What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 215 added, 327 removed, 237 unchanged (70% of the section changed)

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Consolidated Results of Operations and Financial Condition

The lingering effects of the COVID-19 pandemic, 787 production issues and associated rework, and the residual impacts of the 737 MAX grounding continue to have significant adverse impacts on our business and are expected to continue to negatively impact revenue, earnings and operating cash flow in future quarters.

We expect domestic travel to continue to recover before international travel and for the narrow-body market 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.

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.

In addition, we and our suppliers are experiencing supply chain disruptions as a result of the impacts of COVID-19, global supply chain constraints, and labor shortages.

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 measures and disruptions 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 are estimated to be $42 billion in 2021.

IATA also forecasts $9.7 billion of losses for the industry globally in 2022, with approximately $8.8 billion of profits in North America driven by the robust domestic market being more than offset by losses in other regions.

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.

During the first quarter of 2022, we made adjustments to our estimates regarding timing of 777X-9 entry into service.

We now anticipate that the first 777X-9 delivery will be delayed until 2025, based on an updated assessment of the time required to meet certification requirements.

During the first quarter of 2022, we launched the 777X-8 freighter, and we expect first delivery to be in 2027.

The 737 MAX 7 and MAX 10 models are also currently going through Federal Aviation Administration (FAA) certification activities.

We are following the lead of the FAA as we work through the certification process, and currently expect the 737 MAX 7 to be certified in 2022 or 2023 and enter service in 2023, and the 737 MAX 10 to begin FAA certification flight testing in 2022 or 2023 and enter service in 2023 or 2024.

However, Section 116 of the December 2020 Aircraft Certification, Safety and Accountability Act (ACSAA) prohibits the FAA from issuing a type certificate to aircraft after December 27, 2022 unless the aircraft’s flight crew alerting system meets certain specifications.

With safety as our primary focus, we continue to work to meet all current regulatory requirements to support certification, and are also engaged in discussions with stakeholders concerning a possible extension to the ACSAA's December 27, 2022 deadline.

We currently have approximately 27 MAX 7 and 3 MAX 10 aircraft in inventory and approximately 250 MAX 7 and 600 MAX 10 aircraft in backlog.

If the ACSAA deadline is not amended and we otherwise fail to achieve certification, we might choose to discontinue the MAX 7 and/or MAX 10, resulting in future earnings charges and other financial impacts.

We may be able to partially mitigate some of these financial impacts to the extent that customers exercise substitution rights into MAX 8 and/or MAX 9 aircraft.

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

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

The 737 MAX has yet to return to service in China and a small number of other countries.

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.

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

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.

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.

During the third quarter, commercial services volume at Global Services (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.

At Defense, Space & Security (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 the lingering impacts of COVID-19, supplier disruption, labor shortages 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 Ukraine and 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

The following table summarizes key indicators of consolidated results of operations:

(Dollars in millions, except per share data) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions, except per share data) Three months ended March 31

Revenues $17,921 $13,991

(Loss)/earnings from operations ($3,194) $1,269 ($2,799) $329

Loss from operations ($149) ($1,162)

Operating margins (0.8) % (8.3) %

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Diluted loss per share ($0.69) ($2.06)

Core operating (loss)/earnings ($4,040) $461 ($3,078) $59

Core operating loss ($440) ($1,445)

Core operating margins (2.5) % (10.3) %

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

See pages 51-53 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

See pages 42-43 for important information about these non-GAAP measures and reconciliations to the most directly comparable GAAP measures.

The following table summarizes Revenues:

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Commercial Airplanes $6,704 $4,194

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Global Services 4,720 4,314

Boeing Capital 150 209 52 71

Unallocated items, eliminations and other (42)

Total $17,921 $13,991

Revenues for the nine months ended September 30, 2022 decreased by $865 million compared with the same period in 2021 driven by lower revenues at BDS, partially offset by higher revenues at Commercial Airplanes (BCA) and BGS.

BDS revenues decreased by $3,697 million primarily due to charges on development programs.

BCA revenues increased by $1,900 million primarily driven higher 737 MAX deliveries.

BGS revenues increased by $1,007 million primarily due to higher commercial services volume.

Revenues for the three months ended September 30, 2022 increased by $678 million compared with the same period in 2021 driven by higher revenues at BCA and BGS, partially offset by lower revenues at BDS.

BCA revenues increased by $1,804 million due to the resumption of 787 deliveries and higher 737 MAX deliveries.

BGS revenues increased by $211 million due to higher commercial services volume.

BDS revenues decreased by $1,310 million primarily due to charges on development programs.

Revenues will continue to be significantly impacted until the global supply chain stabilizes, labor shortages diminish, deliveries ramp up, and the commercial airline industry recovers from the lingering impacts of the COVID-19 pandemic.

(Loss)/Earnings From Operations

The following table summarizes (Loss)/earnings from operations:

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

Revenues for the three months ended March 31, 2023 increased by $3,930 million compared with the same period in 2022 driven by higher revenues at Commercial Airplanes (BCA), Defense, Space & Security (BDS) and Global Services (BGS).

BCA revenues increased by $2,510 million primarily driven by higher 737 and 787 deliveries.

BDS revenues increased by $1,056 million primarily due to lower charges on development programs, the U.S.

Air Force (USAF) KC-46A Lot 9 Tanker award, and increased sales across several programs.

BGS revenues increased by $406 million primarily due to higher commercial services revenue driven by the market recovery across the commercial portfolio, partially offset by lower government services revenue.

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

Loss From Operations

The following table summarizes Loss from operations:

(Dollars in millions) Three months ended March 31

Commercial Airplanes ($615) ($897)

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Global Services 847 632

Boeing Capital 14 99 23 42

Segment operating (loss)/earnings (3,293) 1,493 (2,685) 429

Segment operating earnings/(loss) 20 (1,194)

Pension FAS/CAS service cost adjustment 223 208

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Unallocated items, eliminations and other (460) (251)

(Loss)/earnings from operations (GAAP) ($3,194) $1,269 ($2,799) $329

Loss from operations (GAAP) ($149) ($1,162)

FAS/CAS service cost adjustment * (291) (283)

Core operating (loss)/earnings (Non-GAAP) ** ($4,040) $461 ($3,078) $59

Core operating loss (Non-GAAP) ** ($440) ($1,445)

* 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 (loss)/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 42-43.

