What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-01-27 compared with 2022-01-31 · 276 added, 371 removed, 553 unchanged (54% of the section changed)

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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.

Taken together, these core businesses have historically generated substantial earnings and cash flow that enable our investments 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.

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Business Environment and Trends

The global outbreak of COVID-19, 787 production issues and associated rework, and the residual impacts of the 737 MAX grounding continued to have significant adverse impacts on our business in 2021.

The COVID-19 pandemic has caused an unprecedented shock to demand for air travel, creating a tremendous challenge for our customers, our business and the entire commercial aerospace manufacturing and services sector.

The latest International Air Transport Association (IATA) release reported that passenger traffic in 2021 recovered to approximately 40% of 2019 levels, as international markets saw continued reopening challenges.

Additionally, global economic activity is improving, but continues to be impacted by COVID-19, and governments continue to restrict travel to contain the spread of the virus.

While recovery is accelerating, we continue to expect that it will remain uneven as travel restrictions and varying regional travel protocols continue to impact air travel.

Generally, we continue to expect domestic travel to recover faster than international travel.

As a result, we expect the narrow-body market to recover faster than the wide-body market.

Also, the pace of the commercial market recovery will be heavily dependent on COVID-19 infection rates, vaccination rates, and government travel and other restrictions on trade and commercial activity.

Demand for dedicated freighters continues to be strong, underpinned by a strong recovery in global trade and overall air cargo growth.

Overall cargo capacity remains challenged given the large impact that COVID-19 has had on international passenger operations, which also carry cargo.

Airline financial performance, which also plays a role in the demand for new capacity, has been adversely impacted by the COVID-19 pandemic.

According to IATA, net losses for the airline industry were $138 billion in 2020 and are expected to be approximately $52 billion in 2021.

Our customers are taking actions to combat the effects of the COVID-19 pandemic on the market by preserving liquidity.

This comes in many forms, such as deferrals of advances and other payments to suppliers, deferrals of deliveries, reduced spending on services and, in some cases, cancellation of orders.

While the outlook is improving and we have seen an increase in new orders in 2021, we continue to face a challenging environment in the near- to medium-term as airlines have adjusted to reduced traffic, which in turn has resulted in lower demand for commercial aerospace products and services.

Domestic travel continues to recover from the lingering effects of the COVID-19 pandemic before international travel and the narrow-body market continues to follow domestic travel recovery, while the wide-body market continues to be paced by international travel recovery.

The pace of the commercial market recovery remains impacted by government restrictions related to COVID-19, especially China.

We are seeing a strong recovery in travel demand for our airline customers in North and South America, the Middle East, and Europe, and demand for dedicated freighters continues to be underpinned by a strong recovery in global trade.

We and our suppliers are experiencing supply chain disruptions as a result of the lingering impacts of COVID-19, global supply chain constraints, and labor instability.

We and our suppliers are also experiencing inflationary pressures.

We continue to monitor the health and stability of the supply chain as we ramp up production.

These factors have reduced overall productivity and adversely impacted our financial position, results of operations and cash flows.

Airline financial performance, which influences demand for new capacity, has been adversely impacted by the COVID-19 pandemic.

According to the International Air Transport Association (IATA), net losses for the airline industry were $138 billion in 2020 and $42 billion in 2021.

IATA also forecasts $6.9 billion of losses for the industry globally in 2022, with approximately $9.9 billion of profits in North America driven by the robust domestic market being more than offset by losses in other regions.

For 2023, IATA is forecasting $4.6 billion in profits for the industry globally.

While the outlook continues to improve, we continue to face a challenging environment in the near- to medium-term as airlines are facing increased fuel and other costs, and the global economy is experiencing high inflation.

The current environment is also affecting the financial viability of some airlines.

We continue to expect commercial air travel to return to 2019 levels in 2023 to 2024.

We expect it will take a few years beyond that for the industry to return to long-term trend growth.

To balance the supply and demand given the COVID-19 shock and to preserve our long-term potential and competitiveness, we have reduced the production rates of several of our BCA programs.

These rate decisions are based on our ongoing assessments of the demand environment and availability of aircraft financing.

There is significant uncertainty with respect to when commercial air traffic levels will recover, and whether, and at what point, capacity will return to and/or exceed pre-COVID-19 levels.

During the fourth quarter of 2020, we made adjustments to our estimates regarding timing of 777X entry into service and market demand.

We continue to anticipate that the first 777X delivery will occur in late 2023.

We will closely monitor the key factors that affect backlog and future demand for each of our commercial aircraft programs, including customers’ evolving fleet plans, the wide-body replacement cycle and the cargo market.

We will maintain a disciplined rate management process and make adjustments as appropriate in the future.

Notwithstanding the changes we have made to production rates, risk remains that further reductions will be required.

Additionally, if we are unable to make timely deliveries of the large number of aircraft in inventory as of December 31, 2021, future revenues, earnings and cash flows will be adversely impacted.

Deliveries of the 737 MAX resumed in the fourth quarter of 2020, when the Federal Aviation Administration (FAA) rescinded the order that grounded 737 MAX aircraft in the U.S.

In addition, other non-U.S.

civil aviation authorities, including the Brazilian National Civil Aviation Agency, Transport Canada and the European Union Aviation Safety Agency have subsequently approved return of operations, allowing us to resume deliveries in those jurisdictions.

Over 185 countries have approved the resumption of 737 MAX operations.

The Civil Aviation Administration of China issued an airworthiness directive in the fourth quarter of 2021 outlining actions required for airlines to return to service.

We expect 737 MAX deliveries to China to resume in 2022, subject to final regulatory approvals, although risk remains around the timing and rate of those deliveries.

Orders to suspend operations of 737 MAX aircraft from non-U.S.

civil aviation authorities are still in effect in a small number of countries.

Deliveries and production have also been impacted by production issues and associated rework.

For example, deliveries of the 787 are currently paused and the production rate has been reduced while we focus on rework of undelivered aircraft and continue to engage in detailed discussions with the FAA regarding required actions for resuming deliveries.

Risk remains that these issues may continue to impact the timing of airplane deliveries in inventory and/or our ability to achieve planned production rates.

Revenues, earnings and cash flows will continue to be impacted until we are able to resume timely deliveries.

The long-term outlook for the industry remains positive due to the fundamental drivers of air travel demand:

economic growth, increasing propensity to travel due to increased trade, globalization and improved airline services driven by liberalization of air traffic rights between countries.

The shock from COVID-19 has reduced the near- to medium-term demand, but our Commercial Market Outlook forecast projects a 4% growth rate for passenger and cargo traffic over a 20 year period.

Based on long-term global economic growth projections of 2.7% average annual gross domestic product (GDP) growth, we project demand for approximately 43,610 new airplanes over the next 20 years.

Our Commercial Market Outlook forecast projects a 3.8% growth rate for passenger and cargo traffic over a 20-year period.

Based on long-term global economic growth projections of 2.6% in average annual gross domestic product, we project demand for approximately 41,170 new airplanes over the next 20 years.

The industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics and increased global environmental regulations.

A Continuing Resolution (CR), enacted on December 3, 2021, continues funding for the federal government at FY21 appropriated levels through February 18, 2022.

Congress and the President must enact either full-year FY22 appropriations bills or an additional CR to fund government departments and agencies beyond February 18, 2022 or a government shutdown could result, which may impact the Company’s operations.

At BGS, while the outlook is improving, we are continuing to see a direct impact on our commercial supply chain business as fewer flights and more aircraft parked result in a decreased demand for our parts and logistics offerings.

Additionally, our commercial customers are curtailing discretionary spending, such as modifications and upgrades, and focusing on required maintenance.

Similar to BCA, we expect a multi-year recovery period for the commercial services business.

During 2022, commercial services volume at BGS recovered to pre-pandemic levels.

We expect BGS commercial revenues to remain strong in future quarters as the commercial airline industry continues to recover.

The demand outlook for our government services business remains stable.

government services comprises approximately half of BGS revenue, which is unchanged from pre-pandemic levels.

At BDS, we continue to see a healthy market with solid demand for our major platforms and programs both domestically and internationally.

However, while we continue to experience near-term production disruptions and inefficiencies due to COVID-19 impacts, we saw improvements in 2021.

In addition, we are experiencing some supply chain shortages.

Our suppliers are also experiencing liquidity pressures and disruptions to their operations as a result of COVID-19.

We continue to monitor the health and stability of the supply chain as we ramp up production.

These measures and disruptions have reduced overall productivity and adversely impacted our financial position, results of operations and cash flows.

We continue to transform and improve our business processes.

These activities are not intended to constrain our capacity but to enable the Company to emerge stronger and be more resilient when the market recovers.

We expect that successful execution of these measures will improve near-term liquidity and long-term cost competitiveness.

At BDS, we continue to see stable demand reflecting the important role our products and services have in ensuring our national security.

Outside of the U.S., we are seeing similar solid demand as governments prioritize security, defense technology and global cooperation given evolving threats.

We continue to experience near-term production disruptions and inefficiencies due to supplier disruption, labor instability and factory performance.

These factors have contributed to significant earnings charges on a number of fixed-price development programs which are expected to adversely affect cash flows in future periods.

As a result of the war in Ukraine, we recorded earnings charges totaling $212 million during the first quarter of 2022, primarily related to asset impairments.

We have closed our facilities in Russia.

We are focused on the safety of our employees and retaining the strength of our engineering talent through voluntary transfers to other countries.

We have also suspended our business in Russia, including parts, maintenance and technical support for Russian airlines, and purchases from Russian suppliers.

We are complying with U.S.

and international sanctions and export control restrictions.

We have sufficient material and parts to avoid production disruptions in the near-term, but future impacts to our production from disruptions in our supply chain are possible.

The war in Ukraine continues to impact our airline and lessor customers.

We continue to monitor developments and potential Boeing impacts, and take mitigating actions as appropriate.

Consolidated Results of Operations

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

See pages 49 - 51 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

See pages 45 - 47 for important information about these non-GAAP measures and reconciliations to the most directly comparable GAAP measures.

The following table summarizes Revenues:

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Total $66,608 $62,286 $58,158

Revenues increased by $4,322 million in 2022 compared with 2021 driven by higher revenues at BCA and BGS, partially offset by lower revenues at BDS.

BCA revenues increased by $6,374 million primarily driven by higher 737 and 787 deliveries.

BGS revenues increased by $1,283 million primarily due to higher commercial services volume, partially offset by lower government services volume and performance.

BDS revenues decreased by $3,378 million primarily due to charges on development programs, unfavorable performance across other defense programs, and lower P-8 and weapons volume.

Revenues increased by $4,128 million in 2021 compared with 2020 driven by higher revenues at BCA, BDS and BGS.

