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models, in response to themarket downturn in late 2008. Asaresult,
aircraft-manufacturing revenues decreasedsignificantly in 2009 compared
with2008. Gulfstream aircraft-services revenues weredownin2009 dueto
reducedflyinghoursand customerdeferral ofaircraf
tmaintenance.
Thegroup’soperating earningsdeclinedin2009 comparedwith2008
dueprimarily to thefactorsnotedabove. Theearningsdeclineassociated
withdecreased Gulfstream aircraftdeliveries wasmitigatedbycost-
reductioninitiatives, liquidated damages collectedondefaulted aircraft
contracts, and thefactthatthemajorityofthereductionindeliveries was
in our lower-margin mid-cabin aircraft. Asaresult, aircraftmanufacturing
marginsincreasedin2009 over2008 despite thedeclinein volume
during theyear.Aircraftservices earningswere steady,astheadditionof
Jet Aviationoffset adecrease atGulfstream.However,competitive
marketplacepressures reduced margins. Operating earningsin 2009
werealso negatively impactedbylosses onpre-owned aircraftinventories
and severancecosts associatedwithworkforcereductions. Overall,
thegroup’soperating marginsdecreased480 basispoints in 2009
comparedwith2008.
Backlog and EstimatedPotential Contract Value
TheAerospacegroup finished2010withatotal backlogof$17.8 billion,of
which $17.4 billionwasfunded.Thegroup bookedthehighest
numberofordersfornew aircraftin 2010sincetheintroductionofthe
G650 in 2008. Customerdemand improvedthroughouttheyear,withnet
orders, adjustedforcustomerdefaults, improving sequentially in each
quarterof2010. However,aircraftdeliveries exceedednet ordersin
2010, resulting in thebacklogdecline. We expectnet orderactivityto
remain strong in 2011.Thegroup’slarge-cabin backlogremainswell
positioned,withan18- to 24-monthperiodbetweencustomerorderand
aircraftdelivery.Whileimproving,conditionsin themid-cabin market
remain difficult, though these aircraftrepresentasmall shareofthe
group’sportfolio. Orderactivityhasbeen furtherstrengthenedbythe
group’snewest aircraftmodels, theG650 and theG250. Bothofthese
aircraftcontinuetoperform well in flighttesting and remain ontrack for
2011 aircraftcertification.TheG250 and theG650 arescheduledto
enterservicein 2011 and 2012, respectively.
Overthepast few years, thegroup’scustomerbase hasbecome
increasingly diverse, bothincustomertypeand geographic region.
Approximately two-thirdsofthegroup’syear-end backlogiscomposedof
private companies and individual buyers, though we areseeing renewed
interest fromlargepublic companies. Whiletheinstalledbase of aircraftis
predominately in NorthAmerica,international customerscomprise nearly
60 percentofthegroup’sbacklog,withgrowing orderinterest in emerging
markets, particularly fromtheAsia-Pacific region.
Total backlogdoes not includeoptionstopurchase new aircraftorlong-
term agreements withfleet customers. These arrangements totaled$1.4 billion
attheend of2010and areincludedinestimatedpotential contractvalue.
2011 Outlook
We expectan increase ofapproximately 15to16percentin thegroup’s
revenues in 2011 comparedwith2010, theresultofincreasedlarge-cabin
aircraftdeliveries, including initial greendeliveries oftheG650, and
continuedgrowth in aircraftservices activity.WeexpecttheAerospace
group’smarginstobein themid-tohigh-15percentrange, down
modestly from2010, duetoreduced liquidated damages associatedwith
fewercustomerdefaults and increasing serviceactivity.
COMBATSYSTEMS
Review of2010vs. 2009
TheCombatSystemsgroup’srevenues weredownin2010compared
with2009 duetoreducedvolumein thegroup’sU.S. and European
military vehiclebusinesses. Thedecrease in thegroup’srevenues
consistedofthefollowing:
In thegroup’sU.S. military vehiclebusiness, lowerMine-Resistant,
Ambush-Protected(MRAP)vehicleproduction and reducedengineering
work representedthemajorityofthedeclinein revenues from2009. The
group’sdeliveries ofMRAP vehicles havefluctuatedoverthepast two years
in response to thecustomer’surgentdeploymentneeds. Thereductionin
activityonengineering programsrelated primarily to the 2009 cancellation
ofthemannedground vehicleportionoftheFutureCombatSystems(FCS)
General Dynamics Annual Report • 201024
U.S. military vehicles $(600)
Weaponssystemsand munitions6
European military vehicles (173)
Total decrease in revenues $(767)
Year EndedDecember312009 2010Variance
Revenues $9,645$8,878$(767) (8.0)%
Operating earnings1,262 1,275131.0%
Operating margin 13.1%14.4%
$25,000
20,000
15,000
10,000
5,000
0
2008 2009 2010
■EstimatedPotential
ContractValue
■UnfundedBacklog
■FundedBacklog