority of union employees that had participated in
defined benefit pension plans transitioned to a company-funded defined
contribution retirement savings plan in 2016. Additional union employees
transitioned to company-funded defined contribution retirement savings plans
effective January 1, 2019.
We fund our major pension plans through trusts. Pension assets are placed in
trust solely for the benefit of the plans' participants, and are structured to
maintain liquidity that is sufficient to pay benefit obligations as well as to
keep pace over the long-term with the growth of obligations for future benefit
payments.
We also have other postretirement benefits (OPB) other than pensions which
consist principally of health care coverage for eligible retirees and qualifying
dependents, and to a lesser extent, life insurance to certain groups of
retirees. Retiree health care is provided principally until age 65 for
approximately two-thirds of those participants who are eligible for health care
coverage. Certain employee groups, including


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employees covered by most United Auto Workers bargaining agreements, are
provided lifetime health care coverage. The funded status of the plans is
measured as the difference between the plan assets at fair value and the
projected benefit obligation (PBO). We have recognized the aggregate of all
overfunded plans in Other assets, and the aggregate of all underfunded plans in
either Accrued retiree health care or Accrued pension plan liability, net. The
portion of the amount by which the actuarial present value of benefits included
in the PBO exceeds the fair value of plan assets, payable in the next 12 months,
is reflected in Accrued liabilities.
The components of net periodic benefit (income)/cost were as follows:
                                               Pension                   Other Postretirement Benefits
Years ended December 31,            2019         2018         2017        2019        2018        2017
Service cost                          $2         $430         $402         $77         $94        $106
Interest cost                      2,925        2,781        2,991         196         194         229
Expected return on plan assets    (3,863 )     (4,009 )     (3,847 )        (8 )        (8 )        (7 )
Amortization of prior service
credits                              (79 )        (56 )        (39 )       (35 )      (126 )      (137 )
Recognized net actuarial
loss/(gain)                          643        1,130          804         (46 )       (10 )        10
Settlement/curtailment/other
losses                                             44            1
Net periodic benefit
(income)/cost                      ($372 )       $320         $312        $184        $144        $201

Net periodic benefit cost
included in (Loss)/earnings from
operations                          $313         $313         $510         $88         $84        $107
Net periodic benefit
(income)/cost included in Other
income, net                         (374 )       (143 )       (117 )       107         101         123
Net periodic benefit
(income)/cost included in
(Loss)/earnings before income
taxes                               ($61 )       $170         $393        $195        $185        $230



The following tables show changes in the benefit obligation, plan assets and
funded status of both pensions and OPB for the years ended December 31, 2019 and
2018. Benefit obligation balances presented below reflect the PBO for our
pension plans, and accumulated postretirement benefit obligations (APBO) for our
OPB plans.


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                                                                            Other Postretirement
                                                      Pension                     Benefits
                                                  2019           2018          2019          2018
Change in benefit obligation
Beginning balance                              $71,424        $80,393        $5,114        $6,085
Service cost                                         2            430            77            94
Interest cost                                    2,925          2,781           196           194
Amendments                                                       (377 )           1           (58 )
Actuarial (gain)/loss                            8,695         (6,352 )         127          (732 )
Settlement/curtailment/other                      (756 )         (730 )
Gross benefits paid                             (4,658 )       (4,700 )        (474 )        (487 )
Subsidies                                                                        36            24
Exchange rate adjustment                            13            (21 )           3            (6 )
Ending balance                                 $77,645        $71,424        $5,080        $5,114
Change in plan assets
Beginning balance at fair value                $56,102        $64,011          $132          $143
Actual return on plan assets                    10,851         (2,585 )          26            (3 )
Company contribution                                16             16             1             2
Plan participants' contributions                                                  6             7
Settlement payments                               (756 )         (764 )
Benefits paid                                   (4,514 )       (4,557 )         (16 )         (17 )
Exchange rate adjustment                            12            (19 )
Ending balance at fair value                   $61,711        $56,102          $149          $132
Amounts recognized in statement of
financial position at December 31 consist
of:
Other assets                                      $484           $138
Other accrued liabilities                         (142 )         (137 )       ($391 )       ($398 )
Accrued retiree health care                                                  (4,540 )      (4,584 )
Accrued pension plan liability, net            (16,276 )      (15,323 )
Net amount recognized                         ($15,934 )     ($15,322 )     ($4,931 )     ($4,982 )



Amounts recognized in Accumulated other comprehensive loss at December 31 were
as follows:
                                                                           Other Postretirement
                                                       Pension                   Benefits
                                                   2019          2018         2019         2018
Net actuarial loss/(gain)                       $23,124       $22,061        ($625 )      ($783 )
Prior service credits                            (1,467 )      (1,546 )       (122 )       (158 )
Total recognized in Accumulated other
comprehensive loss                              $21,657       $20,515        ($747 )      ($941 )






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The accumulated benefit obligation (ABO) for all pension plans was $75,787 and
$69,376 at December 31, 2019 and 2018. Key information for our plans with ABO
and PBO in excess of plan assets as of December 31 was as follows:
                                   2019        2018
Accumulated benefit obligation  $70,466     $66,306
Fair value of plan assets        55,907      52,894



                                 2019        2018
Projected benefit obligation  $72,325     $68,354
Fair value of plan assets      55,907      52,894



Assumptions
The following assumptions, which are the weighted average for all plans, are
used to calculate the benefit obligation at December 31 of each year and the net
periodic benefit cost for the subsequent year.
December 31,                                    2019     2018     2017
Discount rate:
Pension                                         3.30 %   4.20 %   3.60 %
Other postretirement benefits                   3.00 %   4.00 %   3.30 %
Expected return on plan assets                  6.80 %   6.80 %   6.80 %
Rate of compensation increase                   4.30 %   5.30 %   5.30 %

Interest crediting rates for cash balance plans 5.15 % 5.15 % 5.15 %

The discount rate for each plan is determined based on the plans' expected
future benefit payments using a yield curve developed from high quality bonds
that are rated as Aa or better by at least half of the four rating agencies
utilized as of the measurement date. The yield curve is fitted to yields
developed from bonds at various maturity points. Bonds with the ten percent
highest and the ten percent lowest yields are omitted. The present value of each
plan's benefits is calculated by applying the discount rates to projected
benefit cash flows.
The pension fund's expected return on plan assets assumption is derived from a
review of actual historical returns achieved by the pension trust and
anticipated future long-term performance of individual asset classes. While
consideration is given to recent trust performance and historical returns, the
assumption represents a long-term, prospective return. The expected return on
plan assets component of the net periodic benefit cost for the upcoming plan
year is determined based on the expected return on plan assets assumption and
the market-related value of plan assets (MRVA). Since our adoption of the
accounting standard for pensions in 1987, we have determined the MRVA based on a
five-year moving average of plan assets. As of December 31, 2019, the MRVA was
approximately $3,674 less than the fair market value of assets.
Assumed health care cost trend rates were as follows:
December 31,                                  2019     2018     2017

Health care cost trend rate assumed next year 5.00 % 5.50 % 6.00 % Ultimate trend rate

