Boeing 2009 Annual Report Download - page 34

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Europe and Asia has enabled low-cost airlines to continue gaining market share. These airlines have
increased the downward pressure on airfares. This results in continued cost pressures for all airlines
and price pressure on our products. Major productivity gains are essential to ensure a favorable market
position at acceptable profit margins.
Continued access to global markets remains vital to our ability to fully realize our sales potential and
long-term investment returns. Approximately 10% of Commercial Airplanes’ contractual backlog in
dollar terms is with U.S. airlines.
We face aggressive international competitors who are intent on increasing their market share. They
offer competitive products and have access to most of the same customers and suppliers. Airbus has
historically invested heavily to create a family of products to compete with ours. Regional jet makers
Embraer and Bombardier, coming from the less than 100-seat commercial jet market, continue to
develop larger and more capable airplanes. Additionally, other competitors from Russia, China and
Japan are likely to enter the 70 to 190 seat aircraft market over the next few years. This market
environment has resulted in intense pressures on pricing and other competitive factors and we expect
these pressures to continue or intensify in the coming years.
Worldwide, airplane sales are generally conducted in U.S. dollars. Fluctuating exchange rates affect
the profit potential of our major competitors, all of whom have significant costs in other currencies. A
decline of the U.S. dollar relative to their local currencies as experienced in the second half of 2009
puts pressure on competitors’ revenues and profits. Competitors often respond by aggressively
reducing costs and increasing productivity, thereby improving their longer-term competitive posture.
Airbus has announced such initiatives targeting overhead cost savings, a reduction in its development
cycle and a significant increase in overall productivity through 2012. If the U.S. dollar strengthens
again, Airbus can use the improved efficiency to fund product development, gain market share through
pricing and/or improve earnings.
We are focused on improving our processes and continuing cost-reduction efforts. We continue to
leverage our extensive customer support services network which includes aviation support, spares,
training, maintenance documents and technical advice for airlines throughout the world. This enables
us to provide a higher level of customer satisfaction and productivity. These efforts enhance our ability
to pursue pricing strategies that enable us to price competitively.
Operating Results
(Dollars in millions)
Years ended December 31, 2009 2008 2007
Revenues $ 34,051 $ 28,263 $ 33,386
% of Total company revenues 50% 46% 50%
(Loss)/earnings from operations $ (583) $ 1,186 $ 3,584
Operating margins -1.7% 4.2% 10.7%
Research and development $ 5,383 $ 2,838 $ 2,962
Contractual backlog $250,476 $278,575 $255,176
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