BCA revenues increased by $3,331 million primarily driven by higher 737 MAX deliveries due to recertification and return to service in most jurisdictions and the absence of $498 million of 737 MAX customer considerations which reduced revenues in 2020, partially offset by lower 787 deliveries in 2021.

BDS revenues increased by $283 million primarily from higher revenue on the KC-46A Tanker program and lower charges in 2021.

BDS revenues increased by $283 million primarily from higher revenue on the

KC-46A Tanker program and lower charges in 2021.

BGS revenues increased by $785 million primarily due to higher commercial and government services volume.

Revenues decreased by $18,401 million in 2020 compared with 2019 primarily due to lower revenues in our commercial airplanes and commercial services businesses.

Revenues for each of our segments have been adversely impacted by COVID-19.

BCA revenues decreased by $16,093 million due to lower deliveries driven by the impacts of the COVID-19 pandemic, 787 production issues and the 737 MAX grounding, offset by lower charges related to estimated potential concessions and other considerations to 737 MAX customers.

BDS revenues increased by $162 million primarily due to higher fighter aircraft

and other volume, partially offset by the impact of higher unfavorable cumulative contract catch-up adjustments, largely due to KC-46A Tanker charges in 2020.

BGS revenues decreased by $2,925 million primarily due to lower commercial services revenue driven by the COVID-19 pandemic.

The changes in Unallocated items, eliminations and other primarily reflect the timing of eliminations for intercompany aircraft deliveries, as well as reserves related to cost accounting litigation recorded in 2019.

Revenues will continue to be significantly impacted until deliveries ramp up and the commercial airline industry recovers from the impacts of COVID-19.

Revenues will continue to be significantly impacted until the global supply chain stabilizes, labor instability diminishes, and deliveries ramp up.

Loss From Operations

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* 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.

** Core operating loss is a non-GAAP measure that excludes the FAS/CAS service cost adjustment.

See pages 45 - 47.

Loss from operations increased by $645 million in 2022 compared with 2021.

BDS had a loss from operations of $3,544 million compared with earnings of $1,544 million during 2021, primarily due to charges on development programs.

BCA loss from operations decreased by $4,105 million primarily due to the absence in 2022 of the $3,460 million reach-forward loss taken on the 787 program in 2021, higher 737 deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war in Ukraine and other period expenses.

BGS earnings from operations increased by $710 million in 2022 compared with 2021 primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance.

Loss from operations decreased by $9,865 million in 2021 compared with 2020 primarily due to lower losses at BCA and higher earnings at BGS.

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BGS earnings from operations increased by $1,567 million in 2021 compared with 2020 primarily due to charges incurred in 2020 as a result of the COVID-19 pandemic, as well as higher commercial services volume.

Loss from operations increased by $10,792 million in 2020 compared with 2019 primarily due to increased losses at BCA and decreased earnings at BGS and BDS.

BCA loss from operations increased by $7,190 million.

The loss in 2020 primarily reflects a reach-forward loss recorded in the fourth quarter of $6,493 million on the 777X program.

BCA’s loss in 2020 also reflects the absence of MAX deliveries during the first three quarters of the year, lower wide-body deliveries and lower program margins resulting from the COVID-19 pandemic and 787 production issues, abnormal production costs, 737NG frame fitting component repair costs, severance costs and 737 MAX customer considerations.

The loss in 2019 primarily reflects the absence of 737 MAX deliveries in the second, third and fourth quarters and charges of $8,259 million for estimated 737 MAX customer considerations.

decreased by $1,076 million in 2020 compared with 2019, primarily due to higher unfavorable cumulative contract catch-up adjustments, including charges of $1,320 million on KC-46A Tanker and $168 million on VC-25B in 2020, partially offset by $489 million of charges on Commercial Crew in 2019.

The lower earnings were also driven by lower gains on property sales compared to 2019.

BGS earnings from operations decreased by $2,247 million in 2020 compared with 2019 primarily due to lower commercial services revenue, as well as asset impairments and severance costs resulting from the COVID-19 market environment.

Lower commercial airplane deliveries and the COVID-19 pandemic will continue to have a significant adverse impact on future earnings and margins until deliveries ramp up and return to historical levels.

Core operating loss decreased by $10,075 million in 2021 compared with 2020 primarily due to lower losses at BCA and higher earnings at BGS, as described above.

Core operating loss increased by $10,760 million in 2020 compared with 2019 primarily due to higher losses at BCA and lower earnings at BGS and BDS.

Core operating loss increased by $615 million in 2022 compared with 2021 and decreased by $10,075 million in 2021 compared with 2020 primarily due to changes in Segment operating loss as described above.

Unallocated Items, Eliminations and Other The most significant items included in Unallocated items, eliminations and other are shown in the following table:

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Research and development expense, net (278) (184) (240)

Customer financing impairment (250)

Litigation (109)

Eliminations and other unallocated items (1,162) (676) (1,807)

Unallocated items, eliminations and other ($1,532) ($1,267) ($2,355)

Share-based plans expense increased by $54 million in 2021 and $55 million in 2020.

The higher expense in 2021 was primarily related to a one-time grant of restricted stock units (RSUs) to most employees in December 2020.

The increase in 2020 was due to increased grants of RSUs and other share-based compensation.

Deferred compensation expense increased by $33 million in 2021, primarily driven by changes in our stock price, and decreased by $81 million in 2020, primarily driven by changes in broad stock market conditions and our stock price.

Research and development expense decreased by $56 million in 2021 and $161 million in 2020 primarily due to decreases in enterprise investments in product development.

In 2019, we recorded a $250 million charge related to the impairment of lease incentives with one customer that experienced liquidity issues and a $109 million charge related to ongoing litigation associated with recoverable costs on U.S.

government contracts.

Eliminations and other unallocated expense decreased by $1,131 million in 2021 and increased by $822 million in 2020 primarily due to earnings charges of $744 million in the fourth quarter of 2020 in anticipation of the agreement between Boeing and the U.S.

Share-based plans expense decreased by $60 million in 2022 and increased by $54 million in 2021.

The lower expense in 2022 compared to 2021 was due to decreased grants of restricted stock units (RSUs) and other share-based compensation.

The higher expense in 2021 compared to 2020 was primarily related to a one-time grant of RSUs to most employees in December 2020.

Deferred compensation expense decreased by $243 million in 2022, primarily driven by changes in broad stock market conditions, and increased by $33 million in 2021, primarily driven by changes in broad stock market conditions and our stock price.

Research and development expense increased by $94 million in 2022 and decreased by $56 million in 2021 primarily due to enterprise investments in product development.

Eliminations and other unallocated expense increased by $486 million in 2022 primarily due to a $200 million settlement with the Securities and Exchange Commission related to the 737 MAX accidents, lower income from operating investments, and an increase in environmental remediation expense.

Eliminations and other unallocated expense decreased by $1,131 million in 2021 primarily due to earnings charges of $744 million in the fourth quarter of 2020 in anticipation of the agreement between Boeing and the U.S.

Department of Justice that was finalized in January 2021 and higher income from operating investments in 2021.

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

The pension FAS/CAS service cost adjustment recognized in Loss from operations in 2021 decreased by $142 million compared with 2020 due to reductions in allocated pension cost year over year.

The pension FAS/CAS service cost adjustment recognized in Loss from operations in 2020 was largely consistent with 2019.

Net periodic benefit cost included in Loss from operations in 2021 was largely consistent with 2020.

The decrease in net periodic benefit cost included in Loss from operations in 2020 was primarily due to prior year service cost that was included in earnings in 2019.

The pension FAS/CAS service cost adjustment recognized in Loss from operations in 2022 decreased by $33 million compared with 2021 and decreased by $142 million in 2021 compared with 2020 due to reductions in allocated pension cost year over year.

Net periodic benefit cost included in Loss from operations in 2022 was largely consistent with 2021 and 2020.

For additional discussion related to Postretirement Plans, see Note 16 to our Consolidated Financial Statements.

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Loss before income taxes (5,022) (5,033) (14,476)

Income tax benefit 743 2,535 1,623

Income tax (expense)/benefit (31) 743 2,535

Net loss from continuing operations (5,053) (4,290) (11,941)

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Non-operating pension income included in Other income, net was $881 million in 2022, $528 million in 2021, and $340 million in 2020.

The increased income in 2022 compared to 2021 was primarily due to lower amortization of net actuarial losses in 2022 and a settlement loss recorded in 2021.

The increased income in 2021 compared to 2020 was primarily due to lower interest cost and higher expected return on plan assets, partially offset by higher amortization of net actuarial losses and higher settlement charges.

The decreased income in 2020 compared to 2019 was due to higher amortization of actuarial losses and lower asset returns, partially offset by lower interest cost.

Non-operating postretirement income included in Other income, net was $1 million in 2021, compared with expense of $16 million in 2020 and $107 million in 2019.

The increased income in 2021 compared to 2020 was due to lower interest cost.

The decreased expense in 2020 compared to 2019 was due to lower interest cost.

Interest and debt expense increased by $526 million in 2021 and increased by $1,434 million in 2020 as a result of higher average debt balances.

Non-operating postretirement income included in Other income, net was $58 million in 2022, compared with income of $1 million in 2021 and expense of $16 million in 2020.

The increased income in 2022 and 2021 was due to lower amortization of net actuarial losses.

Interest and debt expense decreased by $149 million in 2022 primarily due to lower average debt balances and increased by $526 million in 2021 as a result of higher average debt balances.

In August 2022, the President signed into law the Inflation Reduction Act of 2022, which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we do not expect to have a material impact on our results of operations, financial condition or cash flows.

For additional discussion related to Income Taxes, see Note 4 to our Consolidated Financial Statements.

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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.

Under program accounting, cost of sales for each commercial aircraft 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.

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Cost of sales as a % of Revenues 94.7 % 95.2 % (0.5) % 95.2 % 109.8 % (14.6) %

Cost of sales increased by $3,837 million in 2022 compared with 2021, primarily due to charges recorded at BDS and higher revenues at BCA.

Cost of sales as a percentage of Revenues remained largely consistent in 2022 compared to 2021.

Cost of sales decreased by $4,574 million in 2021 compared with 2020, primarily due to higher earnings charges at BCA, BDS and BGS in 2020, partially offset by higher costs as a result of higher revenues in 2021 and the reach-forward loss on the 787 program.

Cost of sales as a percentage of Revenues decreased in 2021 compared to 2020 primarily due to higher earnings charges at BCA and BGS in 2020 and higher revenues in 2021.

Cost of sales decreased by $8,250 million in 2020 compared with 2019, primarily due to lower revenue in 2020, partially offset by higher charges in 2020 related to the 777X program, COVID-19 impacts, KC-46A Tanker program, abnormal production costs at BCA and severance costs.

