Boeing 2010 Annual Report Download - page 40

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Our current assessment is that the program is not in a reach-forward loss position, however the
cumulative impacts of the production challenges, schedule delays and customer and supplier impacts
have created significant pressure on program profitability and we expect to record zero margin on our
initial deliveries. We continue to implement mitigation plans and cost-reduction efforts to address this
pressure.
Fleet Support We provide the operators of our commercial airplanes with assistance and services to
facilitate efficient and safe aircraft operation. Collectively known as fleet support services, these
activities and services begin prior to aircraft delivery and continue throughout the operational life of the
aircraft. They include flight and maintenance training, field service support costs, engineering services
and technical data and documents. The costs for fleet support are expensed as incurred and have
been historically less than 1.5% of total consolidated costs of products and services. These costs are
expected to increase with 787 and 747-8 entry into service.
Research and Development The following chart summarizes the time horizon between go-ahead and
planned certification/initial delivery for major Commercial Airplanes derivatives and programs.
Go-ahead and Certification/Delivery
787-8 (1)
787-9 (1)
777-200LR (1)
777-F
747-8 Freighter
747-8 Intercontinental
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(1) Go-ahead prior to 2005
Our Research and development expense decreased by $2,408 million in 2010. This was primarily due
to the reclassification to research and development expense of $2,693 million of production costs
related to the three 787 flight test aircraft in 2009, partially offset by a $285 million increase of other
research and development expense.
Our Research and development expense increased by $2,545 million in 2009. This was due to the
2009 reclassification of production costs related to the three 787 flight test aircraft and $50 million of
lower supplier development cost sharing payments, partially offset by a $198 million decrease of other
research and development expense.
Additional Considerations
The 787 and 747-8 programs highlight the risks inherent in new airplane programs and new derivative
airplanes, particularly as both the 747-8 Freighter and the 787-8 continue the demanding flight test and
certification phases of program development. Development also continues on the 787-9 and 747-8
Intercontinental. Costs related to development of new programs and derivative airplanes are expensed
as incurred. Costs to produce new aircraft are included in inventory and accounted for using program
accounting. Airplane programs have risk for reach-forward losses if our estimated production costs
exceed our estimated program revenues for the accounting quantity. Generally commercial airplanes
are sold on a firm fixed-price basis with an indexed price escalation clause and are often sold several
years before scheduled delivery. Each customer purchase agreement contains an escalation clause to
account for the effects of economic fluctuations over the period of time from airplane sale to airplane
delivery. A price escalation formula based on pre-defined factors is used to determine the final price of
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