Boeing 2014 Annual Report Download - page 92

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80
work include Airborne Early Warning and Control, Commercial Crew, India P-8I, Saudi F-15, USAF KC-46A
Tanker and commercial and military satellites. The operational and technical complexities of these contracts
create financial risk, which could trigger termination provisions, order cancellations or other financially
significant exposure. Changes to cost and revenue estimates could result in lower margins or material
charges for reach-forward losses. For example, during the second quarter of 2014, higher estimated costs
to complete the KC-46A Tanker contract for the U.S. Air Force resulted in a reach-forward loss of $425 of
which the Commercial Airplanes segment recorded $238 and the BMA segment recorded $187.
Recoverable Costs on Government Contracts
Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government,
which can result in payment demands related to costs they believe should be disallowed. We work with
the U.S. government to assess the merits of claims and where appropriate reserve for amounts disputed.
If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge
and/or provide refunds to the U.S. government.
Russia/Ukraine
We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers
source titanium products and/or have operations. A number of our commercial customers also have
operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to
production or deliveries. Should suppliers or customers experience disruption, our production and/or
deliveries could be materially impacted.
747 and 787 Commercial Airplane Programs
The development and initial production of new commercial airplanes and new commercial airplane
derivatives, which include the 747 and 787, entail significant commitments to customers and suppliers as
well as substantial investments in working capital, infrastructure and research and development. The 747
and 787 programs had gross margins that were breakeven or near breakeven during 2014.
Lower-than-expected demand for large commercial passenger and freighter aircraft have resulted in
ongoing pricing pressures and fewer 747 orders than anticipated. We continue to have a number of unsold
747 production positions. If market, production and other risks cannot be mitigated, the program could
face a reach-forward loss that may be material.
The combination of production challenges, change incorporation, schedule delays and customer and
supplier impacts has created significant pressure on 787 program profitability. If risks related to this program,
including risks associated with planned production rate increases or introducing and manufacturing the
787-10 derivative as scheduled cannot be mitigated, the program could face additional customer claims
and/or supplier assertions, as well as a reach-forward loss that may be material.