What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-24 · 191 added, 120 removed, 306 unchanged (50% of the section changed)

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All 737-9 aircraft in production are undergoing this same enhanced inspection process prior to delivery.

The Alaska Airlines accident and the resulting actions we are taking, including slowing production, to improve compliance with our manufacturing quality control requirements have significantly impacted our financial position, results of operations and cash flows during the first quarter of 2024.

Consolidated Results of Operations and Financial Condition

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

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

(Dollars in millions, except per share data) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Revenues $33,435 $37,672 $16,866 $19,751

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The following table summarizes Revenues:

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Commercial Airplanes $10,656 $15,544 $6,003 $8,840

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Total $33,435 $37,672 $16,866 $19,751

Revenues for the three months ended March 31, 2024 decreased by $1,352 million compared with the same period in 2023 driven by lower revenues at Commercial Airplanes (BCA), partially offset by higher revenues at Defense, Space & Security (BDS) and Global Services (BGS).

BCA revenues decreased by $2,051 million primarily driven by lower 737 deliveries and 737-9 customer considerations.

BDS revenues increased by $411 million primarily due to higher volume on weapons and proprietary programs and MQ-25 contract modifications in 2024, partially offset by the U.S.

Air Force (USAF) KC-46A Tanker Lot 9 award in 2023.

BGS revenues increased by $325 million primarily due to higher commercial services revenue.

Revenues for the six months ended June 30, 2024, decreased by $4,237 million compared with the same period in 2023 driven by lower revenues at Commercial Airplanes (BCA), partially offset by higher revenues at Global Services (BGS) and Defense, Space & Security (BDS).

BCA revenues decreased by $4,888 million primarily driven by lower 737 and 787 deliveries and 737-9 customer considerations related to the January 2024 grounding.

BGS revenues increased by $468 million primarily due to higher commercial services revenue, partially offset by lower government services revenue.

BDS revenues increased by $265 million primarily due to higher volume on weapons and proprietary programs, partially offset by higher net unfavorable cumulative catch-up adjustments on major fixed-price development programs.

Revenues for the three months ended June 30, 2024, decreased by $2,885 million compared with the same period in 2023 driven by lower revenues at BCA and BDS, partially offset by higher revenues at BGS.

BCA revenues decreased by $2,837 million primarily driven by lower 787 and 737 deliveries.

BDS revenues decreased by $146 million compared with the same period in 2023 primarily driven by higher unfavorable cumulative contract catch-up adjustments on certain major fixed-price development programs, partially offset by increased volume on weapons and proprietary programs.

BGS revenues increased by $143 million primarily due to higher commercial services revenue, 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.

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The following table summarizes Loss from operations:

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Commercial Airplanes ($1,858) ($998) ($715) ($383)

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Global Services 1,786 1,703 870 856

Segment operating (loss)/earnings (76) 20

Segment operating loss (834) (34) (758) (54)

Unallocated items, eliminations and other (946) (796) (634) (336)

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Loss from operations (GAAP)

($1,176) ($248) ($1,090) ($99)

FAS/CAS service cost adjustment * (604) (582) (302) (291)

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See pages 51-52.

Loss from operations for the three months ended March 31, 2024 decreased by $63 million compared with the same period in 2023.

BDS earnings from operations increased by $363 million compared to the same period in 2023 primarily due to lower charges in 2024 on major fixed-price development programs of $92 million, revenue growth on weapons and proprietary programs, and improved performance across other programs that were more adversely affected by labor instability and supply chain performance in the prior year.

BGS earnings from operations increased by $69 million primarily due to higher commercial

services revenue, partially offset by lower government services performance.

BCA loss from operations increased by $528 million reflecting lower 737 deliveries and 737-9 customer considerations, partially offset by lower abnormal production costs.

Loss from operations on Unallocated items, eliminations and other decreased by $148 million compared with the same period in 2023 primarily due to decreases in eliminations and other unallocated items and share based plans expense.

Core operating loss for the three months ended March 31, 2024 decreased by $52 million compared with the same period in 2023, primarily due to changes in Loss from operations as described above.

Loss from operations for the six months ended June 30, 2024, increased by $928 million compared with the same period in 2023.

BCA loss from operations increased by $860 million reflecting lower deliveries, lower margins driven by production disruption, and 737-9 customer considerations related to the January 2024 grounding, partially offset by lower abnormal production costs.

BDS loss from operations increased by $23 million compared to the same period in 2023 primarily due to higher charges in 2024 on certain major fixed-price development programs, partially offset by volume growth in 2024 and lower unfavorable cumulative contract catch-up adjustments on other programs.