Loss from operations for the nine months ended September 30, 2022 was $3,194 million compared with earnings of $1,269 million during the same period in 2021.

BDS had a loss from operations of $3,656 million compared with earnings of $1,799 million during the same period in 2021, primarily due to charges on development programs ($4,429 million).

BGS earnings from operations increased by $477 million primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance.

BCA loss from operations decreased by $277 million primarily due to higher 737 MAX 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.

Loss from operations for the three months ended September 30, 2022 was $2,799 million compared with earnings of $329 million during the same period in 2021.

BDS had a loss from operations of $2,798 million, compared with earnings of $436 million during the same period in 2021.

The year over year change at BDS primarily reflects charges on development programs in the third quarter of 2022 of $2,762 million.

Other BDS programs also recorded lower earnings during the third quarter of 2022 due to lower volumes, supplier disruption and factory performance.

BGS earnings from operations increased by $89 million due to higher commercial services volume and favorable mix, partially offset by lower government services performance.

BCA loss from operations decreased by $50 million reflecting higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending and other period expenses.

Core operating losses for the nine months ended September 30, 2022 were $4,040 million compared with core operating earnings of $461 million for the same period in 2021.

Core operating losses for the three months ended September 30, 2022 were $3,078 million compared with core operating earnings of $59 million for the same period in 2021.

The changes in core operating (loss)/earnings were primarily due to changes in Segment operating (loss)/earnings as described above.

Loss from operations for the three months ended March 31, 2023 was $149 million compared with a loss of $1,162 million during the same period in 2022.

BDS loss from operations decreased by $717 million compared to the same period in 2022 due to lower charges on fixed-price development programs partially offset by the operational impact of labor instability and supply chain disruption across other programs.

BCA loss from operations decreased by $282 million reflecting higher 737 and 787 deliveries and charges in 2022 due to the war in Ukraine, partially offset by higher research and development spending.

BGS earnings from operations increased by $215 million primarily due to higher commercial services revenue, partially offset by lower government services revenue.

Core operating loss for the three months ended March 31, 2023 was $440 million compared with $1,445 million for the same period in 2022.

The decrease in core operating loss was primarily due to changes in Segment operating earnings/(loss) as described above.

For discussion related to Postretirement Plans, see Note 11 to our Condensed Consolidated Financial Statements.

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

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Share-based plans ($52) ($83)

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Unallocated items, eliminations and other ($460) ($251)

Share-based plans expense for the nine months ended September 30, 2022 decreased by $107 million compared with the same period in 2021 due to expenses incurred in 2021 associated with a grant of restricted stock units to most employees in December 2020.

The difference in share-based plans income of $44 million for the three months ended September 30, 2022 compared with expense of $29 million in the same period in 2021 is attributable to timing of corporate allocations.

Deferred compensation income of $204 million for the nine months ended September 30, 2022 compared with expense of $86 million in the same period in 2021 is primarily driven by broad market conditions and changes in our stock price.

Deferred compensation income of $38 million for the three months ended September 30, 2022 compared with $8 million in the same period in 2021 is primarily driven by broad market conditions.

Unallocated research and development expense for the nine and three months ended September 30, 2022 increased by $17 million and decreased by $16 million compared with the same periods in 2021 due to spending on enterprise product development.

Eliminations and other unallocated items for the nine and three months ended September 30, 2022 increased by $90 million and $140 million compared with the same periods in 2021.

The increase in the third quarter of 2022 primarily reflects a $200 million settlement with the Securities and Exchange Commission related to the 737 MAX accidents and lower income from operating investments.

Share-based plans expense for the three months ended March 31, 2023 decreased by $31 million compared with the same period in 2022 due to fewer share-based grants in the first quarter of 2023.

Deferred compensation expense of $54 million for the three months ended March 31, 2023 compared with income of $42 million in the same period in 2022 was primarily driven by changes in our stock price and broad stock market conditions.

Research and development expense for the three months ended March 31, 2023 increased by $24 million compared with the same period in 2022 due to spending on enterprise product development.

Eliminations and other unallocated expense for the three months ended March 31, 2023 increased by $120 million compared with the same period in 2022 primarily due to timing of allocations.

Other Earnings Items

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Loss)/earnings from operations ($3,194) $1,269 ($2,799) $329

(Dollars in millions) Three months ended March 31

Loss from operations ($149) ($1,162)

Other income, net 302 181

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Loss before income taxes (496) (1,618)

Income tax (expense)/benefit (17) 207 (176) 178

Income tax benefit 71 376

Net loss from continuing operations (425) (1,242)

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Net loss attributable to Boeing Shareholders ($414) ($1,219)

For the nine months ended September 30, 2022 and 2021, non-operating pension income included in Other income, net was $666 million and $381 million.

The increased income was primarily due to lower

amortization of net actuarial losses and a settlement gain in 2022 compared with charges in 2021.

Non-operating postretirement income included in Other income, net was $44 million and $16 million during the nine months ended September 30, 2022 and 2021.

Other income, net during the nine months ended September 30, 2022 also included losses of $50 million reclassified from Accumulated other comprehensive loss in the first quarter of 2022 associated with certain cash flow hedges because it is probable the forecasted transactions will not occur.

For the three months ended September 30, 2022 and 2021, non-operating pension income included in Other income, net was $225 million and $29 million.

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

Interest and debt expense for the nine and three months ended September 30, 2022 was lower compared with the same period in the prior year primarily as a result of lower debt balances.

Other income, net for the three months ended March 31, 2023 increased by $121 million compared with the same period in 2022 primarily due to higher interest income on short-term investments reflecting higher interest rates, partially offset by a decrease in non-operating pension income.