Cost of sales as a percentage of Revenues increased in 2020 compared to 2019 primarily due to the reach-forward loss on the 777X program, impacts of the 737 MAX grounding and the COVID-19 pandemic, as well as severance costs.

Research and Development The following table summarizes our Research and development expense:

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Total $2,852 $2,249 $2,476

Research and development expense increased by $603 million in 2022 compared with 2021 primarily due to higher research and development expenditures on 777X, 737 MAX, as well as BCA and enterprise investments in product development.

Research and development expense decreased by $227 million in 2021 compared with 2020 primarily due to lower BCA and enterprise investments in product development and lower spending on the 777X program.

Research and development expense decreased by $743 million in 2020 compared with 2019 primarily due to lower spending at BCA and at Boeing NeXt on product development.

Our backlog at December 31 was as follows:

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government contract funding.

The increase in contractual backlog during 2021 was primarily due to new orders, reclassifications from unobligated backlog related to BDS and BGS contracts, increases in price escalation and reductions in the number of existing orders that in our assessment do not meet the accounting requirements of Accounting Standards Codification (ASC) 606 for inclusion in backlog, partially offset by deliveries and cancellations.

During 2021, we have had higher ASC 606 adjustments of 787 orders as a result of delivery delays related to inspections and rework.

If 787 aircraft deliveries continue to be paused, we remain unable to deliver 737 MAX aircraft in China for an extended period of time, and/or entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations.

Additionally, we may continue to experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand.

The increase in contractual backlog during 2022 was primarily due to an increase in BCA backlog that was partially offset by a decrease in BDS backlog.

If we remain unable to deliver 737 MAX aircraft in China for an extended period of time, and/or entry into service of the 777X, 737-7 and/or 737-10 is further delayed, we may experience reductions to backlog and/or significant order cancellations.

Unobligated backlog includes U.S.

government definitive contracts for which funding has not been authorized.

The decrease in unobligated backlog in 2021 was primarily due to reclassifications to contractual backlog related to BDS and BGS contracts, partially offset by contract awards.

The increase in unobligated backlog in 2022 was primarily due to contract awards, partially offset by reclassifications to contractual backlog related to BDS and BGS contracts.

Additional Considerations

Global Trade We continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements or sanctions that may impact the Company.

The global economy continues to experience significant adverse impacts due to the COVID-19 pandemic, including a decline in overall trade in general and in aerospace in particular.

There is a great deal of uncertainty regarding the duration, scale and localization of these impacts to the global economy and governments are enacting a wide range of responses to mitigate the unfolding economic impacts.

We are closely monitoring the current impact and potential future economic consequences of COVID-19 to the global economy, the aerospace sector and our Company.

These adverse economic impacts have resulted in fewer orders than previously anticipated for our commercial aircraft.

The current state of U.S.-China relations remains a significant watch item.

China is a very significant market for commercial airplanes and represents a significant component of our commercial airplanes backlog.

The current state of U.S.-China relations remains an ongoing watch item.

Since 2018, the U.S.

and China imposed an escalating series of tariffs on each other’s imports.

and China have imposed tariffs on each other’s imports.

Certain aircraft parts and components that Boeing procures are subject to these tariffs.

and China entered into a Phase I agreement in January 2020.

However, as of December 31, 2021, implementation of this agreement is incomplete and overall diplomatic relations between the U.S.

and China have deteriorated.

We continue monitoring developments for potential adverse impacts to the Company.

We are mitigating import costs through Duty Drawback Customs procedures.

China is a significant market for commercial aircraft.

Boeing has long-standing relationships with our Chinese customers, who represent a key component of our commercial aircraft backlog.

Overall, the U.S.-China trade relationship remains stalled as economic and national security concerns continue to be a challenge.

Beginning in June 2018, the U.S.

Government has imposed tariffs on steel and aluminum imports.

Government 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.

In May 2019, the U.S.

Government, Mexico and Canada reached an agreement to end the steel and aluminum tariffs between these countries.

Implementation of the U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower tariffs.

In October 2021, the U.S.

and European Union (EU) announced an agreement to ease steel and aluminum tariffs.

has subsequently reached agreements with Mexico, Canada, the United Kingdom, the European Union, and Japan to ease or remove tariffs on steel and/or aluminum.

We continue to monitor the potential for any extra costs that may result from the remaining global tariffs.

The current status of U.S.-Russia relations is creating an adverse climate for our business.

Government continues to impose and/or consider imposing sanctions on certain businesses and individuals in Russia.

We are complying with all U.S.

and other government export control restrictions and sanctions imposed on certain businesses and individuals in Russia.

We continue to monitor and evaluate additional sanctions and export restrictions that may be imposed by the U.S.

Government and any responses from Russia that could directly affect our supply chain, business partners or customers.

We also continue to support the 737 MAX return to service in Russia.

and EU have been engaged in two long-running disputes at the World Trade Organization (WTO) relating to large civil aircraft.

As part of those disputes, in October 2019, the WTO authorized the U.S.

to impose approximately $7.50 billion in annual tariffs on EU products in connection with the EU’s provision of eight instances of launch aid subsidies to Airbus.

Following this authorization, the U.S.

began to impose 15% tariffs on new Airbus airplanes imported into the U.S.

as well as fuselages that Airbus manufactures in Europe and imports into the U.S.

In October 2020, the WTO authorized the EU to impose approximately $3.99 billion in annual tariffs on U.S.

products in connection with a tax incentive used by Boeing in Washington state that has since been repealed.

Shortly thereafter, the EU began to impose 15% tariffs on Boeing airplanes imported into the EU.

On June 15, 2021, the U.S.

and EU announced that they had reached a cooperative framework to address the large civil aircraft disputes.

As part of the framework, among other items, both sides announced an intent to continue to suspend tariffs related to the disputes for five years.

announced a similar agreement on June 17, 2021.

Government or other governments,

as well as any responses from Russia that could affect our supply chain, business partners or customers, for any additional impacts to our business.

Segment Results of Operations and Financial Condition

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Business Environment and Trends

Airline Industry Environment See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment.

Industry Competitiveness The industry continues to adjust to the unprecedented COVID-19 shock and subsequent economic impact, government restrictions and new regulations.

The commercial airplane market and the airline industry both remain extremely competitive.

While the impacts and responses have varied globally, the reduction of demand and disruption in production has adversely impacted most manufacturers in the commercial airplane industry.

Airline Industry Environment See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the airline industry environment.

Industry Competitiveness The industry continues to recover from the lingering effects of the COVID-19 pandemic.

The commercial aircraft market and the airline industry both remain extremely competitive.

While the impacts and responses have varied globally, the reduction of demand and disruption in production has adversely impacted most manufacturers in the commercial aircraft industry.

Continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns.

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They offer competitive products and have access to most of the same customers and suppliers.

The grounding of the 737 MAX and the associated suspension of 737 MAX deliveries in multiple jurisdictions significantly reduced our market share with respect to deliveries of single aisle aircraft in 2019, 2020 and 2021 and may provide competitors with an opportunity to obtain more orders and increase market share.

The grounding of the 737 MAX in 2019 and the associated suspension of 737 MAX deliveries in multiple jurisdictions significantly reduced our market share with respect to deliveries of single aisle aircraft and may provide competitors with an opportunity to obtain more orders and increase market share.

With government support, Airbus has historically invested heavily to create a family of products to compete with ours.

After the acquisition of a majority share of Bombardier’s C Series (now A220) in 2018, Airbus continues to expand in the 100-150 seat transcontinental market.

Other competitors are also in different phases of developing commercial jet aircraft.

Other competitors are also in different phases of developing commercial jet aircraft, including Commercial Aircraft Corporation of China, Ltd.

(COMAC), which delivered its first C919 aircraft in 2022.

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.

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Research and development $1,510 $1,140 $1,385

BCA revenues increased by $6,374 million in 2022 compared with 2021 primarily due to higher 737 and 787 deliveries in 2022.

BCA revenues increased by $3,331 million in 2021 compared with 2020 primarily due to higher 737 MAX deliveries driven by recertification and return to service in most jurisdictions and the absence of charges for 737 MAX customer considerations which reduced revenues in 2020, partially offset by lower 787 deliveries in 2021.

BCA revenues decreased by $16,093 million in 2020 compared with 2019 due to lower deliveries primarily driven by the impacts of the COVID-19 pandemic, 787 production issues and the 737 MAX grounding.

This was partially offset by lower charges related to estimated potential concessions and other considerations to 737 MAX customers of $498 million in 2020 compared with $8,259 million in 2019.

We resumed deliveries of 737 MAX aircraft in December 2020 following rescission by the FAA of its grounding order.

As of December 31, 2021, most non-U.S.

jurisdictions have approved return to service of the 737 MAX.

787 deliveries have been paused since May 2021.

Revenues will continue to be impacted until deliveries of the 737 MAX ramp up, deliveries of the 787 resume and the commercial airline industry recovers from the impacts of COVID-19.

Commercial Airplanes deliveries as of December 31 were as follows:

BCA deliveries, including intercompany deliveries, as of December 31 were as follows:

737 * 747 767 * 777 787 Total

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* Intercompany deliveries identified by parentheses

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

Loss From Operations

BCA loss from operations was $6,475 million in 2021 compared with $13,847 million in 2020.

The 2021 loss includes a reach-forward loss on the 787 program of $3,460 million, abnormal production costs related to 737 MAX of $1,887 million, and abnormal production costs related to the 787 program of $468 million resulting from continued production issues, inspections and rework, partially offset by higher 737 MAX deliveries.

The 2020 loss reflects the reach-forward loss on 777X of $6,493 million and additional drivers as noted in the paragraph below.

BCA loss from operations was $2,370 million in 2022 compared with $6,475 million in 2021 reflecting higher 737 deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war in Ukraine and other period expenses.

The 2021 loss also reflects a reach-forward loss on the 787 program of $3,460 million.

Abnormal production costs in 2022 were $1,753 million, including $1,240 million related to the 787 program, $325 million related to the 777X program, and $188 million related to the 737 program.

BCA loss from operations was $6,475 million in 2021 compared with $13,847 million in 2020.

The 2020 loss reflects the reach-forward loss on 777X of $6,493 million, lower deliveries and lower program margins resulting from the COVID-19 pandemic, $2,567 million of abnormal production costs related to 737 MAX, $623 million of severance cost, $498 million of 737 MAX customer considerations, $336 million related to 737NG frame fitting component repair costs and $270 million of abnormal production costs in the first half of 2020 from the temporary suspension of operations in response to COVID-19, partially offset by lower research and development spending.

The 2021 loss reflects the reach-forward loss on the 787 program of $3,460 million, abnormal production costs related to the 737 program of $1,887 million, and abnormal production costs related to the 787 program of $468 million resulting from continued production issues, inspections and rework, partially offset by higher 737 MAX deliveries.