BGS earnings from operations increased by $83 million primarily due to higher commercial services revenue, partially offset by lower government services revenue.

Loss from operations on Unallocated items, eliminations and other increased by $150 million compared with the same period in 2023 primarily due to an increase in eliminations and other unallocated items, partially offset by a decrease in share-based plans expense.

Loss from operations for the three months ended June 30, 2024, increased by $991 million compared with the same period in 2023.

BDS loss from operations increased by $386 million compared to the same period in 2023 primarily due to an increase in unfavorable cumulative contract catch-up adjustments driven by higher charges in 2024 on certain major fixed-price development programs.

BCA loss from operations increased by $332 million reflecting lower deliveries and lower margins driven by production disruption, partially offset by lower abnormal production costs.

BGS earnings from operations increased by $14 million primarily due to higher commercial services revenue, partially offset by lower government services revenue.

Loss from operations on Unallocated items, eliminations and other increased by $298 million compared with the same period in 2023 primarily due to an increase in eliminations and other unallocated items.

Core operating loss for the six and three months ended June 30, 2024, increased by $950 million and $1,002 million compared with the same periods in 2023, primarily due to changes in Loss from operations as described above.

For information related to Postretirement Plans, see Note 13 to our Condensed Consolidated Financial Statements.

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The most significant items included in Unallocated items, eliminations and other (expense)/income are shown in the following table:

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Share-based plans $53 ($38) $43 $14

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Unallocated items, eliminations and other ($946) ($796) ($634) ($336)

Share-based plans expense for the three months ended March 31, 2024 decreased by $62 million compared with the same period in 2023 primarily due to fewer outstanding share-based awards in 2024.

Deferred compensation expense for the three months ended March 31, 2024 decreased by $24 million compared with the same period in 2023 primarily driven by changes in our stock price.

Research and development expense for the three months ended March 31, 2024 was largely unchanged compared with the same period in 2023.

Eliminations and other unallocated items expense for the three months ended March 31, 2024 decreased by $75 million compared with the same period in 2023 due to a decrease in environmental remediation expense.

Share-based plans income for the six and three months ended June 30, 2024, was $53 million and $43 million compared to share-based plans expense of $38 million and income of $14 million for the same periods in 2023.

The increase in share-based plans income for the six and three months ended June 30, 2024 compared with the same periods in 2023 was primarily due to fewer outstanding share-based awards in 2024.

Deferred compensation expense for the six months ended June 30, 2024, decreased by $47 million compared with the same period in 2023 primarily driven by changes in our stock price.

Deferred compensation expense for the three months ended June 30, 2024, decreased by $23 million compared with the same period in 2023 primarily driven by changes in broad stock market conditions.

Research and development expense for the six and three months ended June 30, 2024, increased by $39 million and $26 million compared with the same periods in 2023 due to higher spending on enterprise product development.

Eliminations and other unallocated items expense for the six and three months ended June 30, 2024, includes an earnings charge of $244 million that reflects a fine that would be paid if an agreement with the U.S.

Department of Justice is approved by the federal district court.

For additional discussion, see Note 18 to our Condensed Consolidated Financial Statements.

Other Earnings Items

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Loss from operations ($1,176) ($248) ($1,090) ($99)

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Net loss attributable to Boeing Shareholders ($1,782) ($563) ($1,439) ($149)

Other income, net for the three months ended March 31, 2024 remained relatively consistent compared with the same period in 2023.

Other income, net for the six and three months ended June 30, 2024, decreased by $97 million and $72 million compared with the same periods in 2023 primarily due to a decrease in interest income on short-term investments and non-operating pension income.

For information on changes related to non-operating pension and postretirement expenses, see Note 13 to our Condensed Consolidated Financial Statements.

Interest and debt expense for the three months ended March 31, 2024 was lower compared with the same period in the prior year primarily as a result of lower average debt balances.

Interest and debt expense for the six and three months ended June 30, 2024, decreased by $28 million and increased by $52 million compared with the same periods in the prior year.

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

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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.

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) Three months ended March 31

2024 2023 Change

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 Change 2024 2023 Change

Cost of sales $30,330 $33,810 ($3,480) $15,637 $17,812 ($2,175)

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90.7 % 89.7 % 1.0 % 92.7 % 90.2 % 2.5 %

Cost of sales for the three months ended March 31, 2024 decreased by $1,305 million, or 8% compared with the same periods in 2023, primarily due to lower revenues at BCA, partially offset by higher revenues at BDS and BGS.

Cost of sales as a percentage of Revenues remained largely consistent during the three months ended March 31, 2024 compared with the same period in 2023.

Cost of sales for the six months ended June 30, 2024, decreased by $3,480 million, or 10%, compared with the same period in 2023, primarily due to lower revenues at BCA.