For discussion on changes related to non-operating pension and postretirement expenses, see Note 11 to our Condensed Consolidated Financial Statements.

Other income, net for the three months ended March 31, 2022 included losses of $50 million that were associated with certain cash flow hedges reclassified from Accumulated other comprehensive loss because it was probable the forecasted transactions would not occur.

This also contributed to the increase in Other income, net in 2023.

Interest and debt expense for the three months ended March 31, 2023 was largely consistent compared with the same period in the prior year.

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 discussion related to Income Taxes, see Note 3 to our Condensed 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.

Substantially all contracts at our BDS segment and certain contracts at our BGS segment are long-term contracts with the U.S.

government and other customers that generally extend over several years.

Costs on these contracts are recorded as incurred.

government and other

customers that generally extend over several years.

Cost of sales for commercial spare parts is recorded at average cost.

The following table summarizes cost of sales:

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 Change 2022 2021 Change

(Dollars in millions) Three months ended March 31

2023 2022 Change

Cost of sales $15,998 $13,638 $2,360

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89.3 % 97.5 % (8.2) %

Cost of sales for the nine months ended September 30, 2022 increased by $3,020 million, or 7% compared with the same period in 2021, primarily due to charges recorded at BDS and higher revenues at BCA.

Cost of sales as a percentage of Revenues increased during the nine months ended September 30, 2022 compared with the same period in 2021 primarily due to higher charges recorded at BDS in 2022 than in 2021, partially offset by lower abnormal production costs at BCA.

Cost of sales for the three months ended September 30, 2022 increased by $3,212 million, or 24% compared with the same period in 2021 primarily due to charges recorded at BDS and higher revenues at BCA.

Cost of sales as a percentage of Revenues increased during the three months ended September 30, 2022 compared with the same period in 2021 primarily due to higher charges recorded at BDS in 2022 than in 2021, partially offset by lower abnormal production costs at BCA.

Cost of sales for the three months ended March 31, 2023 increased by $2,360 million, or 17% compared with the same period in 2022, primarily due to higher revenues at BCA, BDS and BGS.

Cost of sales as a percentage of Revenues decreased during the three months ended March 31, 2023 compared with the same period in 2022 primarily due to lower charges on BDS development programs.

Research and Development

Research and development expense, net is summarized in the following table:

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Commercial Airplanes $444 $321

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Global Services 26 27

Other 161 144 43 59

Total $741 $633

Research and development expense increased by $487 million and $152 million during the nine and three months ended September 30, 2022 compared to the same periods in 2021.

The increase at BCA primarily reflect higher 737 MAX and 777X research and product development expenditures.

(Dollars in millions) September 30

Research and development expense increased by $108 million during the three months ended March 31, 2023 compared to the same period in 2022, primarily due to higher research and development expenditures on the 777X program as well as other BCA and enterprise investments in product development.

(Dollars in millions) March 31

2023 December 31

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government contract funding.

The increase in contractual backlog at BCA during the nine months ended September 30, 2022 was partially offset by a decrease in contractual backlog at BDS and BGS.

If 787 aircraft deliveries are delayed, 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 reductions to backlog and/or significant order cancellations.

The increase in contractual backlog during the three months ended March 31, 2023 was primarily due to increases in BCA and BDS backlog.

If we remain unable to deliver 737 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 during the nine months ended September 30, 2022 was primarily due to reclassifications to contractual backlog related to BDS and BGS contracts, partially offset by contract awards.

Unobligated backlog was largely unchanged during the three months ended March 31, 2023.

Additional Considerations

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We are mitigating import costs through Duty Drawback Customs procedures.

China is a significant market for commercial airplanes.

Boeing has long-standing relationships with our

Chinese customers, who represent a key component of our commercial airplanes backlog.

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 .

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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.

Supply Chain We and our suppliers are experiencing supply chain disruptions as a result of 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.

Segment Results of Operations and Financial Condition

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Business Environment and Trends

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

See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Annual Report on Form 10-K for a discussion of the airline industry environment.

Results of Operations

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Revenues $6,704 $4,194

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Operating margins (9.2) % (21.4) %

BCA revenues increased by $1,900 million for the nine months ended September 30, 2022 compared with the same period in 2021 primarily due to higher 737 MAX deliveries, partially offset by lower wide-body deliveries.

BCA revenues increased by $1,804 million for the three months ended September 30, 2022 compared with the same period in 2021 primarily due to the resumption of 787 deliveries and higher 737 MAX deliveries.

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

While most non-U.S.

jurisdictions have approved return to service of the 737 MAX, the 737 MAX has yet to return to service in China and deliveries have not yet resumed.

We received FAA authorization to resume deliveries of 787 aircraft on July 28, 2022 and deliveries resumed in August.

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

BCA revenues increased by $2,510 million for the three months ended March 31, 2023 compared with the same period in 2022 primarily due to higher 787 and 737 deliveries.

Commercial airplane deliveries, including intercompany deliveries, were as follows:

737 * 747 767 * 777 787 Total

Deliveries during the first nine months of 2022 277 (10) 3 21 (10) 18 9 328

Deliveries during the first nine months of 2021 179 (12) 4 24 (9) 20 14 241

Deliveries during the third quarter of 2022 88 (2) 9 (3) 6 9 112

Deliveries during the third quarter of 2021 66 (4) 2 11 (5) 6 85

Deliveries during the first three months of 2023 113 (2) 1 1 4 11 130

Deliveries during the first three months of 2022 86 (5) 1 5 (3) 3 95

Cumulative deliveries as of 3/31/2023 8,245 1,573 1,272 1,705 1,048

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Loss From Operations

BCA loss from operations was $1,744 million for the nine months ended September 30, 2022 compared with $2,021 million in the same period in 2021 reflecting higher 737 MAX 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.

Abnormal production costs for the nine months ended September 30, 2022 were $1,326 million including $925 million related to the 787 program, $213 million related to the 777X program and $188 million related to 737 MAX.