The 2020 loss reflects the reach-forward loss on the 777X program of $6,493 million, lower deliveries and lower program margins resulting from the COVID-19 pandemic,

$2,567 million of abnormal production costs related to the 737 program, $623 million of severance cost, $498 million of 737 MAX customer considerations, $336 million related to 737NG frame fitting component repair costs and $270 million of abnormal production costs in the first half of 2020 from the temporary suspension of operations in response to COVID-19, partially offset by lower research and development spending.

Lower 787 margins reflecting a reduction in the accounting quantity in the first quarter of 2020 also contributed to lower earnings.

The 2019 loss primarily reflects the absence of 737 MAX deliveries in the second, third and fourth quarters of 2019 and charges of $8,259 million for estimated 737 MAX customer considerations.

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.

All such contingencies must be satisfied or have expired prior to recording a new firm order even if satisfying such conditions is highly probable.

Backlog excludes options and BCC orders as well as orders where customers have the unilateral right to terminate.

A number of our customers may have contractual remedies, including rights to reject individual airplane deliveries if the actual delivery date is significantly later than the contractual delivery date.

We address customer

claims and requests for other contractual relief as they arise.

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 ASC 606.

BCA total backlog of $296,882 million at December 31, 2021 increased from $281,588 million at December 31, 2020, reflecting new orders in excess of deliveries, increases in projected price escalation and decreases in the number of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog, partially offset by aircraft order cancellations.

Aircraft order cancellations during the year ended December 31, 2021 totaled $27,542 million and primarily relate to 737 MAX and 787 aircraft.

The net ASC 606 adjustments decreased for the year ended December 31, 2021, which resulted in an increase to backlog of $3,810 million primarily due to 777X aircraft, partially offset by 787 aircraft.

ASC 606 adjustments include consideration of aircraft orders where a customer controlled contingency may exist, as well as an assessment of whether the customer is committed to perform or whether it is probable that the customer will pay the full amount of consideration when it is due.

If 787 aircraft deliveries continue to be paused, we are unable to ramp up deliveries of 737 MAX aircraft, and/or if entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations.

BCA total backlog of $329,824 million at December 31, 2022 increased from $296,882 million at December 31, 2021, reflecting new orders in excess of deliveries and price escalation, offset by order cancellations and by an increase in the value of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog.

Aircraft order cancellations during the year ended December 31, 2022 totaled $11,251 million and relate to 737 and 787 aircraft.

The net ASC 606 adjustments for the year ended December 31, 2022 resulted in a decrease to backlog of $4,675 million primarily due to a net increase of 777X aircraft in the ASC 606 reserve, partially offset by net decreases in 737 and 787 aircraft in the ASC 606 reserve.

ASC 606 adjustments include consideration of aircraft orders where a customer-controlled contingency may exist, as well as an assessment of whether the customer is committed to perform, impacts of geopolitical events or related sanctions, or whether it is probable that the customer will pay the full amount of consideration when it is due.

Accounting Quantity The accounting quantity is our estimate of the quantity of airplanes that will be produced for delivery under existing and anticipated contracts.

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† Aircraft ordered by BCC are identified in parentheses.

** See 777 and 777X Programs for discussion of the 777X accounting quantity.

Program Highlights

737 Program The accounting quantity for the 737 program increased by 400 units during 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes.

See further discussion of the 737 MAX in Note 13 to our Consolidated Financial Statements .

747 Program We are currently producing at a rate of 0.5 aircraft per month.

We expect to complete production of the 747 in the second half of 2022.

We believe that ending production of the 747 will not have a material impact on our financial position, results of operations or cash flows.

We increased the production rate to 31 per month in 2022, and expect to implement further gradual production rate increases based on market demand and supply chain capacity.

We expensed abnormal production costs of $188 million and $1,887 million during the years ended December 31, 2022 and 2021.

Over 190 countries have approved the resumption of 737 MAX operations.

The first 737 MAX passenger flight in China since 2019 occurred on January 13, 2023.

There is uncertainty regarding timing of resumption of deliveries in China, which are still subject to final regulatory approvals.

We continue to work with a small number of customers who have requested to defer deliveries or to cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory.

We have approximately 250 aircraft in inventory as of December 31, 2022, including approximately 140 aircraft in inventory that are designated for customers in China.

We are remarketing some of these aircraft to other customers.

We anticipate delivering most of the aircraft in inventory by the end of 2024.

In the event that we are unable to resume aircraft deliveries in China or remarket those aircraft and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing could be impacted.

The 737-7 and 737-10 models are currently going through FAA certification.

The Consolidated Appropriations Act, 2023 amended Section 116 of the ACSAA, such that applications for original or amended type certifications that were submitted to the FAA prior to December 27, 2020, including those of the 737-7 and 737-10, are no longer subject to the crew alerting specifications of Section 116.

Additionally, beginning one year after the FAA issues the type certificate for the 737-10, any new 737 MAX aircraft must include certain safety enhancements to be issued an original airworthiness certification by the FAA.

These enhancements are included in Boeing’s application for the certification for the 737-10, and the sufficiency of these enhancements will be determined by the FAA.

Beginning three years after the issuance of a type certificate for the 737-10, all previously delivered 737 MAX aircraft must be retrofitted with these safety enhancements.

As the holder of the type certificate, Boeing is required to bear any costs of these safety enhancement retrofits.

We have provisioned for the estimated costs associated with the safety enhancements and do not expect those costs to be material.

We are following the lead of the FAA as we work through the certification process, and currently expect the 737-7 to be certified and delivered in 2023, and the 737-10 to begin FAA certification flight testing in 2023 with first delivery in in 2024.

At December 31, 2022, we had 27 737-7 and 3 737-10 aircraft in inventory and 236 737-7 and 720 737-10 aircraft in backlog and have delivered a total of 1,033 737 MAX aircraft.

If we experience delays in achieving certification and/or incorporating safety enhancements, future revenues, cash flows and results of operations could be adversely impacted.

See further discussion of the 737 MAX in Note 7 and Note 13 to our Consolidated Financial Statements .

747 Program We completed production of the 747 in the fourth quarter of 2022 and delivery of the last aircraft is expected to occur in early 2023.

Ending production of the 747 did not have a material impact on our financial position, results of operations or cash flows.

767 Program The accounting quantity for the 767 program increased by 24 units during 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes.

The 767 assembly line includes the commercial program and a derivative to support the tanker program.

The 767 assembly line includes the commercial program and a derivative to support the KC-46A Tanker program.

The commercial program has near break-even gross margins.

We are currently producing at a rate of 3 aircraft per month.

We are currently producing at a combined rate of 3 aircraft per month.

777 and 777X Programs The accounting quantity for the 777 program increased by 40 units during 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes.

The production rate for the combined 777/777X program is expected to increase from 2 per month to 3 per month in 2022.

In 2013, we launched the 777X-8 and 777X-9, which feature new composite wings, new engines and folding wing-tips.

The first flight of the 777X was completed during the first quarter of 2020.

In 2021, we began offering the 777X freighter to customers and expect to receive initial orders in 2022.

During the fourth quarter of 2020, we revised the estimated first delivery date of the 777X to late 2023 and recorded a $6.5 billion reach-forward loss on the 777X program.

The revised schedule and reach-

forward loss reflected a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and a management decision in the fourth quarter of 2020 to make modifications to the aircraft’s design, an updated assessment of COVID-19 impacts on market demand and discussions with our customers with respect to aircraft delivery timing.

These factors resulted in adjustments to production rates and the program accounting quantity, increased change incorporation costs, and associated customer and supply chain impacts.

The initial accounting quantity of 350 airplanes established in the fourth quarter of 2020 consists of 777X passenger airplanes and remained unchanged during 2021.

We are working towards reaching Type Inspection Authorization (TIA) which will enable us to begin FAA certification flight testing.

We are currently producing at a combined production rate of 3 per month for the 777/777X programs.

The accounting quantity for the 777X program increased by 50 units during 2022 reflecting the launch of the 777X-8 freighter during the first quarter of 2022.

First delivery of the 777X-8 freighter is expected in 2027.

During the first quarter of 2022, we revised the estimated first delivery date of the 777X-9, previously expected in late 2023, and now expect it will occur in 2025, based on an updated assessment of the time required to meet certification requirements.

We are working towards Type Inspection Authorization (TIA) which will enable us to begin FAA certification flight testing.

The timing of TIA and certification will ultimately be determined by the regulators, and further determinations with respect to anticipated certification requirements could result in additional delays in entry into service and/or additional cost increases.

We continue to anticipate that the first 777X delivery will occur in late 2023.

The 777X program has near break-even gross margins at December 31, 2021.

In April 2022, we decided to pause production of the 777X-9 during 2022 and 2023.

We implemented the production pause during the second quarter of 2022, and it is expected to result in abnormal production costs of approximately $1.5 billion that are being expensed as incurred until 777X-9 production resumes.

During the year ended December 31, 2022, $0.3 billion of abnormal costs were period expensed.

The 777X program had near break-even gross margins at December 31, 2022.

The level of profitability on the 777X program will be subject to a number of factors.

These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, customer negotiations, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification.

These factors include continued production disruption due to labor instability and supply chain disruption, customer negotiations, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification.

One or more of these factors could result in additional reach-forward losses on the 777X program in future periods.

787 Program During 2020, we experienced significant reductions in deliveries due to the impacts of COVID-19 on our customers as well as production issues and associated rework.

During 2021 we delivered 14 aircraft between March 2021 and May 2021 prior to deliveries being paused in May 2021.

Deliveries remain paused.

787 Program During the fourth quarter of 2022, we increased the accounting quantity for the 787 program by 100 units due to the program’s normal progress of obtaining additional orders and delivering aircraft.

The increase in the accounting quantity improved the program’s profit margin.

We received FAA authorization to resume delivery on July 28, 2022 and deliveries resumed in August.

During 2022, we delivered 31 aircraft to customers.

We continue to conduct inspections and rework on undelivered aircraft.

During 2021, we delivered 14 aircraft between March and May 2021 prior to deliveries being paused in May 2021 due to production quality issues including in our supply chain.

We have implemented changes in the production process designed to ensure that newly-built airplanes meet our specifications and do not require further inspections and rework.

At December 31, 2022, and 2021, we had approximately 100 and 110 aircraft in inventory.

We have identified production quality issues, including in our supply chain, which have contributed to the pause in deliveries.

In July 2021, we announced that we were reprioritizing production resources to support inspections and rework.

We continue to conduct inspections and rework on undelivered aircraft and engage in detailed discussions with the FAA regarding required actions for resuming delivery of the 787.

