Boeing 2008 Annual Report Download - page 117

convenience of the government,” and to obtain payment for work done and costs incurred on the A-12
contract but not paid to date. As of December 31, 2008, inventories included approximately $585 of
recorded costs on the A-12 contract, against which we have established a loss provision of $350. The
amount of the provision, which was established in 1990, was based on McDonnell Douglas
Corporation’s belief, supported by an opinion of outside counsel, that the termination for default would
be converted to a termination for convenience, and that the best estimate of possible loss on
termination for convenience was $350.
On August 31, 2001, the U.S. Court of Federal Claims issued a decision after trial upholding the
government’s default termination of the A-12 contract. In 2003, the Court of Appeals for the Federal
Circuit, finding that the trial court had applied the wrong legal standard, vacated the trial court’s 2001
decision and ordered the case sent back to that court for further proceedings. On May 3, 2007, the
U.S. Court of Federal Claims issued a decision upholding the government’s default termination of the
A-12 contract. We believe that the ruling raises serious issues for appeal, and on May 4, 2007 we filed
a Notice of Appeal with the Court which we are now pursuing in the Court of Appeals for the Federal
Circuit. This follows an earlier trial court decision in favor of the Team and reversal of that initial
decision on appeal.
We believe that the termination for default is contrary to law and fact and that the loss provision
established by McDonnell Douglas Corporation in 1990, which was supported by an opinion from
outside counsel, continues to provide adequately for the reasonably possible reduction in value of A-12
net contracts in process as of December 31, 2008. Final resolution of the A-12 litigation will depend on
the outcome of further proceedings or possible negotiations with the U.S. government. The appeal was
argued on December 3, 2008 and a decision is anticipated in 2009.
If, after all judicial proceedings have ended, the courts determine, contrary to our belief, that a
termination for default was appropriate, we would incur an additional loss of approximately $275,
consisting principally of remaining inventory costs and adjustments, and, if the courts further hold that a
money judgment should be entered against the Team, we would be required to pay the U.S.
government one-half of the unliquidated progress payments of $1,350 plus statutory interest from
February 1991 (currently totaling approximately $1,415). In that event, our loss would total
approximately $1,654 in pre-tax charges. Should, however, the March 31, 1998 judgment of the U.S.
Court of Federal Claims in favor of the Team be reinstated, we would be entitled to receive payment of
approximately $1,115, including interest.
Employment and Benefits Litigation
On March 2, 2006, we were served with a complaint filed in the U.S. District Court for the District of
Kansas, alleging that hiring decisions made by Spirit Aerospace, Inc. (Spirit) near the time of our sale
of the Wichita facility were tainted by age discrimination, violated Employee Retirement Income
Security Act (ERISA), violated our collective bargaining agreements, and constituted retaliation. The
case is brought as a class action on behalf of individuals not hired by Spirit. We are indemnified by
Spirit for all claims relating to the 2005 sales transaction pursuant to the terms of the asset purchase
agreement with Spirit. Spirit has not agreed to indemnify Boeing for claims arising from employment
activity prior to January 1, 2005. Many of the non-indemnified claims have been dismissed by the court
or dropped by the plaintiffs but might be the subject of appeal, while certain potentially non-indemnified
claims remain. Age Discrimination Employment Act (ADEA) claims by Consent Plaintiffs terminated
prior to January 2005 were dismissed by stipulated order on June 4, 2008.
A second alleged class action involving our sale of the Wichita facility to Spirit was filed on
February 21, 2007, in the U.S. District Court for the District of Kansas. The case is also brought under
ERISA, and, in general, claims that we have not properly provided benefits to certain categories of
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