                           4.50 %   4.50 %   4.50 %

Year that trend reached ultimate rate 2021 2021 2021

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Plan Assets
Investment Strategy The overall objective of our pension assets is to earn a
rate of return over time to satisfy the benefit obligations of the pension plans
and to maintain sufficient liquidity to pay benefits and address other cash
requirements of the pension fund. Specific investment objectives for our
long-term investment strategy include reducing the volatility of pension assets
relative to pension liabilities, achieving a competitive total investment
return, achieving diversification between and within asset classes and managing
other risks. Investment objectives for each asset class are determined based on
specific risks and investment opportunities identified.
We periodically update our long-term, strategic asset allocations. We use
various analytics to determine the optimal asset mix and consider plan liability
characteristics, liquidity characteristics, funding requirements, expected rates
of return and the distribution of returns. We identify investment benchmarks to
evaluate performance for the asset classes in the strategic asset allocation
that are market-based and investable where possible. Actual allocations to each
asset class vary from target allocations due to periodic investment strategy
changes, market value fluctuations, the length of time it takes to fully
implement investment allocation positions, and the timing of benefit payments
and contributions. Short-term investments and exchange-traded derivatives are
used to rebalance the actual asset allocation to the target asset allocation.
The asset allocation is monitored and rebalanced periodically. The actual and
target allocations by asset class for the pension assets at December 31 were as
follows:
                              Actual Allocations        Target Allocations
Asset Class                    2019          2018        2019          2018
Fixed income                     49 %          48 %        47 %          47 %
Global equity                    29            28          29            29
Private equity                    5             5           5             5
Real estate and real assets       8             9           9             9
Hedge funds                       9            10          10            10
Total                           100 %         100 %       100 %         100 %



Fixed income securities are invested primarily in a diversified portfolio of
long duration instruments. Global equity securities are invested in a
diversified portfolio of U.S. and non-U.S. companies, across various industries
and market capitalizations.
Private equity investment vehicles are primarily limited partnerships (LPs) that
mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special
situation strategies. Real estate and real assets include global private
investments that may be held through an investment in a limited partnership (LP)
or other fund structures and publicly traded investments (such as Real Estate
Investment Trusts (REITs) in the case of real estate). Real estate includes, but
is not limited to, investments in office, retail, apartment and industrial
properties. Real assets include, but are not limited to, investments in natural
resources (such as energy, farmland and timber), commodities and infrastructure.
Hedge fund investments seek to capitalize on inefficiencies identified across
and within different asset classes or markets. Hedge fund strategy types
include, but are not limited to directional, event driven, relative value,
long-short and multi-strategy.
Investment managers are retained for explicit investment roles specified by
contractual investment guidelines. Certain investment managers are authorized to
use derivatives, such as equity or bond futures, swaps, options and currency
futures or forwards. Derivatives are used to achieve the desired market exposure
of a security or an index, transfer value-added performance between asset
classes, achieve the desired currency exposure, adjust portfolio duration or
rebalance the total portfolio to the target asset allocation.


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As a percentage of total pension assets, derivative net notional amounts were
4.3% and 4.4% for fixed income, including to-be-announced mortgage-backed
securities and treasury forwards, and 3.6% and 5.5% for global equity and
commodities at December 31, 2019 and 2018.
Risk Management In managing the pension assets, we review and manage risk
associated with funded status risk, interest rate risk, market risk,
counterparty risk, liquidity risk and operational risk. Liability matching and
asset class diversification are central to our risk management approach and are
integral to the overall investment strategy. Further, asset classes are
constructed to achieve diversification by investment strategy, by investment
manager, by industry or sector and by holding. Investment manager guidelines for
publicly traded assets are specified and are monitored regularly through the
custodian. Credit parameters for counterparties have been established for
managers permitted to trade over-the-counter derivatives. Valuation is governed
through several types of procedures, including reviews of manager valuation
policies, custodian valuation processes, pricing vendor practices, pricing
reconciliation, and periodic, security-specific valuation testing.


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Fair Value Measurements The following table presents our plan assets using the
fair value hierarchy as of December 31, 2019 and 2018. The fair value hierarchy
has three levels based on the reliability of the inputs used to determine fair
value. Level 1 refers to fair values determined based on quoted prices in active
markets for identical assets. Level 2 refers to fair values estimated using
significant other observable inputs, and Level 3 includes fair values estimated
using significant unobservable inputs.
                                        December 31, 2019                              December 31, 2018
                             Total     Level 1     Level 2     Level 3       Total    Level 1     Level 2     Level 3
Fixed income securities:
Corporate                  $19,341                 $19,336          $5     $17,481                $17,479          $2
U.S. government and
agencies                     5,759                   5,759                   5,589                  5,589
Mortgage backed and
asset backed                 1,181                     720         461         722                    410         312
Municipal                    1,317                   1,317                   1,255                  1,255
Sovereign                    1,076                   1,076                     967                    967
Other                           55          $7          48                     106        $53          53
Derivatives:
Assets
Liabilities                   (143 )                  (143 )                   (51 )                  (51 )
Cash equivalents and
other short-term
investments                    769                     769                   1,068                  1,068
Equity securities:
U.S. common and
preferred stock              4,866       4,866                               3,744      3,744
Non-U.S. common and
preferred stock              5,529       5,527                       2       4,850      4,846           4
Derivatives:
Assets                           6                       6                       3                      3
Liabilities                     (5 )                    (5 )                    (9 )                   (9 )
Real estate and real
assets:
Real estate                    454         454                                 422        422
Real assets                    810         649         157           4         659        311         344           4
Derivatives:
Assets                           5           1           4                       4                      4
Liabilities                     (2 )                    (2 )                   (17 )       (1 )       (16 )
Total                      $41,018     $11,504     $29,042        $472     $36,793     $9,375     $27,100        $318

Fixed income
common/collective/pooled
funds                         $959                                            $938
Fixed income other             512                                             442
Equity common/collective
pooled funds                 6,301                                           5,264
Private equity               3,184                                           2,934
Real estate and real
assets                       3,605                                           3,792
Hedge funds                  5,688                                           5,484
Total investments
measured at NAV as a
practical expedient        $20,249                                         $18,854

Cash                          $207                                            $205
Receivables                    383                                             404
Payables                      (146 )                                          (154 )
Total                      $61,711                                         $56,102





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Fixed income securities are primarily valued upon a market approach, using
matrix pricing and considering a security's relationship to other securities for
which quoted prices in an active market may be available, or an income approach,
converting future cash flows to a single present value amount. Inputs used in
developing fair value estimates include reported trades, broker quotes,
benchmark yields, and base spreads.
Common/collective/pooled funds are typically common or collective trusts valued
at their net asset values (NAVs) that are calculated by the investment manager
or sponsor of the fund and have daily or monthly liquidity. Derivatives included
in the table above are over-the-counter and are primarily valued using an income
approach with inputs that include benchmark yields, swap curves, cash flow
analysis, rating agency data and interdealer broker rates. Exchange-traded
derivative positions are reported in accordance with changes in daily variation
margin which is settled daily and therefore reflected in the payables and
receivables portion of the table.
Cash equivalents and other short-term investments (which are used to pay
benefits) are held in a separate account which consists of a commingled fund
(with daily liquidity) and separately held short-term securities and cash
equivalents. All of the investments in this cash vehicle are valued daily using
a market approach with inputs that include quoted market prices for similar
instruments. In the event a market price is not available for instruments with
an original maturity of one year or less, amortized cost is used as a proxy for
fair value. Common and preferred stock equity securities are primarily valued
using a market approach based on the quoted market prices of identical
instruments.
Private equity and private debt NAV valuations are based on the valuation of the
underlying investments, which include inputs such as cost, operating results,
discounted future cash flows and market based comparable data. For those
investments reported on a one-quarter lagged basis (primarily LPs) we use NAVs,
adjusted for subsequent cash flows and significant events.
Real estate and real asset NAV valuations are based on valuation of the
underlying investments, which include inputs such as cost, discounted future
cash flows, independent appraisals and market based comparable data. For those
investments reported on a one-quarter lagged basis (primarily LPs) NAVs are
adjusted for subsequent cash flows and significant events. Publicly traded REITs
and infrastructure stocks are valued using a market approach based on quoted
market prices of identical instruments. Exchange-traded commodities futures
positions are reported in accordance with changes in daily variation margin
which is settled daily and therefore reflected in the payables and receivables
portion of the table.
Hedge fund NAVs are generally based on the valuation of the underlying
investments. This is primarily done by applying a market or income valuation
methodology depending on the specific type of security or instrument held.
Investments in private equity, private debt, real estate, real assets, and hedge
funds are primarily calculated and reported by the General Partner (GP), fund
manager or third party administrator. Additionally, some investments in fixed
income and equity are made via commingled vehicles and are valued in a similar
fashion. Pension assets invested in commingled and limited partnership
structures rely on the NAV of these investments as the practical expedient for
the valuations.