Cost of sales as a percentage of Revenues remained largely unchanged during the six months ended June 30, 2024, compared with the same period in 2023.

Cost of sales for the three months ended June 30, 2024, decreased by $2,175 million, or 12%, compared with the same period in 2023, primarily due to lower revenues at BCA.

Cost of sales as a percentage of Revenues increased during the three months ended June 30, 2024, compared with the same period in 2023 primarily due to higher charges on BDS fixed-price development programs and lower margins at BCA.

Research and Development

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

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Commercial Airplanes $1,073 $915 $555 $471

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Global Services 67 54 41 28

Other 188 149 99 73

Total $1,822 $1,538 $954 $797

Research and development expense increased by $127 million during the three months ended March 31, 2024 compared to the same period in 2023.

The increase at BCA is primarily due to higher spending on the 777X program.

(Dollars in millions) March 31

Research and development expense increased by $284 million and $157 million during the six and three months ended June 30, 2024, compared to the same periods in 2023.

The increase in expense was primarily due to higher spending on the 777X program at BCA.

(Dollars in millions) June 30

2024 December 31

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government contract funding.

The increase in contractual backlog during the three months ended March 31, 2024 was primarily due to increases in BCA and BDS backlog.

The decrease in contractual backlog during the six months ended June 30, 2024, was primarily due to a decrease in BCA backlog.

We may experience reductions to backlog and/or significant order cancellations due to production disruptions and/or further delays to entry into service of the 777X, 737-7 and/or 737-10.

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government definitive contracts for which funding has not been authorized.

Unobligated backlog was largely unchanged during the three months ended March 31, 2024.

Unobligated backlog was largely unchanged during the six months ended June 30, 2024.

Additional Considerations

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We and our suppliers are also experiencing inflationary pressures.

We continue to monitor the health and stability of the supply chain.

We continue to monitor quality and safety as well as the health and stability of the supply chain.

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

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Results of Operations

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Revenues $ 10,656 $ 15,544 $ 6,003 $ 8,840

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Operating margins (17.4)% (6.4)% (11.9) % (4.3) %

BCA revenues decreased by $2,051 million for the three months ended March 31, 2024 compared with the same period in 2023 driven by lower 737 deliveries and 737-9 customer considerations.

BCA revenues decreased by $4,888 million for the six months ended June 30, 2024, compared with the same period in 2023 driven by lower 737 and 787 deliveries and 737-9 customer considerations related to the January 2024 grounding.

BCA revenues decreased by $2,837 million for the three months ended June 30, 2024, compared with the same period in 2023 driven by lower 787 and 737 deliveries.

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

737 * 747 767 * 777 787 Total

Deliveries during the first three months of 2024 67 (1) 3 (2) 13 83

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

Deliveries during the first six months of 2024 137 (2) 9 (5) 7 22 175

Deliveries during the first six months of 2023 216 (5) 1 9 (1) 9 31 266

Deliveries during the second quarter of 2024 70 (1) 6 (3) 7 9 92

Deliveries during the second quarter of 2023 103 (3) 8 (1) 5 20 136

Cumulative deliveries as of 6/30/2024 8,665 1,573 1,312 1,734 1,132

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Loss From Operations

BCA loss from operations was $ 1,143 million for the three months ended March 31, 2024 compared with $ 615 million in the same period in 2023 reflecting lower 737 deliveries and 737-9 customer considerations, partially offset by lower abnormal production costs.

BCA loss from operations was $ 1,858 million for the six months ended June 30, 2024, compared with $ 998 million in the same period in 2023 reflecting lower deliveries, lower margins driven by production disruption, and 737-9 customer considerations related to the January 2024 grounding, partially offset by lower abnormal production costs.

BCA loss from operations was $ 715 million for the three months ended June 30, 2024, compared with $ 383 million in the same period in 2023 reflecting lower deliveries and lower margins driven by production disruption, partially offset by lower abnormal production costs.

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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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 $440,507 million as of December 31, 2023 to $447,533 million at March 31, 2024 reflecting new orders in excess of deliveries.

Aircraft order cancellations and net ASC 606 adjustments during the three months ended March 31, 2024 were not significant.

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 decreased from $440,507 million as of December 31, 2023, to $436,574 million at June 30, 2024 reflecting 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 and cancellations, partially offset by new orders in excess of deliveries.

Aircraft order cancellations during the six months ended June 30, 2024 totaled $2,400 million and primarily relate to 737 aircraft.

Net ASC 606 adjustments during the six months ended June 30, 2024 totaled $4,784 million and primarily related to 737 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, 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.