Abnormal production costs for the nine months ended September 30, 2021 were $1,684 million, including $1,501 million related to 737 MAX and $183 million related to the 787 program.

BCA loss from operations was $643 million for the three months ended September 30, 2022 compared with $693 million in the same period in 2021 reflecting higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending and other period expenses.

Abnormal production costs for the three months ended September 30, 2022 were $441 million, including $330 million related to the 787 program and $111 million related to the 777X program.

Abnormal production costs for the three months ended September 30, 2021 were $601 million, including $418 million related to 737 MAX and $183 million related to the 787 program.

BCA loss from operations was $615 million for the three months ended March 31, 2023 compared with $897 million in the same period in 2022 reflecting higher 737 and 787 deliveries and charges in 2022 due to the war in Ukraine, partially offset by higher research and development spending.

Abnormal production costs for the three months ended March 31, 2023 were $505 million including $379 million related to the 787 program and $126 million related to the 777X program.

Abnormal production costs for the three months ended March 31, 2022 were $500 million, including $312 million related to the 787 program and $188 million related to the 737 program.

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.

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

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

Backlog excludes options and Boeing customer financing 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.

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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 Accounting Standards Codification (ASC) 606.

BCA total backlog increased from $296,882 million as of December 31, 2021 to $307,168 million at September 30, 2022 reflecting n ew 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 nine months ended September 30, 2022 totaled $8,687 million and relate to 737 MAX and 787 aircraft.

The net ASC 606 adjustments for the nine months ended September 30, 2022 resulted in a decrease to backlog of $6,326 million primarily due to a net increase of 777X aircraft in the ASC 606 reserve, partially offset by net decreases in 737 MAX 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.

BCA total backlog increased from $329,824 million as of December 31, 2022 to $333,656 million at March 31, 2023 reflecting n ew orders in excess of deliveries and a decrease in the value of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog, partially offset by order cancellations.

Aircraft order cancellations during the three months ended March 31, 2023 totaled $4,443 million and primarily relate to 737 aircraft.

The net ASC 606 adjustments for the three months ended March 31, 2023 resulted in an increase to backlog of $5,658 million due to a

net decrease of 777X, 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

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Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders.

Firm orders include military derivative aircraft that are not included in program accounting quantities.

Firm orders include certain military derivative aircraft that are not included in program accounting quantities.

All revenues and costs associated with military derivative aircraft production are reported in the BDS segment.

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Cumulative firm orders 11,785 1,573 1,377 1,770 244 1,542

† Aircraft ordered by BCC are identified in parentheses.

† Boeing customer financing aircraft orders are identified in parentheses.

Program Highlights

737 Program The accounting quantity for the 737 program increased by 400 units during the three months ended March 31, 2023 due to the program's normal progress of obtaining additional orders and delivering airplanes.

See further discussion of the 737 MAX in Note 9 to our Condensed 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 fourth quarter of 2022.

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

767 Program The accounting quantity for the 767 program increased by 24 and 12 units during the nine and three months ended September 30, 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 KC-46A Tanker program.

The first 737 MAX passenger flight in China since 2019 occurred on January 13, 2023, and 737 MAX operators in China are continuing to return their 737 MAX fleets to revenue service.

In April 2023, the Civil Aviation Administration of China released the second 737 Aircraft Evaluation Report, which was another step toward resuming deliveries.

There continues to be uncertainty regarding timing of resumption of deliveries in China.

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 225 aircraft in inventory as of March 31, 2023, including approximately 140 aircraft in inventory that were configured 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.

In April 2023, our fuselage supplier notified us that a non-standard manufacturing process was used on two fittings in the aft fuselage section of certain 737-7, 737-8 and 737 military derivative aircraft.

This issue does not affect the 737-9 or 737-10 minor models.

There is not an immediate safety of flight issue and the in-service fleet can continue operating safely.

This will impact timing of near-term deliveries as we perform rework on affected aircraft, and we are working with our customers to reschedule certain deliveries.

We are not changing the supplier master schedule including anticipated production rate increases, which may result in increased near-term inventory.

We expect final assembly production to

recover in the coming months.

We increased the production rate to 31 per month in 2022 and plan to increase the production rate to 38 per month later this year.

We are following the lead of the Federal Aviation Administration (FAA) as we work through the certification process of the 737-7 and 737-10 models.

We continue to expect the 737-7 to be certified and begin delivering in 2023 and the 737-10 to begin FAA certification flight testing in 2023 with first delivery in 2024.

In 2022, we provisioned for the estimated costs associated with safety enhancements that will be required on all new 737 MAX aircraft and previously delivered 737 MAX aircraft one year and three years after the issuance of a type certificate for the 737-10, respectively.

We do not expect those costs to be material.

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 5 and Note 9 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 occurred in February 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 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.

777 and 777X Programs During the first quarter of 2022, we launched the 777X-8 freighter with first delivery expected in 2027.

The accounting quantity for the 777X program increased by 50 units during the three months ended March 31, 2022 reflecting the launch of the 777X-8 freighter.

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.

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

We continue to expect the first delivery of the 777X-9 to occur in 2025.

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.

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 launched the 777X-8 freighter during the first quarter of 2022 and expect first delivery in 2027.

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.

The 777X program has near break-even gross margins at September 30, 2022.

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 period expensed as incurred until 777X-9 production resumes.

Cumulative abnormal costs recorded through March 31, 2023 totaled $0.5 billion including $126 million of abnormal costs expensed during the three months ended March 31, 2023.

The 777X program has near break-even gross margins at March 31, 2023.

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

These factors include continued market uncertainty, the lingering 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 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.

The accounting quantity for the 777 program increased by 40 units during the six months ended June 30, 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes.

The production rate for the combined 777/777X program increased to 3 per month in the third quarter of 2022.

787 Program At September 30, 2022 we have approximately 115 aircraft in inventory.

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

We continue to conduct inspections and rework on undelivered aircraft.

