Boeing 2010 Annual Report Download - page 42

It is unlikely that the U.S. DoD will be able to fully fund all programs of record already in development
as well as new initiatives. This imbalance between future costs of programs and expected funding
levels is not uncommon in the U.S. DoD and is routinely managed by internally adjusting priorities and
schedules, restructuring programs, and lengthening production runs to meet the constraints of
available funding and occasionally by cancellation of programs. We expect the U.S. DoD will respond
to future budget constraints by focusing on affordability strategies from acquisition efficiencies and
reforms and emphasizing utilization of commercial off-the-shelf solutions and network-enabled
operations. These strategies will be enabled through persistent intelligence, surveillance, and
reconnaissance (ISR), long-range strike, special operations, unmanned systems, cybersecurity,
precision-guided kinetic and non-kinetic weapons, electronic warfare, as well as selected outsourcing
of logistics and support activities to improve overall effectiveness while maintaining control over costs.
International Environment Overview The international market continues to be driven by rapidly
evolving security challenges and countries’ need to modernize aging inventories. Western
governments are pressured by new threats to security while at the same time dealing with constrained
budgets. In Europe, global economic conditions are creating downward pressure on budget resources
and austerity measures have been put in place to reduce defense spending in the near term.
The strongest opportunities for 2011 growth of the BDS portfolio will be in the Middle East and Asia-
Pacific regions where modernization budgets remain relatively stable. With increasing needs and aging
equipment, these regions have the financial strength necessary to make future defense purchases.
Boeing's portfolio of defense, space and security solutions offers proven capability, predictable price,
and near-term availability that are well matched to this challenging international environment.
Adjacent Market Environment Overview We are repositioning our business to expand our
capabilities and accelerate growth in the following targeted adjacencies: Unmanned Systems; Cyber
and Information Services; Security; Command, Control, Communications, Computers, Intelligence,
Surveillance, and Reconnaissance (C4ISR); and Logistics Command and Control (LogC2) and Energy
Services.
We anticipate continued growth in unmanned systems as these products provide critical mission
functions to the warfighter with a focus on affordability, persistence, and accuracy. The demand for
defensive, offensive, and exploit operations in the emerging Cyber market provides unique growth
opportunities as explicit needs are further defined by customers. Key growth areas in Security include
aviation security, border security, maritime security and cybersecurity as the U.S. government looks to
work more closely with state and local institutions. The dependence on time-critical information for
intelligence-based operations has fueled the need for C4ISR technologies that locate, identify, and
track elusive and ephemeral targets. We continue to find opportunity in the LogC2 market in areas
including logistics operations, supply chain management, and logistics training and simulations. Lastly,
as energy volatility increases and pressure is placed on the national grid infrastructure, we expect that
the need for energy services such as energy management, infrastructure security, and scenario
modeling will increase accordingly.
BDS Realignment
Effective January 1, 2010, 2009 and 2008, certain programs were realigned among BDS segments.
Business segment data for all periods presented have been adjusted to reflect the realignment.
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