We may experience reductions to backlog and/or significant order cancellations due to production disruptions and/or further delays to entry into service of the 777X, 737-7 and/or 737-10.

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On January 24, 2024, the FAA stated it will not approve production rate increases or additional production lines for the 737 MAX until it is satisfied that Boeing is in full compliance with required quality control procedures.

The FAA communicated its findings from the 737-9 Production Audit of Boeing and Spirit AeroSystems (Spirit) on February 28, 2024.

The FAA found multiple instances where the companies failed to comply with manufacturing quality control requirements and provided 90 days from March 1, 2024 to submit a corrective action plan.

We are working to develop a comprehensive action plan to address the issues identified by the FAA.

The FAA communicated its findings from the 737-9 Production Audit of Boeing and Spirit AeroSystems Holdings, Inc.

(Spirit) on February 28, 2024.

The FAA found multiple instances where the companies

failed to comply with manufacturing quality control requirements and provided 90 days from March 1, 2024, to submit a corrective action plan.

On May 30, 2024, we submitted our safety and quality plan to address the issues identified by the FAA.

Our planned production rates are dependent on our suppliers' ability to support our operations and our ability to meet heightened quality control requirements.

Prior to the Alaska Airlines accident, we were operating at a production rate of 38 per month.

During the first quarter of 2024, as part of our plan to address the issues identified, we slowed production rates to reduce traveled work in our factory, as well as at our suppliers.

We are now conducting fuselage inspections at Spirit to ensure quality prior to shipment to Boeing.

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

During the first quarter of 2024, the 737-10 program completed the first phase of FAA certification flight testing.

As of March 31, 2024, we had approximately 35 737-7 and 737-10 aircraft in inventory.

We are planning to incorporate engineering solutions to the de-icing systems on the 737-7 and 737-10 prior to certification, which will delay certification and first deliveries.

As of March 31, 2024, we had approximately 110 737-8 aircraft in inventory that were produced prior to 2023, including approximately 70 aircraft for customers in China.

During the first half of 2024, as part of our plan to address the issues identified, we slowed production rates and delayed planned production rate increases to reduce traveled work in our factory, as well as at our suppliers.

During the first quarter of 2024, we began conducting fuselage inspections at Spirit to improve quality prior to shipment to Boeing.

In the second quarter of 2024, production rates gradually increased as we implemented new processes as part of our safety and quality plan.

We are working to return to 38 per month by the end of 2024.

As of June 30, 2024, we had approximately 90 737-8 aircraft in inventory that were produced prior to 2023, including approximately 65 aircraft for customers in China.

We expect to deliver most of the aircraft in inventory by the end of 2024.

The production slow-down and certification delays had an adverse impact on our financial position, results of operations and cash flows during the first quarter of 2024.

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

During the first quarter of 2024, the program completed the first phase of FAA certification flight testing for the 737-10.

As of June 30, 2024, we had approximately 35 737-7 and 737-10 aircraft in inventory.

We are planning to incorporate engineering solutions to the de-icing systems on the 737-7 and 737-10 prior to certification, which has delayed certification and first deliveries.

The production slow-down and certification delays had an adverse impact on our financial position, results of operations and cash flows during the first half of 2024.

This is expected to continue until production rates recover.

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The commercial program has near break-even gross margins.

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

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

We are continuing to experience factory disruption, including supply chain delays and quality issues.

We have slowed production in 2024 to reduce traveled work in our factory and enable supply chain recovery, resulting in higher near-term production costs.

See further discussion of the KC-46A Tanker program in Note 10 to our Condensed Consolidated Financial Statements.

777 and 777X Programs We are currently at a combined production rate of 4 per month for the 777/777X programs.

We are following the lead of the FAA as we work through the certification process including obtaining approval from the FAA to begin certification flight testing.

In the fourth quarter of 2023, the 777X program resumed production.

The programs are experiencing factory disruption including supply chain delays and challenges associated with the resumption of 777X production.

We are following the lead of the FAA as we work through the certification process.

In July 2024, we obtained approval from the FAA to begin the first phase of FAA certification flight testing.

We expect the first delivery of the 777-9 to occur in 2025 and the 777-8 freighter to occur in 2027.

First delivery of the 777-8 passenger aircraft is not expected to occur before 2030.

The 777X program had near break-even gross margins at June 30, 2024.

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

These factors include aircraft certification requirements and timing, change incorporation on completed aircraft, production disruption due to labor instability and supply chain disruption, customer negotiations, further production rate adjustments for the 777X or other commercial aircraft programs, and contraction of the accounting quantity.

These factors include aircraft certification requirements and timing, change incorporation on completed aircraft, production disruption due to labor instability and supply chain disruption, customer delivery timing and negotiations, further production rate adjustments for the 777X or other commercial aircraft programs, and contraction of the accounting quantity.

One or more of these factors could result in reach-forward losses in future periods.

787 Program We are slowing near-term production to below 5 per month due to supply chain constraints, which are also impacting 2024 deliveries.

As of March 31, 2024, we had approximately 40 aircraft in inventory that require rework which we expect to complete by the end of 2024.

The inspections and rework costs on inventoried aircraft are accounted for as abnormal production costs, and we expensed $80 million in the three months ended March 31, 2024.

787 Program In the first half of 2024, we slowed production to below 5 per month primarily reflecting supply chain constraints and production issues.

Delays associated with business class seats are also adversely impacting 2024 deliveries.

As of June 30, 2024, we had approximately 35 aircraft in inventory that were produced prior to 2023 and required rework which we expect to complete by the end of 2024.

The inspections and rework costs on inventoried aircraft are accounted for as abnormal production costs, and we expensed $157 million in the six months ended June 30, 2024.

Additional Considerations

On March 1, 2024, we confirmed that we were engaged in preliminary discussions with Spirit regarding a potential acquisition of its business.

We believe that a deal on reasonable terms would allow for the reintegration of our and Spirit’s manufacturing operations and would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders.

We continue to

engage with Spirit regarding a potential acquisition;

however, we have not entered into a definitive agreement, and no assurances can be made that we will reach a definitive agreement and complete the potential acquisition.

On June 30, 2024, we entered into an agreement to acquire Spirit.

See Note 2 to our Condensed Consolidated Financial Statements

We are currently in contract negotiations with the International Association of Machinists and Aerospace Workers District 751 (IAM 751).

IAM 751 represents over 30,000 Boeing manufacturing employees primarily located in Washington state.

The current contract will expire on September 12, 2024.

If we are unable to successfully negotiate a new contract with IAM 751 and/or experience work stoppages or other disruptions, our financial position, results of operations and cash flows could be adversely impacted.

Defense, Space & Security

The Consolidated Appropriations Act, 2024, and the Further Consolidated Appropriations Act, 2024, enacted in March 2024, provided fiscal year 2024 appropriations for government departments and agencies, including $844 billion for the United States Department of Defense (U.S.

Department of Defense (U.S.

DoD) and $25 billion for the National Aeronautics and Space Administration (NASA).

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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, 2024, 31% of BDS backlog was attributable to non-U.S.

At June 30, 2024, 31% of BDS backlog was attributable to non-U.S.

Results of Operations

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Revenues $12,971 $12,706 $6,021 $6,167

Earnings/(loss) from operations

Loss from operations

($762) ($739) ($913) ($527)

Operating margins (5.9) % (5.8) % (15.2) % (8.5 %)

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

Three months ended March 31

Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

F/A-18 Models 4 13 3 6

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Commercial Satellites 3

BDS revenues for the three months ended March 31, 2024 increased by $411 million compared with the same period in 2023.

The increase reflects higher volume on weapons and proprietary programs and MQ-25 contract modifications in 2024, partially offset by the USAF KC-46A Tanker Lot 9 award in 2023.

Net unfavorable cumulative contract catch-up adjustments for the three months ended March 31, 2024 were $104 million lower than the prior year comparable period.

Earnings/(Loss) From Operations

BDS earnings from operations was $151 million for the three months ended March 31, 2024 compared with loss from operations of $212 million in the same period in 2023.

The increase in earnings reflects lower charges in 2024 on major fixed-price development programs of $92 million, revenue growth on weapons and proprietary programs, and improved performance across other programs that were more adversely affected by labor instability and supply chain performance in the prior year.

Net unfavorable cumulative contract catch-up adjustments were $158 million lower than the comparable period in the prior year, as losses incurred on the five major fixed-price development programs totaled $222 million compared with $314 million in the same period in 2023.

Total 42 80 28 38

BDS revenues for the six months ended June 30, 2024 increased by $265 million compared with the same period in 2023.

The increase reflects higher volume on weapons and proprietary programs, partially offset by higher net unfavorable cumulative catch-up adjustments on major fixed-price development programs.

Net unfavorable cumulative contract catch-up adjustments for the six months ended June 30, 2024 were $118 million higher than the prior year comparable period.

BDS revenues for the three months ended June 30, 2024 decreased by $146 million compared with the same period in 2023.

Unfavorable cumulative contract catch-up adjustments were $222 million higher than the comparable period in the prior year largely due to charges on certain major fixed-price development programs.

This was partially offset by increased volume on weapons and proprietary programs.

Loss From Operations

BDS loss from operations was $762 million for the six months ended June 30, 2024, compared with $739 million in the same period in 2023.

Net unfavorable cumulative contract catch-up adjustments were $282 million higher than the comparable period in the prior year.

Higher charges in 2024 on major fixed-price development programs of $438 million were partially offset by volume growth in 2024 and lower unfavorable cumulative contract catch-up adjustments on other programs.

During the first half of 2024, losses incurred on the five major fixed-price development programs totaled $1,266 million, including

KC-46A Tanker $519 million, T-7A Red Hawk $372 million, VC-25B $250 million, and Commercial Crew $125 million.

During the first half of 2023, losses incurred on development programs totaled $828 million, including Commercial Crew $288 million, KC-46A Tanker $245 million, T-7A Red Hawk $189 million and MQ-25 $106 million.

These higher charges were offset by less unfavorable cumulative contract catch-up adjustments on fighter and satellite programs and higher volume from weapons and proprietary programs.

See further discussion of fixed-price contracts in Note 10 to our Condensed Consolidated Financial Statements.

BDS earnings/(loss) from operations includes our share of earnings from equity method investments of $75 million for the three months ended March 31, 2024 compared with equity loss of $14 million for the three months ended March 31, 2023.

BDS backlog increased from $59,012 million as of December 31, 2023 to $60,744 million at March 31, 2024, primarily due to the timing of awards, partially offset by revenue recognized on contracts awarded in prior periods.

BDS loss from operations was $913 million for the three months ended June 30, 2024, compared with loss from operations of $527 million in the same period in 2023.

The year over year increase in losses reflects an increase in unfavorable cumulative contract catch-up adjustments which were $440 million higher than the comparable period in the prior year.

During the second quarter of 2024, losses incurred on the five major fixed-price development programs totaled $1,044 million compared with $514 million in the same period in 2023.

Earnings in 2023 were adversely impacted by lower margins on several programs including fighters and satellite programs reflecting labor instability, development technical challenges and supply chain disruption.

See further discussion of fixed-price contracts in Note 10 to our Condensed Consolidated Financial Statements.

BDS loss from operations includes our share of earnings from equity method investments of $95 million and $20 million for the six and three months ended June 30, 2024, compared with $10 million and $24 million for the same periods in 2023.

BDS backlog of $59,055 million at June 30, 2024 compared with $59,012 million as of December 31, 2023, reflects the timing of awards, partially offset by revenue recognized on contracts awarded in prior periods.

Additional Considerations

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Results of Operations

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Revenues $9,934 $9,466 $4,889 $4,746

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Operating margins 18.0 % 18.0 % 17.8 % 18.0 %

BGS revenues for the three months ended March 31, 2024 increased by $325 million compared with the same period in 2023 primarily due to higher commercial services revenue.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended March 31, 2024 was $10 million higher than the prior year comparable period.

BGS revenues for the six months ended June 30, 2024 increased by $468 million compared with the same period in 2023, 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 six months ended June 30, 2024 was $65 million higher than the prior year comparable period.

BGS revenues for the three months ended June 30, 2024 increased by $143 million compared with the same period in 2023, 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 June 30, 2024 was $55 million worse than the net favorable impact in the prior year comparable period.

Earnings From Operations

BGS earnings from operations for the three months ended March 31, 2024 increased by $69 million compared with the same period in 2023, primarily due to higher commercial services revenue, partially offset by lower government services performance.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended March 31, 2024 was $6 million higher than the prior year comparable period.

BGS total backlog decreased from $19,869 million at December 31, 2023 to $19,693 million at March 31, 2024, primarily due to revenue recognized on contracts awarded in prior years, partially offset by timing of awards.

BGS earnings from operations for the six months ended June 30, 2024 increased by $83 million compared with the same period in 2023, 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 six months ended June 30, 2024 was $70 million higher than the prior year comparable period.

BGS earnings from operations for the three months ended June 30, 2024 increased by $14 million compared with the same period in 2023, 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 June 30, 2024 was $64 million worse than the net favorable impact in the prior year comparable period.

BGS total backlog decreased from $19,869 million at December 31, 2023 to $19,487 million at June 30, 2024, primarily due to revenue recognized on contracts awarded in prior years, partially offset by timing of awards.

Liquidity and Capital Resources

Cash Flow Summary

(Dollars in millions) Three months ended March 31

(Dollars in millions) Six months ended June 30

Net loss ($1,794) ($574)

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Changes in assets and liabilities (7,530) 934

Net cash used by operating activities (3,362) (318)

Net cash provided/(used) by investing activities 2,074 (1,823)

Net cash used by financing activities (4,462) (1,680)

Net cash (used)/provided by operating activities (7,285) 2,557

Net cash used by investing activities (26) (4,838)

Net cash provided/(used) by financing activities 5,538 (5,093)

Effect of exchange rate changes on cash and cash equivalents (25) 2

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Cash & cash equivalents, including restricted, at end of period $10,915 $7,275

Operating Activities Net cash used by operating activities was $3.4 billion during the three months ended March 31, 2024, compared with $0.3 billion during the same period in 2023.

Operating Activities Net cash used by operating activities was $7.3 billion during the six months ended June 30, 2024, compared with cash provided of $2.6 billion during the same period in 2023.

The $9.9 billion increase in cash used by operating activities was primarily driven by changes in commercial airplane program inventory.

Changes in assets and liabilities for the three months ended March 31, 2024 decreased by $3.0 billion compared with the same period in 2023 primarily driven by unfavorable changes in Inventories ($3.4 billion) and Accounts payable ($0.5 billion), and higher payments to 737 MAX customers ($0.4 billion), partially offset by an increase in Advances and progress billings ($1.3 billion).

The growth in Inventories was primarily driven by decreased deliveries for the 737 program in the first quarter of 2024 as compared to the same period in 2023.

Concessions paid to 737 MAX customers totaled $553 million and $141 million for the three months ended March 31, 2024 and 2023.

Changes in assets and liabilities for the six months ended June 30, 2024, decreased by $8.5 billion compared with the same period in 2023 primarily driven by unfavorable changes in Inventories ($5.7 billion), Accounts payable ($1.1 billion), and Unbilled receivables ($0.6 billion).

The growth in Inventories was primarily driven by lower deliveries on our commercial airplane programs in the first half of 2024 as compared to the same period in 2023.

Concessions paid to 737 MAX customers totaled $681 million and $273 million for the six months ended June 30, 2024 and 2023.

Reductions in Accounts payable in 2024 were a use of cash while growth in Accounts payable in 2023 was a source of cash.

The increase in Advances and progress billings is primarily driven by advances on orders received at BCA, partially offset by revenue recognized at BDS.

Payables to suppliers who elected to participate in supply chain financing programs decreased by $0.4 billion during the three months ended March 31, 2024 and increased by $0.1 billion during the three months ended March 31, 2023.

Investing Activities Cash provided by investing activities was $2.1 billion during the three months ended March 31, 2024, compared with cash used of $1.8 billion during the same period in 2023.

The increase in cash inflows during the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to net proceeds from investments of $2.7 billion in 2024 compared to net contributions to investments of $1.4 billion in 2023.

During the three months ended March 31, 2024 and 2023, capital expenditures were $0.6 billion and $0.5 billion.

The increase in Unbilled receivables was primarily driven by revenue recognized at BDS in excess of billings.

Payables to suppliers who elected to participate in supply chain financing programs decreased by $0.2 billion during the six months ended June 30, 2024 and increased by $0.1 billion during the six months ended June 30, 2023.

Investing Activities Cash used by investing activities was $26 million during the six months ended June 30, 2024, compared with $4.8 billion during the same period in 2023.

The decrease in cash outflows during the six months ended June 30, 2024, compared to the same period in 2023 was primarily due to net proceeds from investments of $1.6 billion in 2024 compared with net contributions to investments of $3.9 billion in 2023.

During the six months ended June 30, 2024 and 2023, capital expenditures were $1.0 billion and $0.8 billion.

We continue to expect capital expenditures in 2024 to be higher than in 2023.

Financing Activities Cash used by financing activities was $4.5 billion during the three months ended March 31, 2024 compared with $1.7 billion during the same period in 2023.

During the three months ended March 31, 2024, net repayments on our debt were $4.4 billion compared with $1.7 billion in the same period in 2023.

As of March 31, 2024 the total debt balance was $47.9 billion, down from $52.3 billion at December 31, 2023.

At March 31, 2024, $1.1 billion of debt was classified as short-term.

Financing Activities Cash provided by financing activities was $5.5 billion during the six months ended June 30, 2024, compared with cash used of $5.1 billion during the same period in 2023.

During the six months ended June 30, 2024, net borrowings were $5.6 billion compared with net repayments of $5.1 billion during the same period in 2023, primarily due to the $10.0 billion of fixed-rate senior notes issued in the second quarter of 2024.

As of June 30, 2024, the total debt balance was $57.9 billion, up from $52.3 billion at December 31, 2023.

At June 30, 2024, $4.8 billion of debt was classified as short-term.

Capital Resources

On June 30, 2024, we entered into an agreement to acquire Spirit in an all-stock transaction at an equity value of approximately $4.7 billion, or $37.25 per share of Spirit Class A Common Stock.

The transaction

will include the assumption of Spirit's net debt at closing.

See Note 2 to our Condensed Consolidated Financial Statements.

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

At March 31, 2024, we had $6.9 billion of cash, $0.6 billion of short-term investments, and $10.0 billion of unused borrowing capacity on revolving credit line agreements.

In the third quarter of 2023, we entered into a $3.0 billion five-year revolving credit agreement expiring in August 2028 and a $0.8 billion 364-day revolving credit agreement expiring in August 2024.

The 364-day credit facility has a one-year term out option which allows us to extend the maturity of any borrowings until August 2025.

The legacy three-year revolving credit agreement expiring in August 2025, which consists of $3.0 billion of total commitments, and the legacy five-year revolving credit agreement expiring in October 2024, as amended, which consists of $3.2 billion of total commitments, each remain in effect.

At June 30, 2024, we had $10.9 billion of cash, $1.7 billion of short-term investments, and $10.0 billion of unused borrowing capacity on revolving credit line agreements.

In the second quarter of 2024, we entered into a $4.0 billion five-year revolving credit agreement expiring in May 2029.

Effective May 15, 2024, we terminated the $0.8 billion 364-day revolving credit agreement expiring in August 2024, and the $3.2 billion five-year revolving credit agreement expiring in October 2024, as amended.

Our legacy $3.0 billion three-year revolving credit agreement expiring in August 2025 and legacy $3.0 billion five-year revolving credit agreement expiring in August 2028 each remain in effect.

We continue to be in full compliance with all covenants contained in our debt and credit facility agreements.

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

Our credit ratings were downgraded in 2020 and remained unchanged as of March 31, 2024.

During the third quarter of 2023, S&P upgraded the outlook on our credit rating from negative to stable primarily driven by improving deliveries and expected increases in production.

During the first quarter of 2024, Moody’s placed our Baa2 and Prime-2 ratings on review for downgrade primarily driven by concern that we will be unable to deliver 737 aircraft at the volumes required to materially expand free cash flow and retire debt in a reasonable timeframe.

Fitch also downgraded our credit rating outlook from positive to stable driven by the financial impact of unexpected operational disruptions and the potential for additional corporate actions that should enhance longer-term operations.

We continue to maintain investment grade credit ratings.

During the second quarter of 2024, Moody’s downgraded our long-term and short-term credit ratings to Baa3/P-3 with negative outlook from Baa2/P-2 with negative watch.

Our S&P and Fitch credit ratings remained unchanged;

however, S&P and Fitch revised our credit outlook to negative from stable.

The revisions to our credit ratings and outlook were primarily driven by concern that we will be unable to deliver commercial aircraft at the volumes required to materially expand free cash flow and retire debt in a reasonable timeframe.

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.

For example, we continue to engage with Spirit regarding a potential acquisition of its business.

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 such as those we experienced in 2020.

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 March 31, 2024, we were in compliance with the covenants for our debt and credit facilities.

At June 30, 2024, we were in compliance with the covenants for our debt and credit facilities.

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

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Legal contingencies are discussed in Note 18 to our Condensed Consolidated Financial Statements.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $837 million at March 31, 2024.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $831 million at June 30, 2024.

For additional information, see Note 10 to our Condensed Consolidated Financial Statements.

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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 from operations were benefits of $230 million and $223 million for the three months ended March 31, 2024 and 2023.

The Pension FAS/CAS service cost adjustments recognized in Loss from operations were benefits of $460 million and $230 million for the six and three months ended June 30, 2024, compared with benefits of $445 million and $222 million for the same periods in 2023.

The higher benefits in 2024 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 $123 million and $134 million for the three months ended March 31, 2024, and 2023.

The non-operating pension expenses included in Other income, net were benefits of $245 million and $122 million for the six and three months ended June 30, 2024, compared with benefits of $268 million and $134 million for the same periods in 2023.

The lower benefits in 2024 were primarily due to lower expected return on plan assets and higher amortization of actuarial losses, partially offset by lower interest cost.

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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

(Dollars in millions, except per share data) Six months ended June 30 Three months ended June 30

2024 2023 2024 2023

Revenues $33,435 $37,672 $16,866 $19,751

Loss from operations, as reported

($1,176) ($248) ($1,090) ($99)

Operating margins (3.5) % (0.7) % (6.5) % (0.5) %

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Postretirement FAS/CAS service cost adjustment (1)

(144) (137) (72) (69)

FAS/CAS service cost adjustment (1)

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Provision for deferred income taxes on adjustments (3)

0.30 0.31 0.15 0.15

Core loss per share (non-GAAP) ($4.04) ($2.08) ($2.90) ($0.82)

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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