Boeing 2008 Annual Report Download - page 53

which occurred during the second quarter of 2006. Lower volume on several Maintenance, Modification
and Upgrades (MM&U) and TS&S programs partially offset the 2007 increases.
Operating Earnings GS&S operating earnings decreased by less than 1% in 2008 due to changes in
the contract mix and disposition of contract matters. Operating earnings increased 4% in 2007 driven
by the revenue increases mentioned above in addition to a different contract mix.
Research and Development GS&S continues to focus investment strategies on its core businesses
including IL, MM&U, TS&S and Advanced Logistics Support Systems, as well as on moving into the
innovative Network Centric Logistics areas. Investments have been made to continue the development
and implementation of innovative tools, processes and systems as market discriminators in the delivery
of integrated customer solutions. Examples of successful programs stemming from these investment
strategies include the C-17 Globemaster Sustainment Partnership, the F/A-18 Integrated Readiness
Support Teaming program, and the F-15 Singapore Performance Based Logistics contract. Successful
development of adaptable systems has allowed GS&S to transition off Boeing platforms and into the
broader aviation market. Beyond aerospace, GS&S capabilities have created opportunities in
adjacencies exemplified in 2008 through entrance into the land vehicles market.
Backlog GS&S total backlog increased by 5% compared with 2007 primarily due to increases in IL and
International Support programs. Total backlog increased by 3% in 2007 compared with 2006 due to
increases in TS&S programs and International Support programs which were partially offset by
decreases in MM&U and IL programs.
Boeing Capital Corporation
Business Environment and Trends
BCC’s customer financing and investment portfolio at December 31, 2008 totaled $6,023 million, which
was substantially collateralized by Boeing produced commercial aircraft. A substantial portion of BCC’s
portfolio is concentrated among U.S. commercial airlines customers. Continued problems in the airline
industry could have a negative impact on lease rates, airline credit ratings and aircraft valuations, and
BCC’s future results of operations could be adversely affected in the form of lower revenues, increased
asset impairments, increased allowance for losses and increased redeployment costs. Continued
problems in the airline industry could also affect our Commercial Airplanes and Other segment.
The global credit crisis has affected the availability of credit generally. While there are still sources of
financing available for aircraft deliveries, the amount of third-party financing available has declined. We
expect to finance some new deliveries of Boeing aircraft in 2009 and expect our portfolio size to
increase. Once capital market conditions improve, we believe the overall aircraft financing market
should improve as well and lessen the need for us to provide financing for Boeing aircraft deliveries,
although we can provide no assurance when that will occur.
Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of
service. Approximately 2,200 western-built commercial jet aircraft (11.0% of current world fleet) were
parked as of December 2008, including both in-production and out-of-production aircraft types, of
which over 40% are not expected to return to service. In December 2007 and 2006, 8.2% and 9.9% of
the western-built commercial jet aircraft were parked. Aircraft valuations could decline if significant
numbers of aircraft, particularly types with relatively few operators, are placed out of service.
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