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 September 30, 2022 total $1.4 billion and we continue to expect to incur approximately $2 billion of abnormal production costs on a cumulative basis with most being incurred by the end of 2023.

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

787 Program We continue to conduct inspections and rework on undelivered aircraft 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.

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 expected.

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

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.

Deliveries were temporarily paused in late February 2023 pending validation of our prior analysis.

We received FAA authorization to resume deliveries in March.

We delivered 11 aircraft during the first quarter of 2023.

At March 31, 2023 and December 31, 2022, we had approximately 95 and 100 aircraft in inventory.

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

We are currently producing at 3 per month and expect to 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 that are required to be expensed as incurred.

We also determined that the inspections and rework costs on inventoried aircraft are excessive and

should also be accounted for as abnormal production costs.

Cumulative abnormal costs recorded through March 31, 2023 totaled $2.1 billion, and we continue to expect to incur up to $2.8 billion with most being incurred by the end of 2023.

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

Additional Considerations

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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 and 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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Factors that could result in lower margins (or a material charge if an airplane program has or is determined to have reach-forward losses) include the following:

changes to the

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

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.

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United States Government Defense Environment Overview

The Consolidated Appropriations Act, 2022, enacted in March 2022, provided fiscal year 2022 (FY22) appropriations for government departments and agencies, including $742.3 billion for the United States Department of Defense (U.S.

In March 2023, the U.S.

government released the President's budget request for fiscal year 2024 (FY24), which requested $842 billion in funding for the United States Department of Defense (U.S.

DoD) and $27 billion for the National Aeronautics and Space Administration (NASA).

The enacted FY22 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, and the Space Launch System.

In April 2022, the U.S.

government released details of the President’s budget request for fiscal year 2023 (FY23), which included requests for $773 billion in funding for the U.S.

DoD and $26 billion for NASA.

The FY23 defense budget requests funding for many of Boeing’s programs, but does not request funding for F/A-18, CH-47F Block II, V-22, or P-8 production aircraft.

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

The President's budget request does not request funding for F/A-18, V-22, or P-8 production aircraft.

The P-8 program continues to pursue U.S.

sales opportunities.

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

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

DoD, NASA and other government agencies for FY24 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.

Any of these impacts could have a material effect on our results of operations, financial position, and/or cash flows.

The Continuing Resolution (CR) enacted on September 30, 2022, continues federal funding at FY22 appropriated levels until December 16, 2022.

Congress and the President must enact either full-year FY23 appropriations bills or an additional CR to fund government departments and agencies after December 16, 2022, or a government shutdown could result, which may impact the Company's operations.

Government could experience a disruption to its operations and/or payments as a result of the U.S.

Treasury exhausting extraordinary measures after reaching its debt limit.

This potential disruption, and/or any associated macroeconomic impacts, could have a material effect on our results of operations, financial position, and/or cash flows.

Defense Environment Overview The non-U.S.

market continues to be driven by complex and evolving security challenges and the need to modernize aging equipment and inventories.

BDS expects that it will continue to have a wide range of opportunities across Asia, Europe and the Middle East given the diverse regional threats.

At March 31, 2023, 30% of BDS backlog was attributable to non-U.S.

Results of Operations

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Revenues $6,539 $5,483

(Loss)/earnings from operations ($3,656) $1,799 ($2,798) $436

Loss from operations ($212) ($929)

Operating margins (3.2 %) (16.9 %)

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

Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

Three months ended March 31

F/A-18 Models 7 4

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Commercial Satellites 3

Total 117 122 36 37

BDS revenues for the nine months ended September 30, 2022 decreased by $3,697 million compared with the same period in 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 for the nine months ended September 30, 2022 were $2,249 million more unfavorable than the comparable period in the prior year largely due to charges on development programs.

BDS revenues for the three months ended September 30, 2022 decreased by $1,310 million compared with the same period in 2021, primarily due to charges on development programs.

Cumulative contract catch-up adjustments were $1,231 million more unfavorable than the comparable period in the prior year largely due to charges on development programs and other program performance.

(Loss)/Earnings From Operations

BDS loss from operations was $3,656 million for the nine months ended September 30, 2022 compared with earnings from operations of $1,799 million in the same period in 2021 primarily due to charges on the VC-25B ($1,452 million), KC-46A Tanker ($1,374 million), MQ-25 ($576 million), T-7A Red Hawk Production Options ($536 million), T-7A Red Hawk EMD ($203 million), and Commercial Crew ($288

The net unfavorable cumulative contract catch-up adjustments for the nine months ended September 30, 2022 were $3,734 million higher than the comparable period in the prior year.

See further discussion of fixed-price contracts in Note 9 to our Condensed Consolidated Financial Statements.

BDS loss from operations was $2,798 million for the three months ended September 30, 2022 compared with earnings from operations of $436 million in the same period in 2021.

The year over year decrease reflects a number of factors including charges in the third quarter of 2022 on KC-46A Tanker ($1,165 million), VC-25B ($766 million), MQ-25 ($351 million), Commercial Crew ($195 million), T-7A Red Hawk Production Options ($185 million) and T-7A Red Hawk EMD ($100 million).

A number of other programs recorded lower earnings during the third quarter of 2022 due to lower volumes, supplier disruption and operational performance.

Net unfavorable cumulative contract catch-up adjustments for the three months ended September 30, 2022 were $2,224 million higher than the comparable period in the prior year reflecting the charges and performance issues described above.

BDS revenues for the three months ended March 31, 2023 increased by $1,056 million compared with the same period in 2022 primarily due to lower charges on development programs, the USAF KC-46A Lot 9 Tanker award, and increased sales from space and weapons programs.

Cumulative contract catch-up adjustments for the three months ended March 31, 2023 were $353 million less unfavorable than the comparable period in the prior year largely due to lower charges on development programs.

The USAF awarded 15 aircraft for Lot 9 on the KC-46A Tanker program.