We are currently producing at very low rates and expect that to continue until deliveries resume, gradually returning to 5 per month over time.

In the third quarter of 2021, we determined that in the current environment production rates below 5 per month represent abnormally low production rates and result in abnormal production costs, and that inspections and rework costs on inventoried aircraft are excessive and should also be accounted for as abnormal production costs that are required to be expensed as incurred.

In the fourth quarter of 2021, we determined that the ongoing rework, as well as our ongoing discussions with the FAA in anticipation of resumption of deliveries, will result in lower production rates longer than previously expected.

As a result of these impacts, we expect to incur approximately $2 billion of abnormal production costs on a cumulative basis with most being incurred by the end of 2023.

Most of the aircraft in inventory at December 31, 2022 are expected to deliver by the end of 2024.

We are currently producing at low rates and expect to gradually return to 5 per month in 2023.

In the third quarter of 2021, we determined that production rates below 5 per month represented abnormally low production rates and result in abnormal production costs.

We also determined that the inspections and rework costs on inventoried aircraft are excessive and should also be accounted for as abnormal production costs that are required to be expensed as incurred.

Cumulative abnormal costs recorded through December 31, 2022 totaled $1.7 billion.

During the fourth quarter of 2022 we adjusted the total estimate of abnormal production costs up to $2.8 billion with most being incurred by the end of 2023.

At December 31, 2021, we were expecting to incur approximately $2 billion of abnormal production costs on a cumulative basis.

The increase was primarily driven by a decision in the fourth quarter of 2022 to slow down near-term production due to supply chain constraints and increased inspection and rework costs.

We continue to work with customers and suppliers regarding timing of future deliveries and production rate changes.

We are also continuing to implement changes in the production process designed to ensure that newly-built airplanes meet our specifications and do not require further inspections and rework.

During the first quarter of 2021, we consolidated 787 production in South Carolina, in line with our previous assumptions, which did not have a significant financial impact on the program.

During the fourth quarter of 2021, we recorded a loss of $3.5 billion on the program primarily due to the additional rework, as well as other actions required to resume 787 deliveries, taking longer than

These impacts have resulted in longer than expected delivery delays and associated customer considerations.

The timing of the resumption of deliveries and future production rates will depend upon rework, ongoing customer and supplier engagement, production stability and our activities with the FAA.

China is a significant market for the 787 program, and if the program is unable to obtain additional orders from China in future quarters, we may be required to further adjust production rate assumptions.

If we are required to further reduce the accounting quantity and/or production rates, experience further delivery delays or experience other factors that result in lower margins, the program could record additional losses and higher abnormal production costs in future periods.

Fleet Support We provide the operators of our commercial airplanes with assistance and services to facilitate efficient and safe airplane operation.

Fleet Support We provide the operators of our commercial aircraft 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.

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Go-ahead and Initial Delivery

737 MAX 7 2011 2022

737 MAX 10 2017 2023

737-7 2011 2023

737-10 2017 2024

777X-9 2013 2025

777X-8F 2022 2027

Reflects models in development during 2022

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Meeting or exceeding our performance and reliability standards, as well as those of customers and regulators, can be costly and technologically challenging, such as the 787 production issues and associated rework.

In addition, the introduction of new aircraft and derivatives, such as the 777X and 737 MAX derivatives, involves increased risks associated with meeting development, production and certification schedules.

In addition, the introduction of new aircraft and derivatives, such as the 777X, 737-7 and 737-10, involves increased risks associated with meeting development, production and certification schedules.

These challenges include increased global regulatory scrutiny of all development aircraft in the wake of the 737 MAX accidents.

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changes to the program accounting quantity, customer and model mix, production costs and rates, changes to price escalation factors due to changes in the inflation rate or other economic indicators, performance or reliability issues involving completed aircraft, capital expenditures and other costs associated with increasing or adding new production capacity, learning curve, additional change incorporation, achieving anticipated cost reductions, the addition of regulatory requirements in connection with certification in one or more jurisdictions, flight test and certification schedules, costs, schedule and demand for new airplanes and derivatives and status of customer claims, supplier claims or assertions and other contractual negotiations.

While we believe the cost and revenue estimates

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.

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

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United States Government Defense Environment Overview

In May 2021, the U.S.

government released the President’s budget request for fiscal year 2022 (FY22), which included $715 billion in funding for the United States Department of Defense (U.S.

DoD), $25 billion in funding for the National Aeronautics and Space Administration (NASA) and $19 billion for the FAA.

While the President’s budget request for FY22 includes funding for a majority of Boeing’s programs, it did not include funding for F/A-18 Super Hornet, P-8 Poseidon and CH-47F Block II production aircraft.

While there is continued congressional support for F/A-18 and CH-47F Block II production aircraft for FY22, there is ongoing uncertainty with respect to these and other program-level appropriations for FY22 and future fiscal years.

These programs also continue to pursue non-U.S.

sales opportunities.

In December 2021, Congress passed and the President signed the National Defense Authorization Act for FY22, which authorizes a U.S.

DoD budget $25 billion higher than the budget request.

A CR, enacted on December 3, 2021, continues funding for the federal government at FY21 appropriated levels through February 18, 2022.

Alternatively, Congress may continue to fund the federal government through one or more additional CRs, however, this would continue to restrict the execution of certain program activities and delay new programs or competitions.

Accordingly, there continues to be uncertainty with respect to program-level appropriations for the U.S.

DoD and other government agencies, including NASA, for FY22 and beyond.

The Consolidated Appropriations Act, 2023, enacted in December 2022, provided fiscal year 2023 (FY23) appropriations for government departments and agencies, including $817 billion for the U.S.

DoD and $25.4 billion for NASA.

The enacted FY23 appropriations included funding for Boeing’s major programs, including the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, MQ-25, and the Space Launch System.

The FY23 appropriations support F/A-18 production further into calendar year 2025.

The FY23 appropriations did not include funding for additional P-8 aircraft.

The P-8 program continues to pursue additional sales opportunities to extend production beyond 2024.

There is ongoing uncertainty with respect to program-level appropriations for the U.S.

DoD, NASA and other government agencies for fiscal year 2024 and beyond.

government discretionary spending, including defense spending, is likely to continue to be subject to pressure.

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.

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% of total company revenues 35 % 43 % 45 %

Earnings from operations $1,544 $1,539 $2,615

(Loss)/earnings from operations ($3,544) $1,544 $1,539

Operating margins (15.3) % 5.8 % 5.9 %

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The following discussions of comparative results among periods should be viewed in this context.

Deliveries of units for new-build production aircraft, including remanufactures and modifications were as follows:

Deliveries of new-build production units, including remanufactures and modifications, were as follows:

Years ended December 31, 2022 2021 2020

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F-15 Models 12 16 4

C-17 Globemaster III 1

CH-47 Chinook (New) 19 15 27

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AH-64 Apache (Remanufactured) 50 56 52

MH-139 Grey Wolf 4

KC-46 Tanker 15 13 14

P-8 Models 12 16 15

Commercial Satellites 4

Military Satellites 1

Total 165 169 154

BDS revenues in 2022 decreased by $3,378 million compared with 2021 primarily due to charges on development programs.

Unfavorable performance across other defense programs and lower P-8 and weapons volume also contributed to the decrease in revenue.

Cumulative contract catch-up adjustments in 2022 were $1,858 million more unfavorable than the prior year largely due to charges on development programs.

BDS revenues in 2021 increased by $283 million compared with 2020 primarily due to higher revenue on the KC-46A Tanker program due to new orders for 27 aircraft received during the first quarter of 2021 and lower charges in 2021.

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Cumulative contract catch-up adjustments in 2021 were $56 million less unfavorable than the prior year, largely due to the lower charges described below.

BDS revenues in 2020 increased by $162 million compared with 2019 reflecting higher revenues from fighter aircraft, Space Launch System, B-52 upgrades, proprietary and MQ-25, partially offset by reduced volume in missile defense.

These net increases were offset by the unfavorable impact of cumulative contract catch-up adjustments, which were $312 million higher than the comparable period in the prior year, largely due to the KC-46A Tanker charges during 2020.

Earnings From Operations

BDS earnings from operations in 2021 increased by $5 million compared with 2020 primarily due to less unfavorable impacts from cumulative contract catch-up adjustments, which improved $219 million from the prior year, largely due to lower KC-46A Tanker charges in 2021 compared to 2020 and other charges in development programs described below.

The favorable change in cumulative contract catch-up adjustments was offset primarily by lower volume and mix on rotorcraft programs and lower equity earnings for United Launch Alliance (ULA).

During the fourth quarter of 2021, BDS increased the reach-forward loss on the KC-46A Tanker program by $402 million primarily due to continued disruption in the factory and in the supply chain, including impacts of COVID-19, and an increase in costs to complete the new Remote Vision System as the customer’s requirements definition has evolved.

In 2020, we recorded an additional reach-forward loss of $1,320 million on the KC-46A Tanker program reflecting $551 million of costs associated

with the agreement signed in April 2020 with the U.S.

Air Force to develop and integrate the new Remote Vision System, and costs for production inefficiencies including impacts of COVID-19 disruption.

During the third quarter of 2021, we increased the reach-forward loss on Commercial Crew by $185 million driven by the delay in the second uncrewed Orbital Flight Test now anticipated in 2022 and the latest assessment of remaining work.

During the first quarter of 2021, we increased the reach-forward loss on VC-25B by $318 million, which was largely due to COVID-19 impacts and performance issues at a key supplier.

The $168 million reach-forward loss in the first quarter of 2020 on VC-25B was associated with engineering inefficiencies from the COVID-19 environment.

BDS earnings from operations in 2020 decreased by $1,076 million compared with 2019 primarily due to the unfavorable impact of cumulative contract catch-up adjustments, which were $828 million higher than the prior year, largely due to higher charges in 2020 of $1,320 million on KC-46A Tanker and $168 million on VC-25B, offset by $489 million in charges on Commercial Crew in 2019.

The lower earnings in 2020 also reflect lower gains on property sales compared to the same period in 2019.

These current period decreases were partially offset by the volume increases described above.

BDS earnings from operations includes our share of income or loss from equity method investments of $53 million, $141 million and $128 million primarily from our ULA and non-U.S.

(Loss)/earnings From Operations

BDS loss from operations in 2022 of $3,544 million decreased by $5,088 million compared with earnings from operations of $1,544 million in 2021 primarily due to unfavorable impacts of cumulative contract catch-up adjustments ($4,284 million more unfavorable in 2022 than 2021).

Volume and mix and higher research and development also contributed to the year over year earnings decline.

Charges of fixed price development programs in 2022 included VC-25B ($1,452 million), KC-46A Tanker ($1,374 million), MQ-25 ($579 million), T-7A Red Hawk Production Options ($552 million), T-7A Red Hawk Engineering, Manufacturing and Development (EMD) ($203 million), and Commercial Crew ($288 million).

