Boeing 2006 Annual Report Download - page 30

737 Next-Generation The accounting quantity for the 737 Next-
Generation program increased by 400 units during 2006 due to
the program’s normal progression of obtaining additional orders
and delivering aircraft.
747 Program In November 2005, we launched the 747-8 family,
which includes the 747-8 Intercontinental passenger airplane
and the 747-8 Freighter. This launch and additional firm orders
have extended the life of this program and have also solidified
product strategy. The accounting quantity for the 747 program
increased by 25 units during 2006. During 2006, we completed
firm configuration of the 747-8 Freighter and the same is
expected for the passenger version in 2007. Deliveries of the
first 747-8 Freighter and Intercontinental passenger airplane are
targeted for late 2009 and late 2010.
767 Program During 2005 and 2006 the 767 program obtained
additional orders, including 10 firm orders during 2006. In
addition, on February 5, 2007, a customer announced its plans
to order 27 767-300 Extended Range Freighters. We continue
pursuing market opportunities for additional 767 sales.
777 Program The accounting quantity for the 777 program
increased by 100 units during 2006 as a result of the
program’s normal progression of obtaining additional orders
and delivering aircraft.
787 Program As we progress toward first flight and entry into
service of the 787, we continue to manage pressures with
respect to weight, schedule, and supplier implementation as
they arise. There are inherent risks associated with the develop-
ment and production of any new airplane, which can impact
expectations. But we still continue to expect delivery of the
787 on schedule and in accordance with our contractual obli-
gations. We are preparing for the first test flight of the 787 in
2007, and for entry into service in 2008.
A key milestone of the program was achieved in 2006 with the
initial flight of the first 747-400 Large Cargo Freighter (LCF),
called the DreamLifter. These specially-modified freighters will
transport major composite structures of the 787 airplanes.
Other key events during 2006 were the first shipment of a major
assembly between supplier partners and the introduction of a
digital computer simulation of the entire 787 production and
assembly process.
Completed Programs
717 Program On January 12, 2005, we announced our deci-
sion to complete production of the 717 aircraft during 2006
due to the lack of overall market demand. The final 717 was
delivered in the second quarter of 2006.
757 Program Production of the 757 program ended in
October 2004. The last aircraft was delivered in the second
quarter of 2005.
For additional information regarding termination liabilities
remaining in Accounts payable and other liabilities for these
two programs see Note 23.
Deferred Production Costs Deferred production costs represent
commercial aircraft inventory production costs incurred on in-
process and delivered units in excess of the estimated average
cost of such units using program accounting. As of December
31, 2006 and 2005 deferred production costs relate to the 777
program and there were no significant excess deferred produc-
tion costs or unamortized tooling costs not recoverable from
existing firm orders.
The deferred production costs and unamortized tooling
included in the 777 program’s inventory at December 31 are
summarized in the following table:
(Dollars in millions) 2006 2005
Deferred production costs $871 $683
Unamortized tooling 329 411
As of December 31, 2006 and 2005, the balance of deferred
production costs and unamortized tooling related to all other
commercial aircraft programs was insignificant relative to the
programs’ balance-to-go cost estimates.
Fleet Support We provide the operators of our commercial air-
planes with assistance and services to facilitate efficient and
safe aircraft operation. Collectively known as fleet support serv-
ices, 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. This level of expenditures is anticipated
to continue in the upcoming years. These costs do not vary
significantly with current production rates.
Research and Development The following chart summarizes the
time horizon between go-ahead and certification/initial delivery
for major Commercial Airplanes derivatives and programs.
Our Research and development expense increased $1,088 mil-
lion and $361 million in 2006 and 2005. Research and develop-
ment expense is net of development cost sharing payments
received from suppliers. The increase in 2006 was due to
higher spending of $636 million, primarily on 787 and 747-8,
and $452 million of lower supplier development cost sharing
payments. The increase during 2005 was primarily due to
increased spending on the 787 program and was partially offset
by supplier development cost sharing payments. During the
second and third quarters of 2006, we increased our research
and development expense forecasts for 2006 and 2007 to
28 The Boeing Company and Subsidiaries
Management’s Discussion and Analysis
01 02 03 04 05 06 07 08 09
787-8
777-300ER*
777-200LR*
777-F
747-400BCF
747-8
*Go-ahead prior to 2004.
Go-ahead and Certification/Delivery