Loss From Operations

BDS loss from operations was $212 million for the three months ended March 31, 2023 compared with loss from operations of $929 million in the same period in 2022 primarily due to less unfavorable impacts of cumulative contract catch-up adjustments, which amounted to $670 million less than the prior year comparable period.

During the first quarter of 2022, losses incurred on major development programs

totaled $1,270 million.

The reach-forward loss on the KC-46A Tanker program increased by $245 million during the first quarter of 2023 primarily due to the cost of rework that was identified as a result of supplier quality issues.

Operations were also impacted by labor instability and supply chain disruption across other programs.

Charges on major fixed-price development programs in the first quarter of 2022 included VC-25B ($660 million), T-7A Red Hawk Production Options ($300 million), T-7A Red Hawk EMD ($67 million), KC-46A Tanker ($165 million), and MQ-25 ($78 million).

See further discussion of fixed-price contracts in Note 9 to our Condensed Consolidated Financial Statements.

BDS (loss)/earnings from operations includes equity earnings of $2 million for the nine months ended September 30, 2022 and equity loss of $38 million for the three months ended September 30, 2022 compared with equity earnings of $48 million and $11 million for the same periods in 2021.

Earnings from our United Launch Alliance joint venture increased during the nine and three months ended September 30, 2022.

This was more than offset by losses on other operating investments.

BDS backlog decreased from $59,828 million as of December 31, 2021 to $54,740 million at September 30, 2022, primarily due to revenue recognized on contracts awarded in prior periods.

BDS loss from operations includes our share of loss from equity method investments of $14 million for the three months ended March 31, 2023 compared with equity earnings of $27 million for the same period in 2022.

BDS backlog increased from $54,373 million as of December 31, 2022 to $58,150 million at March 31, 2023, primarily due to the timing of awards, partially offset by revenue recognized on contracts awarded in prior periods.

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.

A number of our ongoing fixed-price development programs have reach-forward losses.

New programs could also have risk for reach-forward loss upon contract award and during the period of contract performance.

Many development programs have highly complex designs.

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

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

These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues.

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.

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

Global Services

Results of Operations

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

Revenues $13,044 $12,037 $4,432 $4,221

Earnings from operations $2,093 $1,616 $733 $644

Operating margins 16.0 % 13.4 % 16.5 % 15.3 %

BGS revenues for the nine months ended September 30, 2022 increased by $1,007 million compared with the same period in 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 for the nine months ended September 30, 2022 was $122 million lower than the comparable period in the prior year.

BGS revenues for the three months ended September 30, 2022 increased by $211 million compared with the same period in 2021 primarily due to higher commercial services volume, partially offset by lower government services volume.

The net favorable impact of cumulative contract catch-up adjustments for the three months ended September 30, 2022 was $25 million lower than the comparable period in the prior year.

Earnings From Operations

BGS earnings from operations for the nine months ended September 30, 2022 increased by $477 million compared with the same period in 2021, primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance.

The net favorable impact of cumulative contract catch-up adjustments for the nine months ended September 30, 2022 was $147 million lower than the comparable period in the prior year.

BGS earnings from operations for the three months ended September 30, 2022 increased by $89 million compared with the same period in 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 for the three months ended September 30, 2022 was $58 million lower than the net favorable impact in the comparable period in the prior year.

BGS backlog decreased from $20,496 million as of December 31, 2021 to $19,072 million at September 30, 2022, primarily due to revenue recognized on contracts awarded in prior years.

Boeing Capital

Results of Operations

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

(Dollars in millions) Three months ended March 31

Revenues $4,720 $4,314

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Operating margins 17.9 % 14.6 %

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 for the nine and three months ended September 30, 2022 decreased by $59 million and $19 million compared with the same periods in 2021 primarily due to lower gains on re-lease of assets and lower commitment fee income.

BGS revenues for the three months ended March 31, 2023 increased by $406 million compared with the same period in 2022 primarily due to higher commercial services revenue driven by the market recovery across the commercial portfolio, partially offset by lower government services revenue.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended March 31, 2023 was $53 million worse than the net favorable impact in the prior year comparable period.

Earnings From Operations

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.

For the nine months ended September 30, 2022, BCC had earnings from operations of $14 million, compared with earnings from operations of $99 million during the same period in 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 during the three months ended September 30, 2022 and 2021 were $23 million and $42 million due to lower revenues.

Financial Position

The following table presents selected financial data for BCC:

(Dollars in millions) September 30

2022 December 31

Customer financing and investment portfolio, net $1,576 $1,720

Other assets, primarily cash and short-term investments 467 462

Total assets $2,043 $2,182

Other liabilities, primarily deferred income taxes $197 $347

Debt, including intercompany loans 1,525 1,525

Equity 321 310

Total liabilities and equity $2,043 $2,182

Debt-to-equity ratio 4.8-to-1 4.9-to-1

BCC’s customer financing and investment portfolio at September 30, 2022 decreased $144 million from December 31, 2021 primarily due to an increase in the allowance for losses and portfolio run-off, partially offset by new volume.

BCC enters into certain intercompany 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.

BGS earnings from operations for the three months ended March 31, 2023 increased by $215 million compared with the same period in 2022, primarily due to higher commercial services revenue, partially offset by lower government services revenue.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended March 31, 2023 was $58 million worse than the net favorable impact in the prior year comparable period.

BGS backlog decreased from $19,338 million as of December 31, 2022 to $18,835 million at March 31, 2023, primarily due to revenue recognized on contracts awarded in prior years.

Liquidity and Capital Resources

Cash Flow Summary

(Dollars in millions) Nine months ended September 30

(Dollars in millions) Three months ended March 31

Net loss ($425) ($1,242)

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Changes in assets and liabilities (1,169) (3,286)

Net cash provided/(used) by operating activities 55 (4,132)

Net cash provided by investing activities 6,521 7,389

Net cash used by operating activities (318) (3,216)

Net cash (used)/provided by investing activities (1,823) 2,965

Net cash used by financing activities (1,680) (396)

Effect of exchange rate changes on cash and cash equivalents 10 (3)

Net increase in cash & cash equivalents, including restricted 5,426 1,985

Net decrease in cash & cash equivalents, including restricted (3,811) (650)

Cash & cash equivalents, including restricted, at beginning of year 14,647 8,104

Cash & cash equivalents, including restricted, at end of period $10,836 $7,454

Operating Activities Net cash provided by operating activities was $0.1 billion during the nine months ended September 30, 2022, compared with $4.1 billion of cash used by operating activities during the same period in 2021.

Net loss for the nine months ended September 30, 2022 was $4.4 billion compared with net loss of $0.1 billion during the same period in 2021.

The $4.3 billion year-over-year increase in the Net loss is primarily driven by losses on BDS fixed-price development contracts that are expected to adversely impact cash flows in future periods.

Changes in assets and liabilities for the nine months ended September 30, 2022 improved by $8.0 billion compared with the same period in 2021 driven by changes in Accrued liabilities and Accounts payable, partially offset by growth in Inventories 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 the $0.7 billion Department of Justice payment in 2021 discussed below.

Operating Activities Net cash used by operating activities was $0.3 billion during the three months ended March 31, 2023, compared with $3.2 billion during the same period in 2022.

The $2.9 billion improvement is primarily driven by lower net loss of $0.8 billion and improved changes in assets and liabilities of $2.1 billion.

Changes in assets and liabilities for the three months ended March 31, 2023 improved by $2.1 billion compared with the same period in 2022 primarily driven by favorable changes in Advances and progress billings ($1.9 billion), Inventories ($0.8 billion), and Accounts payable ($0.6 billion), partially offset by growth in Unbilled receivables ($0.7 billion) and Accounts receivable ($0.6 billion).

Cash provided by Advances and progress billings was $1.4 billion in the first quarter of 2023, as compared with cash used of $0.5 billion during the same period in 2022.

Inventory improvements were driven by higher 737 and 787 deliveries.

Growth in Accounts payable in 2023 is a source of cash while reductions in Accounts payable in 2022 were a use of cash generally reflecting increases in production rates.

Concessions paid to 737 MAX customers totaled $1.0 billion and $2.0 billion during the nine months ended September 30, 2022 and 2021.

Additionally, in the third quarter of 2022 and 2021 we received income tax refunds of $1.5 billion and $1.3 billion.

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

Department of Justice.

Cash provided by Advances and progress billings was $0.2 billion in 2022, as compared with $0.8 billion of cash provided in 2021.

Cash used by Inventories was $1.2 billion in 2022, as compared with $0.5 billion of cash provided in 2021 primarily reflecting growth in 777X inventory, as well as the continued build-up of 787 aircraft.

We expect to continue to have a significant negative impact on our operating cash flows until 737 MAX and 787 deliveries ramp up.

Payables to suppliers who elected to participate in supply chain financing programs decreased by $0.1 billion during the nine months ended September 30, 2022 and decreased by $1 billion during the nine months ended September 30, 2021.

Growth in Unbilled receivables and Accounts receivable in 2023 was a use of cash, generally reflecting an increase in revenue.

Concessions paid to 737 MAX customers totaled $0.1 billion and $0.6 billion during the three months ended March 31, 2023 and 2022.

The $0.8 billion decrease in net loss is primarily driven by the absence of charges on BDS development programs recorded during the first quarter of 2022.

Payables to suppliers who elected to participate in supply chain financing programs increased by $0.1 billion during three months ended March 31, 2023 and decreased by $0.2 billion during the three months ended March 31, 2022.

Supply chain financing is not material to our overall liquidity.

Investing Activities Cash provided by investing activities was $6.5 billion during the nine months ended September 30, 2022, compared with $7.4 billion during the same period in 2021, primarily due to net proceeds from investments of $7.4 billion in 2022 compared to $7.8 billion in 2021.

Lower proceeds from dispositions of property, plant and equipment in 2022 also contributed to the year-over-year variance.

In the nine months ended September 30, 2022 and 2021, capital expenditures were $0.9 billion and $0.8 billion.

We expect capital expenditures in 2022 to be higher than in 2021.

Financing Activities Cash used by financing activities was $1.0 billion during the nine months ended September 30, 2022 compared with $1.2 billion during the same period in 2021.

During the nine months

ended September 30, 2022, net repayments on our debt were $1.0 billion compared with $1.2 billion in the same period in 2021.

As of September 30, 2022 the total debt balance was $57.2 billion, down from $58.1 billion at December 31, 2021.

At September 30, 2022, $5.4 billion of debt was classified as short-term.

Debt, including intercompany loans, attributable to BCC totaled $1.5 billion, $0.5 billion of which was classified as short-term.

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 Condensed Consolidated Financial Statements.

At September 30, 2022, we had $13.5 billion of cash and $0.8 billion of short-term investments.

At September 30, 2022, we had $12.0 billion of unused borrowing capacity on revolving credit line agreements.

In the third quarter of 2022, we entered into a $5.8 billion 364-day revolving credit agreement expiring in August 2023, a $3.0 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 facility has a one-year term out option that allows us to extend the maturity of any borrowings one additional year.

Investing Activities Cash used by investing activities was $1.8 billion during the three months ended March 31, 2023, compared with cash provided of $3.0 billion during the same period in 2022.

The increase in use of cash during the three months ended March 31, 2023 compared to the same period in 2022 is primarily due to net contributions to investments of $1.4 billion in 2023 compared to net proceeds from investments of $3.3 billion in 2022.

In the three months ended March 31, 2023 and 2022, capital expenditures were $0.5 billion and $0.3 billion.

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

Financing Activities Cash used by financing activities was $1.7 billion during the three months ended March 31, 2023 compared with $0.4 billion during the same period in 2022.

During the three months ended March 31, 2023, net repayments on our debt were $1.7 billion compared with $0.4 billion in the same period in 2022.

As of March 31, 2023 the total debt balance was $55.4 billion, down from $57.0 billion at December 31, 2022.

At March 31, 2023, $7.9 billion of debt was classified as short-term.

Capital Resources

We expect to be able to fund our cash requirements through cash and short-term investments and cash provided by operations, as well as continued access to capital markets.

At March 31, 2023, we had $10.8 billion of cash, $4.0 billion of short-term investments, and $12.0 billion of unused borrowing capacity on revolving credit line agreements.

During 2022, we entered into a $5.8 billion 364-day revolving credit agreement expiring in August 2023, a $3.0 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 as of March 31, 2023.

However, during the first quarter of 2023, Moody's upgraded the outlook on our credit rating from negative to stable primarily driven by an improvement in operating cash flow and a reduction of 737 and 787 aircraft in inventory.

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, and/or associated changes in demand for our products and services.

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

The occurrence of any or all of

these events may adversely affect our ability to fund our operations and financing or contractual commitments.

Any future borrowings may affect our credit ratings and are subject to various debt covenants.

At September 30, 2022, we were in compliance with the covenants for our debt and credit facilities.

The most restrictive covenants include a limitation on mortgage debt and sale and leaseback transactions as a percentage of consolidated net tangible assets (as defined in the credit agreements), and a limitation on consolidated debt as a percentage of total capital (as defined).

At March 31, 2023, we were in compliance with the covenants for our debt and credit facilities.

When considering debt covenants, we continue to have substantial borrowing capacity.

Customer Financing commitments totaled $16.5 billion and $12.9 billion at September 30, 2022 and December 31, 2021.

The increase relates to the addition of new financing commitments in excess of expirations.

We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers.

Historically, we have not been required to fund significant amounts of outstanding commitments.

However, there can be no assurances that we will not be required to fund greater amounts than historically required.

Off-Balance Sheet Arrangements

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Legal contingencies are discussed in Note 16 to our Condensed Consolidated Financial Statements.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $754 million at September 30, 2022.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $788 million at March 31, 2023.

For additional information, see Note 9 to our Condensed Consolidated Financial Statements.

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 unaudited condensed consolidated interim financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) which we supplement with certain non-GAAP financial information.

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We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Core operating earnings, core operating margin and core earnings per share exclude the FAS/CAS service cost adjustment.

Core operating loss, core operating margin and core loss per share exclude the FAS/CAS service cost adjustment.

The FAS/CAS service cost adjustment represents the difference between the Financial Accounting Standards (FAS) pension and postretirement service costs calculated under GAAP and costs allocated to the business segments.

Core earnings per share excludes both the FAS/CAS service cost adjustment and non-operating pension and postretirement expenses.

Core loss per share excludes both the FAS/CAS service cost adjustment and non-operating pension and postretirement expenses.

Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost.

Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to BCA and certain BGS businesses supporting commercial customers.

Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S.

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Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid.

The Pension FAS/CAS service cost adjustments recognized in (Loss)/earnings from operations were benefits of $621 million and $208 million for the nine and three months ended September 30, 2022, compared with benefits of $576 million and $192 million for the same periods in 2021.

The Pension FAS/CAS service cost adjustments recognized in Loss from operations were benefits of $223 million for the three months ended March 31, 2023, compared with benefits of $208 million for the same period in 2022.

The higher benefits in 2023 were primarily due to increases in allocated pension cost year over year.

The non-operating pension expenses included in Other income, net were benefits of $666 million and $225 million for the nine and three months ended September 30, 2022, compared with benefits of $381 million and $29 million for the same periods in 2021.

The higher benefits in 2022 were primarily due to lower amortization of net actuarial losses and a settlement gain in 2022 compared to charges in 2021.

For further discussion of pension and other postretirement costs see the Management’s Discussion and Analysis on page 39 of this Form 10-Q and on page 29 of our 2021 Annual Report on Form 10-K.

The non-operating pension expenses included in Other income, net were benefits of $134 million for the three months ended March 31, 2023, compared with benefits of $220 million for the same period in 2022.

The lower benefits in 2023 were primarily due to higher interest cost and lower expected return on plan assets, offset by lower amortization of net actuarial losses.

For further discussion of pension and other postretirement costs see the Management’s Discussion and

Analysis on page 24 of our 2022 Annual Report on Form 10-K.

Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance.

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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/(loss), core operating margin and core earnings/(loss) per share with the most directly comparable GAAP financial measures of earnings/(loss) from operations, operating margins and diluted earnings/(loss) per share.

(Dollars in millions, except per share data) Nine months ended September 30 Three months ended September 30

2022 2021 2022 2021

Reconciliation of Non-GAAP Measures to GAAP Measures

The table below reconciles the non-GAAP financial measures of core operating loss, core operating margin 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) Three months ended March 31

Revenues $17,921 $13,991

(Loss)/earnings from operations, as reported ($3,194) $1,269 ($2,799) $329

Loss from operations, as reported ($149) ($1,162)

Operating margins (0.8) % (8.3) %

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Postretirement FAS/CAS service cost adjustment (1)

(225) (232) (71) (78)

FAS/CAS service cost adjustment (1)

($291) ($283)

Core operating (loss)/earnings (non-GAAP) ($4,040) $461 ($3,078) $59

Core operating loss (non-GAAP) ($440) ($1,445)

Core operating margins (non-GAAP) (2.5) % (10.3) %

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Provision for deferred income taxes on adjustments (3)

0.55 0.43 0.18 0.11

Core loss per share (non-GAAP) ($1.27) ($2.75)

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(1) FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments.

This adjustment is excluded from Core operating earnings/(loss) (non-GAAP).

This adjustment is excluded from Core operating loss (non-GAAP).

(2) Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost.

These expenses are included in Other income, net and are excluded from Core earnings/(loss) per share (non-GAAP).

These expenses are included in Other income, net and are excluded from Core loss per share (non-GAAP).

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

corporate statutory tax rate.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to our market risk since December 31, 2022.

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-Q

Item 2. Management’s Discussion and Analysis