These were partially offset by charges on the KC-46A Tanker ($402 million), VC-25B ($318 million), and Commercial Crew ($214 million) recognized in 2021.

The net unfavorable cumulative contract catch-up adjustments represent losses incurred on these development and other programs.

See further discussion of fixed-price contracts in Note 13 to our Consolidated Financial Statements.

BDS earnings from operations in 2021 of $1,544 million increased by $5 million compared with earnings from operations of $1,539 million in 2020 primarily due to less unfavorable impacts from cumulative contract catch-up adjustments, which improved $219 million from the prior year, largely due to lower KC-46A Tanker charges in 2021 compared to 2020 and other charges on development programs.

The $219 million change in cumulative contract catch-up adjustments was offset primarily by lower volume and mix on rotorcraft programs and lower equity earnings for United Launch Alliance (ULA).

During 2020, BDS recorded charges on KC-46A Tanker ($1,320 million) and VC-25B ($168 million).

BDS (loss)/earnings from operations includes our share of income from equity method investments of $13 million, $53 million and $141 million primarily from our ULA and non-U.S.

joint ventures in 2022, 2021 and 2020, respectively.

Total backlog of $59,828 million at December 31, 2021 was $1,019 million lower than December 31, 2020 due to the timing of awards and revenue recognized.

Earnings from our ULA joint venture increased in 2022, partially offset by losses on other operating investments.

Total backlog of $54,373 million at December 31, 2022 was $5,455 million lower than December 31, 2021 due to the timing of awards and 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.

Some of these programs have cost-type contracting arrangements.

In these cases, the associated financial risks are primarily in reduced fees, lower profit rates or program cancellation if cost, schedule or technical performance issues arise.

Examples of these programs include Ground-based Midcourse Defense, Proprietary and Space Launch System programs.

Some of our development programs are contracted on a fixed-price basis, and BDS customers are increasingly seeking fixed-price proposals for new programs.

Some of our development programs are contracted on a fixed-price basis.

Examples of significant fixed-price development programs include Commercial Crew, KC-46A Tanker, MQ-25, T-7A Red Hawk, VC-25B, and commercial and military satellites.

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As technical or quality issues arise during development, we may experience schedule delays and cost impacts, which could increase our estimated cost to perform the work or reduce our estimated price, either of which could result in a material charge or otherwise adversely affect our financial condition.

These programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, the loss of satellite in-orbit incentive payments or other financially significant exposure.

Risk remains that we may be required to record additional reach-forward losses in future periods.

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training and professional services;

and information services.

Prior to COVID-19, we had expected the market to grow by around 3.5% annually, however, the pandemic is having a direct impact on our commercial services business.

See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment.

Over the long-term, as the size of the worldwide commercial airline fleet continues to grow, so does demand for aftermarket services designed to increase efficiency and extend the economic lives of airplanes.

and data analytics and digital services.

During 2022, commercial services volume at BGS recovered to pre-pandemic levels.

We expect BGS commercial revenues to remain strong in future quarters as the commercial airline industry continues to recover.

Airlines are using data analytics to plan flight operations and predictive maintenance to improve their productivity and efficiency.

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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.

Over the next decade, we

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.

fleets, led by Middle East and Asia Pacific customers, to add rotorcraft and commercial derivative aircraft at faster 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.

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Operating margins 15.5 % 12.4 % 2.9 %

BGS revenues in 2022 increased by $1,283 million compared with 2021 primarily due to higher commercial services volume, partially offset by lower government services volume and performance.

The decrease in government services volume is partly driven by the discontinuation of an engine distribution agreement in the second quarter of 2022.

The net favorable impact of cumulative contract catch-up adjustments in 2022 was $137 million lower than the prior year.

BGS revenues in 2021 increased by $785 million compared with 2020 due to higher commercial and government services volume.

While commercial services volume is recovering, it remains below pre-pandemic levels.

The net favorable impact of cumulative contract catch-up adjustments in 2021 was $37 million lower than the comparable period in the prior year .

We expect the impacts of the COVID-19 pandemic to continue to have an adverse impact on BGS commercial revenues in future quarters until the commercial airline industry environment fully recovers.

BGS revenues in 2020 decreased by $2,925 million compared with 2019 due to lower commercial services revenue driven by impacts of the COVID-19 pandemic.

The favorable impact of cumulative contract catch-up adjustments in 2020 was $101 million lower than the comparable period in the prior year .

The net favorable impact of cumulative contract catch-up adjustments in 2021 was $37 million lower than the prior year .

Earnings From Operations

BGS earnings from operations in 2022 increased by $710 million compared with 2021, primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance.

The net unfavorable impact of cumulative contract catch-up adjustments in 2022 was $148 million worse than the net favorable impact in the prior year.

BGS earnings from operations in 2021 increased by $1,567 million compared with 2020, primarily due to charges incurred in 2020 driven by impacts of the COVID-19 pandemic as well as higher commercial services volume in 2021, partially offset by an inventory write-down of $220 million recognized in the fourth quarter of 2021 driven by revised cost estimates on certain customer contracts.

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The net favorable impact of cumulative contract catch-up adjustments in 2021 was $98 million lower than the prior year .

BGS earnings from operations in 2020 decreased by $2,247 million compared with 2019, primarily due to lower commercial services revenue as well as the 2020 earnings charges described in the previous paragraph.

The favorable impact of cumulative contract catch-up adjustments in 2020 was consistent with the prior year .

BGS total backlog of $19,338 million at December 31, 2022 decreased by 6% from $20,496 million at December 31, 2021, primarily due to revenue recognized on contracts awarded in prior years.

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Aircraft valuations could decline if significant numbers of additional aircraft, particularly types with relatively few operators, are placed out of service.

See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment.

See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the airline industry environment.

Results of Operations

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BCC segment revenues consist principally of lease income from equipment under operating lease, interest income from financing receivables and notes, and other income.

BCC’s revenues in 2021 increased by $11 million compared with 2020, and revenues in 2020 increased by $17 million compared with 2019 primarily due to gains on re-lease of assets, partially offset by portfolio run-off.

BCC’s revenues in 2022 decreased by $73 million compared with 2021 primarily due to lower gains on re-lease of assets.

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.

BCC’s earnings from operations is presented net of interest expense, provision for (recovery of) losses, asset impairment expense, depreciation on leased equipment and other operating expenses.

In 2022, earnings from operations decreased by $77 million compared with 2021, primarily due to an increase in the allowance for losses on receivables as a result of the war in Ukraine and lower revenues.

Earnings from operations in 2021 increased by $43 million compared with 2020 primarily due to higher revenues, lower provision for losses, and lower interest and asset impairment expenses.

Earnings from operations in 2020 increased by $35 million compared with 2019 primarily due to higher revenues, lower asset impairment expenses and lower interest expenses.

Financial Position

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

BCC’s customer financing and investment portfolio at December 31, 2021 decreased from December 31, 2020, primarily due to $241 million of note payoffs and portfolio run-off.

BCC enters into certain transactions with other Boeing segments, reflected in Unallocated items, eliminations and other, in the form of intercompany guarantees and other subsidies that mitigate the effects of certain credit quality or asset impairment issues on the BCC segment.

BCC’s customer financing and investment portfolio at December 31, 2022 decreased $226 million from December 31, 2021, primarily due to portfolio run-off, partially offset by new volume.

BCC enters into certain intercompany transactions, 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.

Liquidity and Capital Resources

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Changes in assets and liabilities 4,139 (6,977) (17,335)

Net cash used by operating activities (3,416) (18,410) (2,446)

Net cash provided/(used) by operating activities 3,512 (3,416) (18,410)

Net cash provided/(used) by investing activities 4,370 9,324 (18,366)

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Cash & cash equivalents, including restricted, at end of year $14,647 $8,104 $7,835

Operating Activities Net cash used by operating activities was $3.4 billion during 2021, compared with $18.4 billion during 2020 and $2.4 billion during 2019.

Operating Activities Net cash provided by operating activities was $3.5 billion during 2022, compared with net cash used by operating activities of $3.4 billion during 2021.

The $6.9 billion improvement in cash provided by operating activities in 2022 is primarily driven by improved changes in assets and liabilities of $11.1 billion, partially offset by lower non-cash items of $3.4 billion and higher net loss of $0.8 billion.

Changes in assets and liabilities for 2022 improved by $11.1 billion compared with 2021 primarily driven by favorable changes in Accrued liabilities ($6.6 billion), Accounts payable ($4.6 billion) and Inventories ($1.5 billion), partially offset by a decrease in Advances and progress billings ($2.4 billion) in 2022.

The increase in Accrued liabilities is primarily driven by the accrued losses on BDS fixed-price development programs, lower payments to 737 MAX customers in 2022, and a $0.7 billion

payment in 2021 consistent with the terms of the Deferred Prosecution Agreement between Boeing and the U.S.

Department of Justice.

Concessions paid to 737 MAX customers totaled $1.0 billion and $2.5 billion during 2022 and 2021.

Growth in Accounts Payable in 2022 is a source of cash while reductions in Accounts Payable in 2021 were a use of cash generally reflecting increases in production rates.

Inventory improvements were driven by higher 737 MAX deliveries and resumption of 787 deliveries in 2022.

Additionally, in 2022 and 2021 we received income tax refunds of $1.5 billion and $1.7 billion.

Cash provided by Advances and progress billings was $0.1 billion in 2022, as compared with $2.5 billion of cash provided in 2021.

The $3.4 billion reduction in non-cash items in 2022 is primarily driven by the $3.5 billion reach-forward loss on the 787 program that was recorded in 2021.

Net loss for 2022 was $5.1 billion compared with net loss of $4.3 billion in 2021.

The $0.8 billion year-over-year increase in the net loss is primarily driven by the absence of an income tax benefit in 2022.

The reduction in cash used by operating activities in 2021 compared with 2020 is primarily driven by lower net loss and improved changes in assets and liabilities.

Non-cash items in 2021 include the $3.5 billion reach-forward loss on the 787 program which was recorded as a reduction to inventory, as well as $1.2 billion of treasury shares issued to fund Company contributions to the 401(k) plan and $0.8 billion of share-based plans expense reflecting a one-time stock grant to most employees in lieu of 2021 salary increases.

The changes in assets and liabilities reflect the significant increase in commercial airplane inventory in 2020 driven by lower deliveries due to the COVID-19 pandemic and the 737 MAX grounding.

The changes in assets and liabilities reflect the significant increase in commercial aircraft inventory in 2020 driven by lower deliveries due to the COVID-19 pandemic and the 737 MAX grounding.

