Boeing 2014 Annual Report Download - page 20

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improvements, and optimizing how we manage inventory. If production rate ramp-up efforts at any of our
commercial aircraft assembly facilities are delayed or if our suppliers cannot timely deliver components to
us at the cost and rates necessary to achieve our targets, we may be unable to meet delivery schedules
and the financial performance of one or more of our programs may suffer.
Operational challenges impacting the production system for one or more of our commercial aircraft
programs could result in production delays and/or failure to meet customer demand for new aircraft, either
of which would negatively impact our revenues and operating margins. Our commercial aircraft production
system is extremely complex. Operational issues, including delays or defects in supplier components,
failure to meet internal performance plans, or delays or failures to achieve required regulatory certifications,
could result in significant out-of-sequence work and increased production costs, as well as delayed
deliveries to customers, impacts to aircraft performance and/or increased warranty or fleet support costs.
Further, if we cannot efficiently and cost-effectively incorporate design changes into already-completed
787 production aircraft, we may face further profitability pressures on this program.
If our commercial airplanes fail to satisfy performance and reliability requirements, we could face additional
costs and/or lower revenues. Developing and manufacturing commercial aircraft that meet or exceed our
performance and reliability standards, as well as those of customers and regulatory agencies, can be
costly and technologically challenging. These challenges are particularly significant with newer aircraft
programs. Any failure of any Boeing aircraft to satisfy performance or reliability requirements could result
in disruption to our operations, higher costs and/or lower revenues.
Changes in levels of U.S. government defense spending or overall acquisition priorities could
negatively impact our financial position and results of operations.
We derive a substantial portion of our revenue from the U.S. government, primarily from defense related
programs with the U.S. DoD. Levels of U.S. defense spending in future periods are very difficult to predict
and subject to significant risks. In addition, significant budgetary delays and constraints have already
resulted in reduced spending levels, and additional reductions may be forthcoming. In August 2011, the
Budget Control Act (The Act) established limits on U.S. government discretionary spending, including a
reduction of defense spending by approximately $490 billion between the 2012 and 2021 U.S. government
fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an
additional $500 billion during that same period to the extent that discretionary spending limits are exceeded.
The impact of sequestration cuts was reduced with respect to FY2014 and FY2015 following the enactment
of The Bipartisan Budget Act in December 2013. However, significant uncertainty remains with respect to
overall levels of defense spending and it is likely that U.S. government discretionary spending levels will
continue to be subject to significant pressure, including risk of future sequestration cuts.
In addition, there continues to be significant uncertainty with respect to program-level appropriations for
the U.S. DoD and other government agencies (including NASA) within the overall budgetary framework
described above. While the FY2015 appropriations enacted December 2014 included funding for Boeing’s
major programs, such as F/A-18, CH-47 Chinook, AH-64 Apache, KC-46A Tanker and P-8 programs,
uncertainty remains about how defense budgets in FY2016 and beyond will affect Boeing’s programs. We
also expect that ongoing concerns regarding the U.S. national debt will continue to place downward
pressure on U.S. DoD spending levels. Future budget cuts, including cuts mandated by sequestration, or
future procurement decisions associated with the authorizations and appropriations process could result
in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could
have a material effect on the results of the Company’s operations, financial position and/or cash flows.
In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending
levels and the nature of the threat environment, we expect the U.S. DoD to continue to emphasize cost-
cutting and other efficiency initiatives in its procurement processes. If we can no longer adjust successfully