Boeing 2008 Annual Report Download - page 45

Because U.S. DoD spending was about half of worldwide defense spending and represented
approximately 80% of IDS revenue in 2008, the trends and drivers associated with the U.S. DoD
budget are critical. Although the U.S. DoD budget has grown substantially over the past decade, we
anticipate the growth rate to level off over the next several years. In addition to the fiscal year 2009
discretionary budget request of $515 billion, the President submitted supplemental requests totaling
$70 billion. Procurement and Research and Development accounts continue to face increasing
budgetary pressures due to growing requirements from Operations and Maintenance (O&M) and
personnel costs tied to U.S. commitments overseas. However, this trend is partially offset by
equipment recapitalization efforts and continued demand for systems development. Near-term forecast
of the defense budget environment shows limited growth in the 2009 to 2010 period for investment
efforts with greater concern existing for the period following U.S. troop draw-downs in Iraq. We
continue to see pressure to significantly reduce emergency supplemental requests that have been
used to cover the ongoing costs of the Global War on Terror.
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 that emphasize utilization of
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, cyber security, precision-guided kinetic and non-kinetic weapons as well as
continued outsourcing of logistics and support activities to improve overall effectiveness while
maintaining control over costs.
While international defense markets have not demonstrated the dramatic increases experienced by the
U.S. market in recent years they have reversed the declining trend seen in the 1990s. The
procurement deferrals taken by international countries has resulted in growing demands for new
equipment to address operational requirements, aging inventories, and changing threat environments.
Asymmetric warfare remains a key challenge with many nations placing renewed emphasis on
acquiring material that is deployable, survivable, and interoperable with the international community.
Similar to the U.S., many European nations are facing pressures in their O&M and personnel budgets
that are squeezing funding for investment. Middle Eastern markets continue to spend significant
amounts on new equipment; however, the impact from volatile oil prices has the potential to affect
willingness to commit extra budgetary resources. In Asia growth is continuing with multiple nations
pursuing major new acquisitions to address growing regional threats. The international market will be
affected by the global economic challenges; however, the continuing threat environment should keep
the market stable in 2009.
Federal Market Environment We continue to see growth in the needs of Federal customers
particularly for the Intelligence community and the Department of Homeland Security. Areas such as
cyber security, border protection, and infrastructure security have increased in importance in order to
meet the needs of the national security environment. We also anticipate a continuation of the trend
toward outsourcing federal and government services.
Civil Space Transportation and Exploration Environment The National Aeronautics and Space
Administration (NASA) has had stable annual funding in this decade. NASA’s budget remains focused
on needed funds for Space Shuttle Operations, International Space Station, and new initiatives
associated with the Vision for Space Exploration. NASA is continuing to pursue elements of the Vision
for Space Exploration, which will provide additional opportunities in launch activities and research and
development.
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