In 2021, inventory growth slowed as the continued buildup of 787 aircraft caused by production issues and 777X inventory growth was partially offset by a decrease in 737 MAX inventory following the resumption of deliveries.

Compensation payments to 737 MAX customers totaled $2.5 billion and $2.2 billion in 2021 and 2020.

Compensation payments to 737 MAX customers totaled $2.5 billion in 2021 and $2.2 billion in 2020.

In the first quarter of 2021, we paid $0.7 billion consistent with the terms of the Deferred Prosecution Agreement between Boeing and the U.S.

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Cash provided by Advances and progress billings was $2.5 billion in 2021, as compared with Cash used by Advances and progress billings of $1.1 billion in 2020.

The pause in 787 deliveries and the residual impacts of the 737 MAX grounding are expected to continue to have a significant impact on our operating cash flows until 787 deliveries resume and 737 MAX deliveries ramp up.

The decrease in operating cash flows in 2020 compared to 2019 is primarily driven by our net loss in 2020 and changes in assets and liabilities, partially offset by an increase in non-cash items.

Non-cash items include the $6.5 billion reach-forward loss on the 777X program in 2020, which was recorded as a reduction to inventory.

The year-over-year increase in non-cash items also reflects higher inventory write-downs and higher allowances for expected credit losses in 2020.

The changes in assets and liabilities reflect increases in commercial airplane inventory due to the large number of undelivered aircraft in 2019 resulting from the 737 MAX grounding, and in 2020 due to the 737 MAX grounding, 787 production issues and COVID-19 impacts.

Cash used by Advances and progress billings was $1.1 billion in 2020, as compared with $0.7 billion provided by Advances and progress billings in 2019.

The changes in assets and liabilities in 2020 also reflect lower accounts payable due to reductions in commercial purchases from suppliers and lower supply chain financing.

Compensation payments to 737 MAX customers totaled $2.2 billion during 2020 and $1.2 billion during 2019.

The accrued liability

for 737 MAX customer considerations at December 31, 2019 resulted in a $7.4 billion favorable change to assets and liabilities in 2019.

Payables to suppliers who elected to participate in supply chain financing programs declined by $1.5 billion and $1.9 billion for the years ended December 31, 2021 and 2020, and increased by $2.6 billion in 2019.

At December 31, 2022 and 2021, Accounts payable included $2.5 billion and $2.3 billion payable to suppliers who have elected to participate in supply chain financing programs.

Payables to suppliers who elected to participate in supply chain financing programs increased by $0.2 billion in 2022 and declined by $1.5 billion and $1.9 billion in 2021 and 2020.

Supply chain financing is not material to our overall liquidity.

The declines for the years ended December 31, 2021 and 2020 were primarily due to reductions in commercial purchases from suppliers.

The increase for the year ended December 31, 2019 reflects a combination of higher purchases, an extension of payment terms with certain suppliers and increased utilization of our supply chain financing programs.

Investing Activities Cash provided by investing activities during 2021 was $9.3 billion, compared with cash used by investing activities of $18.4 billion and $1.5 billion during 2020 and 2019.

The declines in 2021 and 2020 were primarily due to reductions in commercial purchases from suppliers.

Investing Activities Cash provided by investing activities during 2022 was $4.4 billion, compared with cash provided by investing activities of $9.3 billion during 2021 and cash used by investing activities of $18.4 billion during 2020.

The decrease in cash inflows in 2022 compared to 2021 is primarily due to $5.6 billion of net proceeds from investments compared to $9.8 billion in 2021.

The increase in cash inflows in 2021 compared to 2020 is primarily due to $27.1 billion of higher net proceeds from investments.

The increase in cash outflows in 2020 compared to 2019 is primarily due to $17.4 billion of higher net contributions to investments.

Net proceeds from investments were $9.8 billion in 2021, compared with net contributions to investments of $17.3 billion in 2020 and net proceeds from investments of $0.1 billion in 2019.

Capital expenditures totaled $1.2 billion in 2022, compared with $1.0 billion in 2021 and $1.3 billion in 2020.

We reduced our capital expenditures in 2021 and 2020 as we managed our liquidity throughout the pandemic and 737 MAX grounding.

We expect capital expenditures in 2023 to be higher than in 2022.

Financing Activities Cash used by financing activities was $5.6 billion during 2021, compared with cash provided by financing activities of $35.0 billion during 2020 and $5.7 billion in 2019.

The decrease of $40.6 billion compared with 2020 primarily reflects net debt repayments in 2021 compared with net borrowings in 2020.

The increase of $29.3 billion in 2020 compared with 2019 primarily reflects higher net borrowings, lower share repurchases and lower dividend payments, which reflects the Company’s decision in March 2020 to suspend the declaration or payment of dividends until further notice.

During the twelve months ended December 31, 2021, debt repayments net of new borrowings were $5.6 billion, primarily due to $13.8 billion of repayments of our two-year delayed draw term loan credit agreement, partially offset by $9.8 billion of fixed rate senior notes issued in the first quarter of 2021.

During the twelve months ended December 31, 2020, new borrowings net of repayments were $36.3 billion, primarily due to $29.9 billion of fixed rate senior notes issued in 2020 and $13.8 billion of new borrowings under a two-year delayed draw term loan agreement entered into in the first quarter of 2020.

During the twelve months ended December 31, 2019, new borrowings net of repayments were $13.2 billion, primarily due to the issuance of $10.5 billion of fixed rate senior notes in 2019.

For further discussion see Liquidity Matters in Note 1 to our Consolidated Financial Statements.

Financing Activities Cash used by financing activities was $1.3 billion during 2022, compared with $5.6 billion during 2021 and cash provided of $35.0 billion in 2020.

The decrease of $4.3 billion compared with 2021 primarily reflects higher net debt repayments in 2021.

During 2021, debt repayments net of new borrowings were $5.6 billion, primarily due to $13.8 billion of repayments of our two-year delayed draw term loan credit agreement, partially offset by $9.8 billion of fixed rate senior notes issued in the first quarter of 2021.

During the year ended December 31, 2020, new borrowings net of repayments were $36.3 billion, primarily due to $29.9 billion of fixed rate senior notes issued in 2020 and $13.8 billion of new borrowings under a two-year delayed draw term loan agreement entered into in the first quarter of 2020.

At December 31, 2022 and 2021 debt balances totaled $57.0 billion and $58.1 billion, of which $5.2 billion and $1.3 billion were classified as short-term.

This included $1.4 billion and $1.5 billion of debt attributable to BCC at December 31, 2022 and 2021, of which $0.2 billion and $0.3 billion were classified as short-term.

During the years ended December 31, 2021 and 2020, we did not repurchase any shares through our open market share repurchase program compared to repurchases of 6.9 million shares in 2019 totaling $2.7 billion.

Share repurchases under this plan have been suspended since April 2019.

In March 2020, the Board of Directors terminated its prior authorization to repurchase shares of the Company's outstanding common stock.

During the years ended December 31, 2022, 2021 and 2020, we did not repurchase any shares through our open market share repurchase program.

Share repurchases under this program have been suspended since April 2019.

In March 2020, the Board of Directors terminated its prior authorization to repurchase shares of the Company's outstanding common stock in the open market.

We had 0.2 million, 0.3 million and 0.6 million shares transferred to us from employee tax withholdings in 2022, 2021 and 2020, respectively.

During the year ended December 31, 2021, we paid no dividends, compared with $1.2 billion and $4.6 billion in 2020 and 2019.

In March 2020, the Company announced that our dividend will be suspended until further notice.

Capital Resources The impacts of the COVID-19 pandemic, 787 production issues and associated rework, and residual impacts of the 737 MAX grounding are having a significant negative impact on our liquidity and ongoing operations and creating significant uncertainty.

We have and are continuing to take significant actions to manage and preserve our liquidity.

For further discussion see Liquidity Matters in Note 1 to our Consolidated Financial Statements.

In March 2020, we announced the suspension of our dividend until further notice.

As a result, we did not pay any dividends in 2022 and 2021 compared with $1.2 billion paid in 2020.

Capital Resources

The following table summarizes certain cash requirements for known contractual and other obligations as of December 31, 2022, and the estimated timing thereof.

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737 MAX customer concessions and consideration (1)

800 200 1,000

(1) For further discussion, see Note 13 to our Consolidated Financial Statements.

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At December 31, 2022, we had $14.6 billion of cash, $2.6 billion of short-term investments, and $12.0 billion of unused borrowing capacity on revolving credit line agreements.

We anticipate that these revolving credit lines will remain undrawn and primarily serve as backup liquidity to support our general corporate borrowing needs.

Of the $14.7 billion of unused borrowing capacity, $6.3 billion expires in October 2022, $5.3 billion expires in March 2023 and $3.2 billion expires in October 2024.

Our debt balances have increased significantly since 2019, and we are continuing to actively manage our liquidity.

In 2021, we repaid $13.8 billion that was outstanding under our two-year delayed draw term loan credit agreement that had a final maturity date of February 6, 2022.

Our increased debt balance resulted in downgrades to our credit ratings in 2020, and our ratings remained unchanged in 2021.

In the third quarter of 2022, we entered into a $5.8 billion 364-day revolving credit agreement expiring in August 2023, a $3 billion three-year revolving credit agreement expiring in August 2025, and amended our $3.2 billion five-year revolving credit agreement, which expires in October 2024, primarily to incorporate a LIBOR successor rate.

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 anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs.

Our increased debt balance resulted in downgrades to our credit ratings in 2020, and our ratings remained unchanged in 2022 and 2021.

We expect to be able to access capital markets when we require additional funding in order to pay off existing debt, address further impacts to our business related to market developments, fund outstanding financing commitments or meet other business requirements.

A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt.

These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings, including impacts described above related to the COVID-19 pandemic and/or associated changes in demand for our products and services.

These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings, and/or associated changes in demand for our products and services.

These risks will be particularly acute if we are subject to further credit rating downgrades.

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Under this approach, common stock is contributed to our 401(k) plans following each pay period.

We expect this measure to further enable the Company to conserve cash.

This further enables the Company to conserve cash.

We have retained an independent fiduciary to manage and liquidate stock contributed to these plans at its discretion.

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During 2022, we incurred no such penalties.

As of December 31, 2021, we have outstanding industrial participation agreements

As of December 31, 2022, we had 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.

Purchase order commitments associated with industrial participation agreements are included in purchase obligations.

To be eligible for such a purchase order commitment from us, a non-U.S.

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Non-GAAP Measures

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Core Operating Loss, Core Operating Margin and Core Loss Per Share

Our Consolidated Financial Statements are prepared in accordance with GAAP which we supplement with certain non-GAAP financial information.

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The Pension FAS/CAS service cost adjustments recognized in Loss from operations were benefits of $849 million in 2022, $882 million in 2021 and $1,024 million in 2020.

