Boeing 2012 Annual Report Download - page 40

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reducing the number of airplanes produced and/or building airplanes for which we have not received firm
orders. We also remain focused on reducing out-of-sequence work, improving supply chain efficiency and
implementing cost-reduction efforts. If market and production risks cannot be mitigated, the program could
face an additional reach-forward loss that may be material.
767 Program The accounting quantity for the 767 program increased by 19 units during 2012 reflecting
the normal process of estimating planned production under existing and anticipated contracts. As we
reconfigure the 767 assembly line to include the USAF KC-46A Tanker, we plan to decrease our production
rate from 2 to 1 airplanes per month in late 2013. We then expect to increase the rate to 1.5 per month in
2014 and back to 2 per month in 2016.
777 Program The accounting quantity for the 777 program increased by 100 units during 2012 due to the
program’s normal progress of obtaining additional orders and delivering airplanes. As previously
announced, we plan to increase our production rate from 7 per month to 8.3 per month in 2013.
787 Program We delivered 46 787 aircraft in 2012 bringing cumulative deliveries to 49. We continued to
incorporate engineering and other design changes identified during flight testing into already completed
aircraft. Beginning in June 2012, airplanes coming out of final assembly have not required change
incorporation at our Everett modification center. During the second quarter of 2012 we achieved a
production rate of 3.5 per month in final assembly and in the fourth quarter of 2012, we achieved a program
production rate of 5 airplanes per month in final assembly. We also activated the temporary surge line in
Everett in the third quarter. We remain focused on achieving further planned increases in 787 production
rates while continuing to satisfy customer mission and performance requirements. We also continue to
monitor and address challenges associated with aircraft production and assembly, including management
of our manufacturing operations and extended global supply chain, completion and integration of traveled
work, as well as introduction of the 787-9 derivative into the manufacturing process. We continue to expect
to increase the production rate of 787 aircraft to 10 per month in final assembly by the end of 2013 with
first deliveries occurring at that rate in early 2014. Our efforts to achieve planned production rate targets
include improving the production system, coordinating rate increases with suppliers and increasing
production rates in both Everett and North Charleston final assembly. We continue to expect first delivery
of the 787-9 to occur in early 2014. In addition, we continue to work with our customers and suppliers to
assess the specific impacts of prior schedule changes, including requests for contractual relief related to
delivery delays and supplier assertions.
During 2009, we concluded that the first three flight-test 787 aircraft could not be sold as previously
anticipated due to the inordinate amount of rework and unique and extensive modifications made to those
aircraft. As a result, costs associated with these airplanes were included in research and development
expense. During the fourth quarter of 2012 we finalized an order for one of the three remaining flight test
aircraft. We continue to believe that the other two 787 flight-test aircraft are commercially saleable and we
continue to include costs related to those airplanes in program inventory at December 31, 2012. If we
determine that either of the remaining aircraft cannot be sold, we may incur additional charges.
The accounting quantity of 1,100 units remains unchanged and represents approximately 10 years of
production at planned production rates. The cumulative impacts of production challenges, change
incorporation, schedule delays from prior periods and customer and supplier impacts have created
significant pressure on program profitability. If risks related to this program, including risks associated with
change incorporation, planned production rate increases, or introducing the 787-9 derivative as scheduled
cannot be mitigated, the program could face additional customer claims and/or supplier assertions, as well
as further pressures on program profitability and/or a reach-forward loss. We continue to implement
mitigation plans and cost-reduction efforts to improve program profitability and address program risks.
A battery-related failure occurred on a 787 aircraft on January 7, 2013. On January 15, 2013 a second
787 aircraft had a battery incident. On January 16, 2013, the Federal Aviation Administration issued an