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The following tables present a reconciliation of Level 3 assets held during the
years ended December 31, 2019 and 2018. Transfers into and out of Level 3 are
reported at the beginning-of-year values.
                                                  Net Realized and         Net Purchases,        Net Transfers
                             January 1                  Unrealized          Issuances and        Into/(Out of)             December 31
                          2019 Balance              Gains/(Losses)            Settlements              Level 3            2019 Balance
Fixed income
securities:
Corporate                           $2                                                 $3                                           $5
Mortgage backed and
asset backed                       312                         $11                    137                   $1                     461
Equity securities:
Non-U.S. common and
preferred stock                                                                         1                    1                       2
Real assets                          4                                                                                               4
Total                             $318                         $11                   $141                   $2                    $472



                                                 Net Realized and            Net Purchases,        Net Transfers
                            January 1                  Unrealized             Issuances and        Into/(Out of)             December 31
                         2018 Balance              Gains/(Losses)               Settlements              Level 3            2018 Balance
Fixed income
securities:
Corporate                          $2                                                                                                 $2
Mortgage backed and
asset backed                      310                         ($3 )                      $3                   $2                     312
Real assets                         3                                                                          1                       4
Total                            $315                         ($3 )                      $3                   $3                    $318



The changes in unrealized gains/(losses) for Level 3 mortgage backed and asset
backed fixed income securities still held at December 31, 2019 and 2018 were a
gain of $10 and a loss of $4. The changes in unrealized losses for Level 3
non-U.S. common and preferred stock equity securities still held at December 31,
2019 and 2018 were $1 and $0.
OPB Plan Assets The majority of OPB plan assets are invested in a balanced index
fund which is comprised of approximately 60% equities and 40% debt securities.
The index fund is valued using a market approach based on the quoted market
price of an identical instrument (Level 1). The expected rate of return on these
assets does not have a material effect on the net periodic benefit cost.


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Cash Flows
Contributions Required pension contributions under the Employee Retirement
Income Security Act (ERISA), as well as rules governing funding of our non-US
pension plans, are not expected to be significant in 2020. We do not expect to
make discretionary contributions to our pension plans in 2020.
Estimated Future Benefit Payments The table below reflects the total pension
benefits expected to be paid from the plans or from our assets, including both
our share of the benefit cost and the participants' share of the cost, which is
funded by participant contributions. OPB payments reflect our portion only.
Year(s)                       2020         2021         2022         2023         2024       2025-2029
Pensions                    $4,838       $4,808       $4,744       $4,650       $4,608         $21,757
Other postretirement
benefits:
Gross benefits paid            479          470          462          450          435           1,867
Subsidies                      (18 )        (18 )        (18 )        (18 )        (18 )           (93 )
Net other postretirement
benefits                      $461         $452         $444         $432         $417          $1,774



Termination Provisions
Certain of the pension plans provide that, in the event there is a change in
control of the Company which is not approved by the Board of Directors and the
plans are terminated within five years thereafter, the assets in the plan first
will be used to provide the level of retirement benefits required by ERISA, and
then any surplus will be used to fund a trust to continue present and future
payments under the postretirement medical and life insurance benefits in our
group insurance benefit programs.
Should we terminate certain pension plans under conditions in which the plan's
assets exceed that plan's obligations, the U.S. government will be entitled to a
fair allocation of any of the plan's assets based on plan contributions that
were reimbursed under U.S. government contracts.
Defined Contribution Plans
We provide certain defined contribution plans to all eligible employees. The
principal plans are the Company-sponsored 401(k) plans. The expense for these
defined contribution plans was $1,533, $1,480 and $1,522 in 2019, 2018 and 2017,
respectively.
Note 18 - Share-Based Compensation and Other Compensation Arrangements
Share-Based Compensation
Our 2003 Incentive Stock Plan, as amended and restated, permits awards of
incentive and non-qualified stock options, stock appreciation rights, restricted
stock or units, performance shares, performance restricted stock or units,
performance units and other stock and cash-based awards to our employees,
officers, directors, consultants, and independent contractors. The aggregate
number of shares of our stock authorized for issuance under the plan is
87,000,000.
Shares issued as a result of stock option exercises or conversion of stock unit
awards will be funded out of treasury shares, except to the extent there are
insufficient treasury shares, in which case new shares will be issued. We
believe we currently have adequate treasury shares to satisfy these issuances
during 2020.


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Share-based plans expense is primarily included in General and administrative
expense since it is incentive compensation issued primarily to our executives.
The share-based plans expense and related income tax benefit were as follows:
Years ended December 31,                 2019     2018     2017

Restricted stock units and other awards $217 $213 $212 Income tax benefit

                        $47      $46      $46



Stock Options
We discontinued granting options in 2014, replacing them with performance-based
restricted stock units. Options granted through January 2014 had an exercise
price equal to the fair market value of our stock on the date of grant and
expire ten years after the date of grant. The stock options vested over a period
of three years and were fully vested as of December 31, 2017.
Stock option activity for the year ended December 31, 2019 is as follows:
                                                                        Weighted
                                                                         Average
                                                                       Remaining
                                                Weighted Average     Contractual        Aggregate
                                                  Exercise Price           

Life Intrinsic

                                       Shares          Per Share         (Years)            Value
Number of shares under option:
Outstanding at beginning of year    3,252,083             $72.47
Exercised                           (870,821)              66.16
Expired                               (5,679)              69.23
Outstanding at end of year          2,375,583             $74.79            2.44             $596
Exercisable at end of year          2,375,583             $74.79            2.44             $596



The total intrinsic value of options exercised during the years ended December
31, 2019, 2018 and 2017 was $279, $320 and $491, with a related tax benefit of
$61, $70 and $175, respectively. No options vested during the years ended
December 31, 2019, 2018 and 2017.
Restricted Stock Units
In February 2019, 2018 and 2017, we granted to our executives 233,582, 260,730
and 523,835 restricted stock units (RSUs) as part of our long-term incentive
program with grant date fair values of $428.22, $361.13 and $178.72 per unit,
respectively. The RSUs granted under this program will vest and settle in common
stock (on a one-for-one basis) on the third anniversary of the grant date. If an
executive terminates employment because of retirement, involuntary layoff,
disability, or death, the employee (or beneficiary) will receive a proration of
stock units based on active employment during the three-year service period. In
all other cases, the RSUs will not vest and all rights to the stock units will
terminate. In addition to RSUs awarded under our long-term incentive program, we
grant RSUs to certain executives and employees to encourage retention or to
reward various achievements. These RSUs are labeled other RSUs in the table
below. The fair values of all RSUs are estimated using the average of the high
and low stock prices on the date of grant.