The lower benefits in 2021 were primarily due to reductions in allocated pension cost year over year.

The lower benefits in 2022 and 2021 were primarily due to reductions in allocated pension cost year over year.

The non-operating pension expense included in Other income, net was a benefit of $881 million in 2022, $528 million in 2021 and $340 million in 2020.

The higher benefits in 2021 were primarily due to lower interest cost and higher expected return on plan assets, partially offset by higher amortization of actuarial losses and higher settlement charges.

The benefits in 2020 and 2019 reflect expected returns in excess of interest cost and amortization of actuarial losses.

The higher benefits in 2022 were primarily due to lower amortization of net actuarial losses and a settlement loss that was recorded in 2021.

For further discussion of pension and other postretirement costs, see the Management’s Discussion and Analysis on page 24 of this Form 10-K and see Note 22 to our Consolidated Financial Statements.

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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.

Reconciliation of Non-GAAP Measures to GAAP Measures

The table below reconciles the non-GAAP financial measures of core operating loss, core operating margins and core loss per share with the most directly comparable GAAP financial measures of loss from operations, operating margins and diluted loss per share.

(Dollars in millions, except per share data)

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Total cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections.

Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, COVID-19 disruptions, asset utilization and anticipated labor agreements.

Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, anticipated labor agreements, and lingering impacts of COVID-19.

Revenue and cost estimates for all significant long-term contract performance obligations are reviewed and reassessed quarterly.

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Changes in revenue and cost estimates could also result in a reach-forward loss or an adjustment to a reach-forward loss which would be recorded immediately in earnings.

For the years ended December 31, 2021, 2020 and 2019, net unfavorable cumulative catch-up adjustments across all long-term contracts increased loss from operations by $880 million, $942 million and $111 million, respectively.

The cumulative catch-up adjustments in 2021 were primarily due to losses recognized on the KC-46A Tanker, VC-25B and Commercial Crew programs.

Net cumulative catch-up adjustments for changes in estimated revenues and costs at completion across all long-term contracts, including the impact of increases in estimated losses on unexercised options, increased Loss from operations by $5,253 million, $880 million and $942 million in 2022, 2021 and 2020, respectively.

The cumulative catch-up adjustments in 2022 were primarily due to losses recognized on the VC-25B, KC-46A Tanker, MQ-25, Commercial Crew and T-7A Red Hawk programs.

These are all fixed-price development programs, and there is ongoing risk that similar losses may have to be recognized in future periods on these and/or other programs.

Due to the significance of judgment in the estimation process described above, it is likely that materially different earnings could be recorded if we used different assumptions or if the underlying circumstances were to change.

Changes in underlying assumptions/estimates, supplier performance, or circumstances may adversely or positively affect financial performance in future periods.

Changes in underlying assumptions/estimates, internal and supplier performance, inflationary trends, or other circumstances may adversely or positively affect financial performance in future periods.

If the combined gross margins for our profitable long-term contracts had been estimated to be higher or lower by 1% during 2022, it would have increased or decreased pre-tax income for the year by approximately $300 million.

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Program accounting requires the demonstrated ability to reliably estimate revenues, costs and gross profit margin for the defined program accounting quantity.

A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts.

A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for

delivery under existing and anticipated contracts.

The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates.

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Cost estimates are based largely on negotiated and anticipated contracts with suppliers, historical performance trends, and business base and other economic projections.

Factors that influence these estimates include production rates, internal and subcontractor performance trends, customer and/or supplier claims or assertions, asset utilization, anticipated labor agreements, COVID-19 disruptions, and inflationary or deflationary trends.

Factors that influence these estimates include production rates, internal and subcontractor performance trends, learning curve, change incorporation, regulatory requirements in connection with certification, flight test and certification schedules, performance or reliability issues involving completed aircraft, customer and/or supplier claims or assertions, asset utilization, anticipated labor agreements, inflationary or deflationary trends, and lingering impacts of COVID-19.

To ensure reliability in our estimates, we employ a rigorous estimating process that is reviewed and updated on a quarterly basis.

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Reductions to the estimated loss are included in the gross profit margin for undelivered units in the accounting quantity whereas increases to the estimated loss are recorded as an earnings charge in the period in which the loss is determined.

The 747, 767 and 777X programs have near break-even margins, and the 787 program has zero margin at December 31, 2021.

Adverse changes to the revenue and/or cost estimates for these programs could result in additional earnings charges in future periods.

777X Program During the fourth quarter of 2020, we revised the estimated first delivery date of the 777X to late 2023 and recorded a $6.5 billion reach-forward loss on the 777X program.

The revised schedule and reach-forward loss reflected a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and a management decision in the fourth quarter of 2020 to make modifications to the aircraft’s design, an updated assessment of COVID-19 impacts on market demand and discussions with our customers with respect to aircraft delivery timing.

These factors resulted in adjustments to production rates and the program accounting quantity, increased change incorporation costs, and associated customer and supply chain impacts.

The initial accounting quantity of 350 airplanes established in the fourth quarter of 2020 consists of 777X passenger airplanes and remained unchanged during 2021.

We are working towards reaching TIA which will enable us to begin FAA certification flight testing.

We continue to anticipate that the first 777X delivery will occur in late 2023.

The 777X program has near break-even gross margins at December 31, 2021.

The 767, 777X, and 787 programs had near break-even or single digit margins at December 31, 2022.

Adverse changes to the revenue and/or cost estimates for these programs could result in earnings charges in future periods.

777X Program The 777X program had near break-even gross margins at December 31, 2022.

The level of profitability on the 777X program will be subject to a number of factors.

One or more of these factors could result in additional reach-forward losses on the 777X program in future periods, which may be material.

787 Program The 787 program’s production issues and delivery pause result in significant uncertainties regarding the revenue and cost estimates for the 787 program.

Deliveries have remained paused since May 2021.

During the fourth quarter of 2021, we recorded a loss of $3.5 billion on the program primarily due to rework driving longer delivery delays than were previously expected and associated customer considerations.

The estimate of customer considerations is based on a number of factors, including our current assumptions regarding timing of FAA approval enabling resumption of deliveries, estimated timing of completion of inspections and rework to enable deliveries in future periods, estimated timing of production rate increases as well as customer and market assessments.

We continue to conduct inspections and rework and engage in detailed discussions with the FAA regarding required actions for resuming delivery of the 787.

Our program revenue and cost estimates reflect the assumption that production rates will remain very low until deliveries resume, gradually returning to 5 per month over time.

We have also assumed lower forecasted revenues due to delayed deliveries.

Our program assumptions reflect our current best estimate.

However, if the program experiences further delivery delays or other factors such as additional inspections or rework that result in lower revenue or higher cost estimates, we could record additional losses in future periods, which may be material.

Goodwill Impairments

We test goodwill for impairment by performing a qualitative assessment or quantitative test.

If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors as an initial step in assessing the fair value of the reporting unit.

If we determine it is more likely than not that the carrying value of the net assets is more than the fair value of the reporting unit, then a quantitative test is performed;

otherwise, no further testing is required.

For reporting units where the quantitative test is used, we compare the carrying value of net assets to the estimated fair value of the reporting unit.

If the fair value is determined to be less than carrying value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment.

We generally estimate the fair values of our reporting units using a combination of discounted cash flows and market-based valuation methodologies such as comparable public company trading values.

Forecasts of future cash flows are based on our best estimate of future sales, operating costs and changes in working capital.

These forecasts reflect existing firm orders, expected future orders, expected production rates and delivery profiles, contracts with suppliers, labor agreements and general market conditions.

Changes in these forecasts could significantly change the amount of impairment recorded, if any.

The cash flow forecasts are adjusted by an appropriate discount rate derived from our market capitalization plus a suitable control premium at the date of evaluation.

Therefore, changes in the stock price may also affect the amount of impairment recorded, if any.

We completed our annual assessment of goodwill as of April 1, 2021 and determined that there was no impairment of goodwill.

As of December 31, 2021, we estimated that the fair value of each reporting unit significantly exceeded its corresponding carrying value.

Changes in our forecasts, discount rates or decreases in the value of our common stock could cause book values to exceed their fair values which may result in goodwill impairment charges in future periods.

787 Program During the fourth quarter of 2021, we recorded a loss of $3.5 billion on the 787 program primarily due to rework driving longer delivery delays than were previously expected and associated customer considerations.

During the fourth quarter of 2022, we increased the 787 program accounting quantity by 100 units due to the program’s normal progress of obtaining additional orders and delivering aircraft.

The increase in the accounting quantity improved the program’s profit margin.

Our program revenue and cost assumptions reflect our current best estimate.

However, if we are required to reduce the accounting quantity and/or production rates, experience further delivery delays, incur additional customer considerations, or experience other factors that result in lower margins, the 787 program could record additional losses in future periods, which may be material.

Pension Plans

Many of our employees have earned benefits under defined benefit pension plans.

Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016.

Additional union employees transitioned to company-funded defined contribution retirement savings plans effective January 1, 2019.

The majority of employees that had participated in defined benefit pension plans have transitioned to a company-funded defined contribution retirement savings plan.

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.

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 projected benefit obligation is sensitive to discount rates.

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Deferred Income Taxes – Valuation Allowance

The Company has deferred income tax assets of $11,258 million at December 31, 2021 that can be used in future years to offset taxable income and reduce income taxes payable.

The Company has deferred income tax liabilities of $8,976 million at December 31, 2021 that will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable.

The Company had deferred income tax assets of $12,301 million at December 31, 2022 that can be used in future years to offset taxable income and reduce income taxes payable.

The Company had deferred income tax liabilities of $9,306 million at December 31, 2022 that will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable.

Tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years.

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Deferred tax assets include amounts related to pension and other postretirement benefits that are assumed to generate significant deductible amounts beyond five years.

The Company’s valuation allowance of $2,423 million at December 31, 2021 primarily relates to pension and other postretirement benefit obligation deferred tax assets that are assumed to reverse beyond the period in which reversals of deferred tax liabilities are assumed to occur.

During 2021, the Company decreased the valuation allowance by $671 primarily due to favorable pension remeasurement.

The Company’s valuation allowance of $3,162 million at December 31, 2022 primarily relates to pension and other postretirement benefit obligation deferred tax assets, tax credits and other carryforwards that are assumed to reverse beyond the period in which reversals of deferred tax liabilities are assumed to occur.

During 2022, the Company increased the valuation allowance by $739 million primarily due to tax credits and other carryforwards generated in 2022 that

cannot be realized in 2022, partially offset by favorable pension remeasurement.

Until the Company generates sustained levels of profitability, additional valuation allowances may have to be recorded with corresponding adverse impacts on earnings and/or other comprehensive income.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis