Boeing 2010 Annual Report Download - page 34

Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has
not been authorized. The decrease in unobligated backlog during 2010 is due to decreases at BDS of
$1,993 million compared with 2009 primarily due to funding of existing multi-year contracts including
the V-22, Brigade Combat Team Modernization (BCTM) and Chinook programs, partially offset by
multi-year procurement contract awards on the F/A-18 and International Space Station programs. The
decrease in unobligated backlog during 2009 is primarily due to decreases at BDS of $8,904 million
compared with 2008 partly due to a partial termination for convenience by the U.S. Army of the BCTM
System Development and Demonstration contract relating to Manned Ground Vehicles and associated
systems and equipment. Approved funding of existing multi-year contracts including the BCTM, V-22,
Chinook, Proprietary and GMD programs also reduced unobligated backlog.
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment Global passenger traffic exceeded initial expectations in 2010 growing
an estimated 8% for the year and showing growth over prior 2008 peak levels. Significant variation
existed between regions and airline business models with emerging markets and low cost carriers
leading recovery and growth into 2011. Air cargo traffic also rebounded in 2010 after two years of
contraction. Led by strong growth in Asian exports, air cargo traffic recovered to peak 2007 levels and
is poised to resume growth in 2011.
Airlines cut capacity in 2009 to match the demand environment which allowed them to boost yields as
demand recovered in 2010. Airlines have also pursued new revenue sources by expanding alliances
and building ancillary revenue streams. In addition, airlines continued to focus on cutting costs and
pursued consolidation opportunities, particularly in mature markets, to improve market positioning.
These airline tactics, combined with improving demand and relatively stable fuel prices, have driven a
strong turnaround in airline industry profitability. Airlines are forecast to earn $15 billion in 2010
following a $10 billion net loss in 2009. The 2011 outlook is for continued profitability which should
allow airlines to rebuild balance sheets that suffered from fuel price spikes and recession in 2008-2009.
The long-term outlook for the industry remains positive due to the fundamental drivers of air travel
growth: economic growth and the increasing propensity to travel due to increased trade, globalization
and improved airline services driven by liberalization of air traffic rights between countries. Our 20-year
forecast is for a long-term average growth rate of 5% per year for passenger and cargo traffic based on
a projected average annual worldwide real economic growth rate of 3%. Based on long-term global
economic growth projections, and factoring in increased utilization of the worldwide airplane fleet and
requirements to replace older airplanes, we project a $3.6 trillion market for 30,900 new airplanes over
the next 20 years.
The industry remains vulnerable to near-term exogenous developments including fuel price spikes,
disease outbreaks (such as avian or H1N1 flu), terrorism, conflicts and increased global environmental
regulations.
Industry Competitiveness The commercial jet aircraft market and the airline industry remain
extremely competitive. We expect the existing long-term downward trend in passenger revenue yields
worldwide (measured in real terms) to continue into the foreseeable future. Market liberalization in
Europe and Asia has enabled low-cost airlines to continue gaining market share. These airlines have
increased the downward pressure on airfares. This results in continued cost pressures for all airlines
and price pressure on our products. Major productivity gains are essential to ensure a favorable market
position at acceptable profit margins.
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