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RSU activity for the year ended December 31, 2019 was as follows:

                                                              Long-Term
                                                      Incentive Program     

Other

Number of units:
Outstanding at beginning of year                              1,322,251            984,235
Granted                                                         259,791            247,673
Dividends                                                        22,571             20,576
Forfeited                                                       (73,591 )         (121,344 )
Distributed                                                    (625,997 )         (222,819 )
Outstanding at end of year                                      905,025            908,321
Unrecognized compensation cost                                     $102     

$132

Weighted average remaining contractual life (years)                 1.8                2.6



The number of vested but undistributed RSUs at December 31, 2019 was not
significant.
Performance-Based Restricted Stock Units
Performance-Based Restricted Stock Units (PBRSUs) are stock units that pay out
based on the Company's total shareholder return as compared to a group of peer
companies over a three-year period. The award payout can range from 0% to 200%
of the initial PBRSU grant. PBRSUs granted in February 2017 and 2016 will not
exceed 400% of the initial value (excluding dividend equivalent credits). The
PBRSUs granted under this program will vest at the payout amount and settle in
common stock (on a one-for-one basis) on the third anniversary of the grant
date. If an executive terminates employment because of retirement, involuntary
layoff, disability, or death, the employee (or beneficiary) remains eligible
under the award and, if the award is earned, will receive a proration of stock
units based on active employment during the three-year service period. In all
other cases, the PBRSUs will not vest and all rights to the stock units will
terminate.
In February 2019, 2018 and 2017, we granted to our executives 214,651, 241,284
and 492,273 PBRSUs as part of our long-term incentive program. Compensation
expense for the award is recognized over the three-year performance period based
upon the grant date fair value. The grant date fair values were estimated using
a Monte-Carlo simulation model with the assumptions presented below. The model
includes no expected dividend yield as the units earn dividend equivalents.
                                                                Risk Free
                                                  Expected       Interest       Grant Date
Grant Year      Grant Date Performance Period   Volatility           Rate       Fair Value
2019             2/25/2019            3 years        23.88 %         2.46 %        $466.04
2018             2/26/2018            3 years        22.11 %         2.36 %         390.27
2017             2/27/2017            3 years        21.37 %         1.46 %         190.17





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PBRSU activity for the year ended December 31, 2019 was as follows:

                                                                    Long-Term Incentive
                                                                                Program
Number of units:
Outstanding at beginning of year                                            

1,268,667

Granted                                                                     

214,651

Performance based adjustment (1)                                                115,613
Dividends                                                                        65,042
Forfeited                                                                       (60,755 )
Distributed                                                                    (777,092 )
Outstanding at end of year                                                      826,126
Unrecognized compensation cost                                              

$91

Weighted average remaining contractual life (years)                                 1.8



(1)  Represents net incremental number of units issued at vesting based on TSR
     for units granted in 2016


Other Compensation Arrangements
Performance Awards
Performance Awards are cash units that pay out based on the achievement of
long-term financial goals at the end of a three-year period. Each unit has an
initial value of $100 dollars. The amount payable at the end of the three-year
performance period may be anywhere from $0 to $200 dollars per unit, depending
on the Company's performance against plan for a three-year period. The
Compensation Committee has the discretion to pay these awards in cash, stock, or
a combination of both after the three-year performance period. Compensation
expense, based on the estimated performance payout, is recognized ratably over
the performance period.
During 2019, 2018 and 2017, we granted Performance Awards to our executives as
part of our long-term incentive program with the payout based on the achievement
of financial goals for each three-year period following the grant date. The
minimum payout amount is $0 and the maximum amount we could be required to pay
out for the 2019, 2018 and 2017 Performance Awards is $392, $355 and $325,
respectively.
Deferred Compensation
The Company has deferred compensation plans which permit employees to defer a
portion of their salary, bonus, certain other incentive awards, and retirement
contributions. Participants can diversify these amounts among 22 investment
funds including a Boeing stock unit account.
Total expense related to deferred compensation was $174, $19 and $240 in 2019,
2018 and 2017, respectively. As of December 31, 2019 and 2018, the deferred
compensation liability which is being marked to market was $1,779 and $1,572.


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Note 19 - Shareholders' Equity
On December 17, 2018, the Board approved a repurchase plan for up to $20,000 of
common stock. Share repurchases under this plan are currently suspended. The
program will expire when we have used all authorized funds or is otherwise
terminated.
As of December 31, 2019 and 2018, there were 1,200,000,000 shares of common
stock and 20,000,000 shares of preferred stock authorized. No preferred stock
has been issued.
Changes in Share Balances
The following table shows changes in each class of shares:
                                    Common       Treasury
                                     Stock          Stock
Balance at January 1, 2017   1,012,261,159    395,109,568
Issued                                        (20,746,426 )
Acquired                                       46,859,184

Balance at December 31, 2017 1,012,261,159 421,222,326 Issued

                                         (3,409,330 )
Acquired                                       26,806,974

Balance at December 31, 2018 1,012,261,159 444,619,970 Issued

                                         (2,797,002 )
Acquired                                        7,529,437

Balance at December 31, 2019 1,012,261,159 449,352,405

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Accumulated Other Comprehensive Loss Changes in Accumulated other comprehensive loss (AOCI) by component for the years ended December 31, 2019, 2018 and 2017 were as follows:

                                                                             Unrealized       Defined Benefit
                                                    Unrealized Gains          Gains and       Pension Plans &
                                       Currency        and Losses on          Losses on                 Other
                                    Translation              Certain         Derivative        Postretirement
                                    Adjustments          Investments        Instruments              Benefits         Total (1)
Balance at January 1, 2017                ($143 )                ($2 )            ($127 )            ($13,351 )        ($13,623 )
Other comprehensive
(loss)/income before
reclassifications                           128                    1                119                  (478 )            (230 )
Amounts reclassified from AOCI                                                       52                   425   (2)         477
Net current period Other
comprehensive (loss)/income                 128                    1                171                   (53 )             247
Impact of ASU 2018-02                                             (1 )               10                (3,006 )          (2,997 )
Balance at December 31, 2017               ($15 )                ($2 )              $54              ($16,410 )        ($16,373 )
Other comprehensive
income/(loss) before
reclassifications                           (86 )                  2               (146 )                 747               517
Amounts reclassified from AOCI                                                       30                   743   (2)         773
Net current period Other
comprehensive income/(loss)                 (86 )                  2               (116 )               1,490             1,290
Balance at December 31, 2018              ($101 )                 $-               ($62 )            ($14,920 )        ($15,083 )
Other comprehensive
(loss)/income before
reclassifications                           (27 )                  1                (48 )              (1,397 )          (1,471 )
Amounts reclassified from AOCI                                                       26                   375   (2)         401
Net current period Other
comprehensive (loss)/income                 (27 )                  1                (22 )              (1,022 )          (1,070 )
Balance at December 31, 2019              ($128 )                 $1               ($84 )            ($15,942 )        ($16,153 )


(1)  Net of tax.

(2) Primarily relates to amortization of actuarial losses for the years ended

December 31, 2019, 2018, and 2017 totaling $464, $878, and $542 (net of tax

of ($133), ($242), and ($272)), respectively. These are included in the net

periodic pension cost. See Note 17.

Note 20 - Derivative Financial Instruments
Disclosures reflect the adoption of ASU 2017-12, Derivatives and Hedging (Topic
815), in the first quarter of 2019. Prior period amounts have not been restated.
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts, commodity swaps
and commodity purchase contracts. We use foreign currency forward contracts to
manage currency risk associated with certain transactions, specifically
forecasted sales and purchases made in foreign currencies. Our foreign currency
contracts hedge forecasted transactions through 2025. We use commodity
derivatives, such as fixed-price purchase commitments and swaps to hedge against
potentially unfavorable price changes for items used in production. Our
commodity contracts hedge forecasted transactions through 2023.
Fair Value Hedges
Interest rate swaps under which we agree to pay variable rates of interest are
designated as fair value hedges of fixed-rate debt. The net change in fair value
of the derivatives and the hedged items is reported in Boeing Capital interest
expense. As of December 31, 2019, there are no fair value hedges reported on the
Consolidated Statements of Financial Position.


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Derivative Instruments Not Receiving Hedge Accounting Treatment
We have entered into agreements to purchase and sell aluminum to address
long-term strategic sourcing objectives and non-U.S. business requirements.
These agreements are derivative instruments for accounting purposes. The
quantities of aluminum in these agreements offset and are priced at prevailing
market prices. We also hold certain foreign currency forward contracts which do
not qualify for hedge accounting treatment.
Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the
Consolidated Statements of Financial Position as of December 31 were as follows:
                                             Notional                                      Accrued
                                             amounts(1)           Other assets           liabilities
                                          2019         2018       2019       2018      2019        2018
Derivatives designated as hedging
instruments:
Foreign exchange contracts              $2,590       $3,407        $29        $32      ($60 )     ($132 )
Interest rate contracts                                 125
Commodity contracts                        645           57          4          9       (72 )        (2 )
Derivatives not receiving hedge
accounting treatment:
Foreign exchange contracts                 285          414          1         11        (6 )        (2 )
Commodity contracts                      1,644          478
Total derivatives                       $5,164       $4,481         34         52      (138 )      (136 )
Netting arrangements                                               (20 )      (24 )      20          24
Net recorded balance                                               $14        $28     ($118 )     ($112 )


(1)  Notional amounts represent the gross contract/notional amount of the
     derivatives outstanding.

Gains/(losses) associated with our hedging transactions and forward points recognized in Other comprehensive income are presented in the following table: Years ended December 31,

                                 2019       2018
Recognized in Other comprehensive income, net of taxes:
Foreign exchange contracts                                $15      ($156 )
Commodity contracts                                       (63 )       10





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Gains/(losses) associated with our hedging transactions and forward points
reclassified from AOCI to earnings are presented in the following table:
Years ended December 31,            2019      2018
Foreign exchange contracts
Revenues
Costs and expenses                  ($26 )    ($30 )
General and administrative            (9 )     (12 )
Commodity contracts
Revenues
Costs and expenses                    $1        $2

General and administrative expense 1 2

Gains/(losses) related to undesignated derivatives on foreign exchange cash flow
hedging transactions recognized in Other income, net were insignificant for the
years ended December 31, 2019 and 2018. Forward points related to foreign
exchange cash flow hedging transactions recognized in Other income, net was a
gain of $1 for the year ended December 31, 2018.
Based on our portfolio of cash flow hedges, we expect to reclassify losses of $8
(pre-tax) out of Accumulated other comprehensive loss into earnings during the
next 12 months.
We have derivative instruments with credit-risk-related contingent features. For
foreign exchange contracts with original maturities of at least five years, our
derivative counterparties could require settlement if we default on our
five-year credit facility. For certain commodity contracts, our counterparties
could require collateral posted in an amount determined by our credit ratings.
The fair value of foreign exchange and commodity contracts that have
credit-risk-related contingent features that are in a net liability position at
December 31, 2019 was $19. At December 31, 2019, there was no collateral posted
related to our derivatives.


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Note 21 - Fair Value Measurements
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value. Level 1 refers to fair values determined based on
quoted prices in active markets for identical assets. Level 2 refers to fair
values estimated using significant other observable inputs, and Level 3 includes
fair values estimated using significant unobservable inputs. The following table
presents our assets and liabilities that are measured at fair value on a
recurring basis and are categorized using the fair value hierarchy.
                                             December 31, 2019                December 31, 2018
                                         Total    Level 1    Level 2      Total    Level 1    Level 2
Assets
Money market funds                      $2,562     $2,562                $1,737     $1,737
Available-for-sale debt investments:
Commercial paper                           108                  $108         78                   $78
Corporate notes                            242                   242        420                   420
U.S. government agencies                    55         55
Other equity investments                    33         33                    12         12
Derivatives                                 14                    14         28                   $28
Total assets                            $3,014     $2,650       $364     $2,275     $1,749       $526

Liabilities
Derivatives                              ($118 )               ($118 )    ($112 )               ($112 )
Total liabilities                        ($118 )               ($118 )    ($112 )               ($112 )



Money market funds, available-for-sale debt investments and equity securities
are valued using a market approach based on the quoted market prices or
broker/dealer quotes of identical or comparable instruments.
Derivatives include foreign currency, commodity and interest rate contracts. Our
foreign currency forward contracts are valued using an income approach based on
the present value of the forward rate less the contract rate multiplied by the
notional amount. Commodity derivatives are valued using an income approach based
on the present value of the commodity index prices less the contract rate
multiplied by the notional amount. The fair value of our interest rate swaps is
derived from a discounted cash flow analysis based on the terms of the contract
and the interest rate curve.
Certain assets have been measured at fair value on a nonrecurring basis using
significant unobservable inputs (Level 3). The following table presents the
nonrecurring losses recognized for the years ended December 31 due to long-lived
asset impairment, and the fair value and asset classification of the related
assets as of the impairment date:
                                                         2019                             2018
                                                                   Total                             Total
                                                Fair Value        Losses         Fair Value         Losses
Investments                                            $27         ($109 )                            ($50 )
Customer financing assets                              111           (20 )             $101            (39 )
Other assets and Acquired intangible assets              4          (310 )
Property, plant and equipment                           41            (4 )               44             (4 )
Total                                                 $183         ($443 )             $145           ($93 )





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Investments, Acquired intangible assets and Property, plant and equipment were
primarily valued using an income approach based on the discounted cash flows
associated with the underlying assets. The fair value of the impaired customer
financing assets includes operating lease equipment and investments in sales
type-leases/finance leases, and is derived by calculating a median collateral
value from a consistent group of third party aircraft value publications. The
values provided by the third party aircraft publications are derived from their
knowledge of market trades and other market factors. Management reviews the
publications quarterly to assess the continued appropriateness and consistency
with market trends. Under certain circumstances, we adjust values based on the
attributes and condition of the specific aircraft or equipment, usually when the
features or use of the aircraft vary significantly from the more generic
aircraft attributes covered by third party publications, or on the expected net
sales price for the aircraft.
For Level 3 assets that were measured at fair value on a nonrecurring basis
during the year ended December 31, 2019, the following table presents the fair
value of those assets as of the measurement date, valuation techniques and
related unobservable inputs of those assets.
                           Fair        Valuation       Unobservable            Range
                           Value     Technique(s)          Input         Median or Average
                                                      Aircraft value       $98 - $158(1)
                                                       publications         Median $123
Customer financing assets  $111     Market approach      Aircraft
                                                         condition         ($13) - $1(2)
                                                        adjustments          Net ($12)

(1) The range represents the sum of the highest and lowest values for all

aircraft subject to fair value measurement, according to the third party

aircraft valuation publications that we use in our valuation process.

(2) The negative amount represents the sum, for all aircraft subject to fair

value measurement, of all downward adjustments based on consideration of

individual aircraft attributes and condition. The positive amount represents

the sum of all such upward adjustments.

Fair Value Disclosures
The fair values and related carrying values of financial instruments that are
not required to be remeasured at fair value on the Consolidated Statements of
Financial Position at December 31 were as follows:
                                                             December 31, 2019
                                     Carrying      Total Fair
                                       Amount           Value      Level 1       Level 2         Level 3
Assets
Notes receivable, net                    $443            $444               

$444

Liabilities

Debt, excluding finance lease
obligations and commercial paper      (20,964 )       (23,119 )                  (23,081 )          ($38 )


                                                             December 31, 2018
                                     Carrying      Total Fair
                                       Amount           Value      Level 1       Level 2         Level 3
Assets
Notes receivable, net                    $730            $735               

$735

Liabilities

Debt, excluding finance lease
obligations and commercial paper      (11,796 )       (12,746 )                  (12,682 )          ($64 )





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The fair values of notes receivable are estimated with discounted cash flow
analysis using interest rates currently offered on loans with similar terms to
borrowers of similar credit quality. The fair value of our debt that is traded
in the secondary market is classified as Level 2 and is based on current market
yields. For our debt that is not traded in the secondary market, the fair value
is classified as Level 2 and is based on our indicative borrowing cost derived
from dealer quotes or discounted cash flows. The fair values of our debt
classified as Level 3 are based on discounted cash flow models using the implied
yield from similar securities. With regard to other financial instruments with
off-balance sheet risk, it is not practicable to estimate the fair value of our
indemnifications and financing commitments because the amount and timing of
those arrangements are uncertain. Items not included in the above disclosures
include cash, restricted cash, time deposits and other deposits, commercial
paper, money market funds, Accounts receivable, Unbilled receivables, Other
current assets, Accounts payable and long-term payables. The carrying values of
those items, as reflected in the Consolidated Statements of Financial Position,
approximate their fair value at December 31, 2019 and 2018. The fair value of
assets and liabilities whose carrying value approximates fair value is
determined using Level 2 inputs, with the exception of cash (Level 1).
Note 22 - Legal Proceedings
Various legal proceedings, claims and investigations related to products,
contracts, employment and other matters are pending against us.
In addition, we are subject to various U.S. government inquiries and
investigations from which civil, criminal or administrative proceedings could
result or have resulted in the past. Such proceedings involve or could involve
claims by the government for fines, penalties, compensatory and treble damages,
restitution and/or forfeitures. Under government regulations, a company, or one
or more of its operating divisions or subdivisions, can also be suspended or
debarred from government contracts, or lose its export privileges, based on the
results of investigations. We believe, based upon current information, that the
outcome of any such legal proceeding, claim, or government dispute and
investigation will not have a material effect on our financial position, results
of operations, or cash flows. Where it is reasonably possible that we will incur
losses in excess of recorded amounts in connection with any of the matters set
forth below, we will disclose either the amount or range of reasonably possible
losses in excess of such amounts or, where no such amount or range can be
reasonably estimated, the reasons why no such estimate can be made.
Multiple legal actions have been filed against us as a result of the October 29,
2018 accident of Lion Air Flight 610 and the March 10, 2019 accident of
Ethiopian Airlines Flight 302. Further, we are subject to ongoing governmental
and regulatory investigations and inquiries relating to the accidents and the
737 MAX, including investigations by the U.S. Department of Justice and the
Securities and Exchange Commission. We cannot reasonably estimate a range of
loss, if any, not covered by available insurance that may result given the
ongoing status of these lawsuits, investigations, and inquiries.
Note 23 - Segment and Revenue Information
Effective at the beginning of 2019, all revenues and costs associated with
military derivative aircraft production are reported in the BDS segment.
Revenues and costs associated with military derivative aircraft production were
previously reported in the BCA and BDS segments. Business segment data for 2018
and 2017 reflects the realignment for military derivative aircraft, as well as
the realignment of certain programs from BDS to BGS.
Our primary profitability measurements to review a segment's operating results
are Earnings from operations and operating margins. We operate in four
reportable segments: BCA, BDS, BGS, and BCC. All other activities fall within
Unallocated items, eliminations and other. See page 56 for the Summary of
Business Segment Data, which is an integral part of this note.



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BCA develops, produces and markets commercial jet aircraft principally to the
commercial airline industry worldwide. Revenue on commercial aircraft contracts
is recognized at the point in time when an aircraft is completed and accepted by
the customer.
BDS engages in the research, development, production and modification of the
following products and related services: manned and unmanned military aircraft
and weapons systems, surveillance and engagement, strategic defense and
intelligence systems, satellite systems and space exploration. BDS revenue is
generally recognized over the contract term (over time) as costs are incurred.
BGS provides parts, maintenance, modifications, logistics support, training,
data analytics and information-based services to commercial and government
customers worldwide. BGS segment revenue and costs include certain services
provided to other segments. Revenue on commercial spare parts contracts is
recognized at the point in time when a spare part is delivered to the customer.
Revenue on other contracts is generally recognized over the contract term (over
time) as costs are incurred.
BCC facilitates, arranges, structures and provides selective financing solutions
for our Boeing customers.
While our principal operations are in the United States, Canada and Australia,
some key suppliers and subcontractors are located in Europe and Japan. Revenues,
including foreign military sales, are reported by customer location and consist
of the following:
Years ended December 31,                                 2019           2018          2017
Asia, other than China                                $10,662        $12,141        $9,195
Europe                                                 10,366         12,976        11,240
Middle East                                             9,272          9,745        11,433
China                                                   5,684         13,764        11,932
Canada                                                  2,019          2,583         2,212
Oceania                                                 2,006          2,298         1,931
Africa                                                  1,113          1,486           815
Latin America, Caribbean and other                      1,015          1,458         1,541
Total non-U.S. revenues                                42,137         56,451        50,299
United States                                          42,681         44,676        43,706
Estimated potential concessions and other
considerations to 737 MAX customers, net(1)            (8,259 )
Total revenues                                        $76,559       $101,127       $94,005



(1)  Net of insurance recoveries


Revenues from the U.S. government (including foreign military sales through the
U.S. government), primarily recorded at BDS and BGS, represented 39%, 31%, and
31% of consolidated revenues for 2019, 2018, and 2017, respectively.
Approximately 4% of operating assets were located outside the United States as
of December 31, 2019 and 2018.
The following tables present BCA, BDS and BGS revenues from contracts with
customers disaggregated in a number of ways, such as geographic location,
contract type and the method of revenue recognition. We believe these best
depict how the nature, amount, timing and uncertainty of our revenues and cash
flows are affected by economic factors.


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BCA revenues by customer location consist of the following: Years ended December 31,

                             2019           2018    

2017

Revenue from contracts with customers:
Asia, other than China                               $7,395         $8,274         $6,482
Europe                                                5,829          9,719          8,478
Middle East                                           5,761          5,876          8,927
China                                                 5,051         13,068         10,982
Other                                                 3,450          5,185          4,365
Total non-U.S. revenues                              27,486         42,122         39,234
United States                                        12,676         15,347         15,182

Estimated potential concessions and other considerations to 737 MAX customers, net(1) (8,259 ) Total revenues from contracts with customers 31,903 57,469

54,416

Intersegment revenues, eliminated on
consolidation                                           352             30            196
Total segment revenues                              $32,255        $57,499        $54,612

Revenue recognized on fixed-price contracts             100 %          100 

% 100 %

Revenue recognized at a point in time                   100 %          100 

% 100 %

(1) Net of insurance recoveries

BDS revenues on contracts with customers, based on the customer's location, consist of the following: Years ended December 31,

                               2019         2018    

2017

Revenue from contracts with customers:
U.S. customers                                       $19,573      $19,576   

$18,984

Non-U.S. customers(1)                                  6,654        6,816   

4,954

Total segment revenue from contracts with customers $26,227 $26,392

   $23,938

Revenue recognized over time                              98 %         98 %         97 %

Revenue recognized on fixed-price contracts               70 %         70 % 

69 %

Revenue from the U.S. government(1)                       89 %         88 %         89 %


(1)  Includes revenues earned from foreign military sales through the U.S.
     government.




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BGS revenues consist of the following:
Years ended December 31,                             2019         2018      

2017

Revenue from contracts with customers:
Commercial                                         $10,167       $9,227     

$7,622

Government                                           8,107        7,658     

6,940

Total revenues from contracts with customers 18,274 16,885

14,562

Intersegment revenues eliminated on consolidation 194 171

49

Total segment revenues                             $18,468      $17,056     

$14,611

Revenue recognized at a point in time                   55 %         54 %   

50 %

Revenue recognized on fixed-price contracts             90 %         90 %   

89 %

Revenue from the U.S. government(1)                     34 %         36 %         39 %



(1)  Includes revenues earned from foreign military sales through the U.S.
     government.


Earnings in Equity Method Investments
We recorded Earnings from operations associated with our equity method
investments of $90, $167 and $233, primarily in our BDS segment, for the years
ended December 31, 2019, 2018 and 2017, respectively.
Backlog
Our total backlog represents the estimated transaction prices on performance
obligations to our customers for which work remains to be performed. Backlog is
converted into revenue in future periods as work is performed, primarily based
on the cost incurred or at delivery and acceptance of products, depending on the
applicable accounting method.
Our backlog at December 31, 2019 was $463,403. We expect approximately 17% to be
converted to revenue through 2020 and approximately 63% through 2023, with the
remainder thereafter.



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Unallocated Items, Eliminations and other
Unallocated items, eliminations and other include common internal services that
support Boeing's global business operations, intercompany guarantees provided to
BCC and eliminations of certain sales between segments. Such sales include
airplanes accounted for as operating leases and considered transferred to the
BCC segment. We generally allocate costs to business segments based on the U.S.
federal cost accounting standards. Components of Unallocated items, eliminations
and other are shown in the following table.
Years ended December 31,                            2019         2018         2017
Share-based plans                                   ($65 )       ($76 )       ($77 )
Deferred compensation                               (174 )        (19 )       (240 )
Amortization of previously capitalized interest      (89 )        (92 )        (96 )
Research and development expense, net               (384 )       (132 )     

42

Customer financing impairment                       (250 )
Litigation                                          (109 )       (148 )
Eliminations and other unallocated items            (995 )       (975 )     

(756 ) Unallocated items, eliminations and other ($2,066 ) ($1,442 ) ($1,127 )

Pension FAS/CAS service cost adjustment           $1,071       $1,005       

$1,127

Postretirement FAS/CAS service cost adjustment 344 322

311

FAS/CAS service cost adjustment                   $1,415       $1,327       

$1,438

Pension and Other Postretirement Benefit Expense
Pension costs, comprising GAAP service and prior service costs, are allocated to
BCA and the commercial operations at BGS. Pension costs are allocated to BDS and
BGS businesses supporting government customers using U.S. Government Cost
Accounting Standards (CAS), which employ different actuarial assumptions and
accounting conventions than GAAP. These costs are allocable to government
contracts. Other postretirement benefit costs are allocated to business segments
based on CAS, which is generally based on benefits paid. 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. 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.


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Effective in 2019, certain centrally managed assets that were previously
recorded in the BCA, BDS and BGS segments have been realigned to Unallocated
items, eliminations and other. Business segment data in the following tables for
2019, 2018 and 2017 reflects the realignment of these assets.
Assets
Segment assets are summarized in the table below.
December 31,                                   2019         2018
Commercial Airplanes                        $73,995      $61,116
Defense, Space & Security                    15,977       18,023
Global Services                              18,605       17,856
Boeing Capital                                2,269        2,809

Unallocated items, eliminations and other 22,779 17,555 Total

                                      $133,625     $117,359



Assets included in Unallocated items, eliminations and other primarily consist
of Cash and cash equivalents, Short-term and other investments, deferred tax
assets, capitalized interest, and assets managed centrally on behalf of the four
principle business segments and intercompany eliminations.
Capital Expenditures
Years ended December 31,                     2019       2018       2017
Commercial Airplanes                         $433       $604       $636
Defense, Space & Security                     202        208        210
Global Services                               218        231        180

Unallocated items, eliminations and other 981 679 713 Total

                                      $1,834     $1,722     $1,739


Capital expenditures for Unallocated items, eliminations and other relate
primarily to assets managed centrally on behalf of the four principal business
segments.
Depreciation and Amortization
Years ended December 31,        2019       2018       2017
Commercial Airplanes            $580       $565       $521
Defense, Space & Security        274        290        252
Global Services                  424        348        322

Boeing Capital Corporation 64 58 70 Centrally Managed Assets (1) 929 853 882 Total

                         $2,271     $2,114     $2,047



(1) Amounts shown in the table represent depreciation and amortization expense
recorded by the individual business segments. Depreciation and amortization for
centrally managed assets are included in segment operating earnings based on
usage and occupancy. In 2019, $717 was included in the primary business
segments, of which $407, $257, and $53 was included in BCA, BDS and BGS,
respectively. In 2018, $692 was included in the primary business segments, of
which $417, $213, and $62 was included in BCA, BDS and BGS, respectively. In
2017, $730 was included in the primary business segments, of which $427, $243,
and $60 was included in BCA, BDS and BGS, respectively.


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Note 24 - Quarterly Financial Data (Unaudited)

                                            2019                                            2018
                             4th         3rd         2nd         1st         4th         3rd         2nd         1st
Total revenues           $17,911     $19,980     $15,751     $22,917     $28,341     $25,146     $24,258     $23,382
Total costs and
expenses                 (18,708 )   (16,930 )   (17,810 )   (18,645 )   (22,090 )   (21,040 )   (19,536 )   (18,824 )
(Loss)/earnings from
operations                (2,204 )     1,259      (3,380 )     2,350       4,175       2,227       2,710       2,875
Net (loss)/earnings       (1,010 )     1,167      (2,942 )     2,149       3,424       2,363       2,196       2,477
Basic (loss)/earnings
per share                  (1.79 )      2.07       (5.21 )      3.79        6.00        4.11        3.77        4.19
Diluted
(loss)/earnings per
share                      (1.79 )      2.05       (5.21 )      3.75        5.93        4.07        3.73        4.15



Gross profit is calculated as Total revenues minus Total costs and expenses.
Total costs and expenses includes Cost of products, Cost of services and Boeing
Capital interest expense.
During the first quarter of 2019, we concluded that lease incentives granted to
a customer that experienced liquidity issues were impaired and recorded a charge
of $250. During the first quarter of 2018, we recorded a reach-forward loss on
KC-46A Tanker of $81.
During the second quarter of 2019, we recorded a reduction to revenue of $5,610,
related to estimated potential concessions and other considerations to customers
for disruptions and associated delivery delays related to the 737 MAX grounding,
net of insurance recoveries. Additionally, we recorded a charge of $109 related
to ongoing litigation associated with recoverable costs on U.S. government
contracts. During the second quarter of 2018, we recorded a charge of $148
related to the outcome of the Spirit litigation and a reach-forward loss on
KC-46A Tanker of $426.
During the third quarter of 2018, we recorded a tax benefit of $412 related to
the settlement of the 2013-2014 federal tax audit. Additionally, we recorded
reach-forward losses on KC-46A Tanker of $179, on T-7A Red Hawk of $400, and on
MQ-25 of $291.
During the fourth quarter of 2019, we recorded an additional reduction to
revenue of $2,619 for estimated potential concessions and other considerations
to customers and associated delivery delays related to the 737 MAX grounding.
During the fourth quarter of 2019, we recorded a divestiture gain of $395 and a
tax benefit of $371 related to the settlement of state tax audits spanning 15
tax years. Additionally, we recorded an impairment of $293 as a result of our
decision to retire the Aviall brand and trade name, and reach-forward losses on
Commercial Crew of $410 and on KC-46A Tanker of $108. During the fourth quarter
of 2018, we recorded a reach-forward loss on KC-46A Tanker of $50.
We increased our quarterly dividend from $1.71 to $2.055 in December 2018.


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            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of The Boeing Company

Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position
of The Boeing Company and subsidiaries (the "Company") as of December 31, 2019
and 2018, the related consolidated statements of operations, comprehensive
income, equity, and cash flows, for each of the three years in the period ended
December 31, 2019, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2019, in conformity
with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated January 31, 2020, expressed an
unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the
current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.


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Cost Estimates for Fixed-Price Development Contracts - Refer to Notes 1 and 14
to the financial statements
Critical Audit Matter Description
As more fully described in Notes 1 and 14 to the consolidated financial
statements, the Company recognizes revenue over time for long-term contracts as
goods are produced or services are rendered. The Company uses costs incurred as
the method for determining progress, and revenue is recognized based on costs
incurred to date plus an estimate of margin at completion. The process of
estimating margin at completion involves estimating the costs to complete
production of goods or rendering of services and comparing those costs to the
estimated final revenue amount. Fixed-price development contracts are inherently
uncertain in that revenue is fixed while the estimates of costs required to
complete these contracts are subject to significant variability. Due to the
technical performance requirements in many of these contracts, changes to cost
estimates could occur, resulting in lower margins or material reach-forward
losses.
Given the complexity of certain of the Company's fixed-price development
contracts, including the KC-46A Tanker, Commercial Crew, United States Air Force
VC-25B Presidential Aircraft, MQ-25 Stingray, and T-7A Red Hawk contracts, the
limited amount of historical data available in certain instances and significant
judgments necessary to estimate future costs at completion, auditing these
estimates involved extensive audit effort and a high degree of auditor judgment
and required audit professionals with industry and quantitative analytics
experience.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to the cost estimates for fixed-price
development contracts included the following, among others:
•      We evaluated the appropriateness and consistency of management's methods

and assumptions in developing its estimates.

• We performed inquiries of the Company's project managers and others

directly involved with the contracts and observed the work site to

evaluate project status and project challenges which may affect total

estimated costs to complete.

• We tested the accuracy and completeness of the data used in developing the

estimates. We developed independent expectations of likely outcomes using,

in part, the program's data and compared our expectations to management's

estimates.

• We tested the effectiveness of controls including those over the data used

       in developing the estimates, the mathematical extrapolation of such data,
       and management's judgment regarding the range of possible outcomes
       relating to the specific estimates.


•      We performed retrospective reviews, comparing actual performance to

estimated performance, when evaluating the thoroughness and precision of

       management's estimation process.




Program Accounting Estimates for New Programs - Refer to Notes 1 and 7 to the
financial statements
Critical Audit Matter Description
The introduction of new aircraft programs involves increased risk associated
with meeting development, certification and production schedules. The Company
uses program accounting in order to compute cost of sales and margin for each
commercial airplane sold. The use of program accounting requires estimating and
demonstrating customer demand for the number of units included in the program
(program accounting quantity) and estimating the sales and costs over the
expected life of each program. In particular, estimating the initial program
accounting quantity and revenue for unsold units within the program accounting
quantity involves measurement uncertainty resulting in a range of possible
outcomes. Changes to revenue or


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program accounting quantity estimates could occur, resulting in lower margins or
material reach-forward losses. Auditing the estimated market demand and revenue
for unsold units for the 777X program involved extensive audit effort and
required professionals with industry and quantitative analytics experience given
the high degree of complexity and subjectivity related to management's
estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to estimated market demand and revenue for
unsold units for the 777X included the following, among others:
•      We inquired of the Company's management, including individuals responsible

for sales and pricing, to evaluate the status of current sales campaigns,

short and long-term market demand, and overall program status.

• We evaluated the appropriateness and consistency of management's methods

and assumptions used in developing its estimates related to the initial

       program accounting quantity and revenue for unsold units.


•      We evaluated management's ability to estimate program revenue by

comparison to historical estimates and actual results on similar programs.

•      We developed independent expectations of likely outcomes using, in part,
       the program's data and compared our expectations to management's
       estimates.

• We tested the effectiveness of controls including those over the data used

       in developing the estimates, the mathematical extrapolation of such data,
       and management's judgment regarding the range of possible outcomes
       relating to the specific estimates.



Liabilities related to the 737 MAX Grounding - Refer to Notes 14 and 22 to the
financial statements
Critical Audit Matter Description
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to
suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft
operators following two fatal accidents of 737 MAX aircraft. Non-U.S. civil
aviation authorities have issued directives to the same effect (the "737 MAX
Grounding"). In addition, multiple legal actions have been filed against the
Company following the fatal accidents and various governmental and regulatory
investigations and inquiries continue relating to the accidents and the 737 MAX
aircraft.

During 2019, the Company recorded a liability in connection with estimated
payments, concessions and other in-kind consideration it intends to provide to
customers for disruptions related to the 737 MAX Grounding and associated
delivery delays. This liability totaled $7.4 billion at December 31, 2019 and is
reflected in the financial statements in Accrued liabilities. This represents
the Company's best estimate of future concessions and other consideration to its
customers, and is necessarily based on individual negotiations with customers
and a series of assumptions, including the timing and conditions of the 737
MAX's return to service in various jurisdictions and the timing of future
production rate increases. Because the timing and conditions of the 737 MAX
return to service in various jurisdictions will be determined by civil aviation
authorities and is outside of the Company's control, the assumptions underlying
the liability require a high degree of auditor judgment.

Significant judgment is involved in management's ability to assess and
reasonably estimate potential additional financial statement effects or a range
of loss, if any, resulting from the outcome of 737 MAX-related litigation and
the results of the various governmental and regulatory investigations and
inquiries related to the 737 MAX.



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The subjectivity of the liability associated with providing consideration to
customers resulting from the 737 MAX Grounding and the complexity of assessing
the outcome of the ongoing litigation and investigations related to the 737 MAX
required a high degree of auditor judgment and increased audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures associated with liabilities related to the 737 MAX
grounding included the following, among others:

•      We inquired of management to understand developments with the 737 MAX
       Grounding, including the status of regulatory approval for return to
       service in various jurisdictions and the status of consideration
       discussions with individual customers.

• We obtained written representations from management concerning its intent

       to provide consideration to customers and the extent of that
       consideration.

• We tested the effectiveness of controls related to nonrecurring items and

loss contingencies associated with litigation, claims and assessments.

• We evaluated the significant assumptions used by management to estimate

the liability for customer consideration, including the timing and

conditions of 737 MAX return to service, and, where possible, we

corroborated the assumptions with management outside of the accounting and

       finance organizations.


•      We reviewed the terms of customer contracts and correspondence with
       customers concerning potential consideration as a result of the 737 MAX
       Grounding.


•      We inquired of internal and external legal counsel to understand

developments related to contractual obligations to customers, litigation

       and other claims relating to the 737 MAX Grounding and progression in
       potential settlement discussions.

• We read minutes of meetings of the Board of Directors and its committees

for evidence of unrecorded loss contingencies.

• We evaluated the Company's disclosures for consistency with our knowledge

       of matters related to the 737 MAX Grounding.




/s/ Deloitte & Touche LLP
Chicago, Illinois
January 31, 2020

We have served as the Company's auditor since at least 1934; however, an earlier year could not be reliably determined.

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            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of The Boeing Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Boeing
Company and subsidiaries (the "Company") as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements as of and for the year ended December 31, 2019 of the Company, and
our report dated January 31, 2020 expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Chicago, Illinois
January 31, 2020


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