Boeing Reports First-Quarter Earnings

Segment Results

Commercial Airplanes

Boeing Commercial Airplanes (BCA) first-quarter revenues rose to $8.6 billion on a 5 percent increase in airplane deliveries partially offset by lower volume in services (Table 4). Operating earnings fell by 58 percent to $417 million while margins contracted to 4.9 percent, driven by the pending reduction in twin-aisle production rates and unfavorable delivery price escalation forecasts.

    Table 4. Commercial Airplanes Operating Results

                                             First Quarter
    (Millions, except
     deliveries & margin percent)            2009    2008    Change
    -----------------------------            ----    ----    ------

    Commercial Airplanes Deliveries           121     115      5%

    Revenues                               $8,554  $8,161      5%
    Earnings from Operations                 $417    $983    (58%)

    Operating Margins                         4.9%   12.0%  (7.1)Pts
    -----------------                         ---    ----  --------

Margins on all programs were reduced by the lower price escalation forecasts, the decision to reduce 777 production rates for deliveries beginning in June 2010, and postponing planned increases in 747-8 and 767 production. Because the 747 program is currently in a loss position, the reduced earnings associated with the factors above were recorded for the 747s delivered in the quarter as well as most units in the 747 backlog. That impact, somewhat offset by a refinement in cost estimates, resulted in the charge of $347 million, or $0.31 per share, that reduced BCA margins by 4.0 points.

BCA booked 28 gross orders during the quarter, but removed 32 others from its order book as previously disclosed. Contractual backlog was $266 billion, more than seven times BCA's expected 2009 revenues.

Progress on the new 787 Dreamliner continues on the revised schedule announced in December. The company expects the first flight to occur in the second quarter of 2009 with deliveries to begin in the first quarter of 2010. Recent milestones include completion of build-verification tests on Airplane 1, clearance of all systems hardware and Rolls-Royce engines for first flight, completion of power-on for Airplane 2, and the beginning of final assembly for the sixth and final flight test airplane. The program saw orders for 32 airplanes cancelled by mutual agreement with customers during the quarter. Total firm orders are now 886 airplanes from 57 customers.

Integrated Defense Systems

Boeing Integrated Defense Systems (IDS) first-quarter revenues rose 2 percent to $7.7 billion. Operating margins of 9.2 percent reflect strong execution in all segments offset by a less favorable delivery mix (Table 5).

    Table 5.  Integrated Defense Systems Operating Results

                                        First Quarter
    (Millions, except margin percent)    2009    2008   Change
    ---------------------------------    ----    ----   ------

       Boeing Military Aircraft        $3,010  $3,202     (6%)
       Network & Space Systems         $2,678  $2,694     (1%)
       Global Services & Support       $2,032  $1,679     21%
                                       ------  ------     --
    Total IDS Revenues                 $7,720  $7,575      2%

    Earnings from Operations
       Boeing Military Aircraft          $282    $384    (27%)
       Network & Space Systems           $207    $267    (22%)
       Global Services & Support         $220    $209      5%
                                         ----    ----     --
    Total IDS Earnings from Operations   $709    $860   (18%)

    Operating Margins                     9.2%   11.4% (2.2)Pts

Boeing Military Aircraft delivered first-quarter operating earnings of $282 million on $3.0 billion in revenue. Operating margin was 9.4 percent reflecting strong execution across aircraft production programs. Results were impacted by mix and volume. In this segment, the U.S. Air Force contracted for 15 previously funded C-17s, the United Arab Emirates announced their intent to purchase the C-17, Japan accepted delivery of its third KC-767, and the P-8A completed the loads calibration testing milestone.

Network & Space Systems achieved significant milestones on several key development programs, including Future Combat System and Ground-based Midcourse Defense. Operating margin was 7.7 percent driven by strong performance across the segment's array of programs partially offset by lower earnings on the United Launch Alliance joint venture. Last year's results included a favorable settlement on a satellite program.

Global Services & Support revenues increased 21 percent on higher volume in its broad portfolio of services and logistics programs. During the quarter, GS&S continued to generate double-digit operating margins of 10.8 percent. In this segment, the company captured contracts for V-22 performance-based logistics as well as maintenance and operations support for Ground-based Midcourse Defense.

IDS' backlog is $73.0 billion, more than two times expected 2009 revenues. New orders for the quarter include the additional C-17s and the contracts for integrated logistics and support.

Boeing Capital Corporation

Boeing Capital Corporation (BCC) reported first-quarter pre-tax earnings of $37 million compared to $61 million in the same period last year due to a smaller aircraft finance portfolio and higher reserves and impairments (Table 6). BCC's portfolio balance at the end of the quarter was $6.0 billion, down 5 percent from $6.3 billion in the year-ago period primarily on normal portfolio run-off, including customer payments and depreciation, partially offset by additions to its portfolio of $135 million in new financings. BCC contributed $35 million in cash dividends to the company during the quarter. BCC's debt-to-equity ratio was unchanged at 5.0-to-1.

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