Boeing 2015 Annual Report Download - page 41

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25
loss related to LRIP aircraft was primarily driven by increased manufacturing complexity resulting from
design changes. As with any development program, this program remains subject to additional reach-
forward losses if we experience technical or quality issues, schedule delays or increased costs.
We continue to expect to meet our commitment to deliver 18 fully operational aircraft to the customer by
August 2017. The contract contains production options for both LRIP aircraft and full rate production
aircraft. If all options under the contract are exercised, we expect to deliver 179 aircraft for a total expected
contract value of approximately $30 billion.
Russia/Ukraine We continue to monitor political unrest involving Russia and Ukraine, where we and some
of our suppliers source titanium products and/or have operations. A number of our commercial customers
also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions
to production or deliveries. Should suppliers or customers experience disruption, our production and/or
deliveries could be materially impacted.
Export-Import Bank of the United States Many of our non-U.S. customers finance purchases through
the Export-Import Bank of the United States. Following the expiration of the bank’s charter on June 30,
2015, the bank’s charter was reauthorized in December 2015. The bank is now authorized through
September 30, 2019. However, until the U.S. Senate confirms members sufficient to reconstitute a quorum
of the bank’s board of directors, the bank will not be able to approve any transaction totaling more than
$10 million. As a result, we may fund additional commitments and/or enter into new financing arrangements
with customers. Certain of our non-U.S. customers also may seek to delay purchases if they cannot obtain
financing at reasonable costs, and there may be further impacts with respect to future sales campaigns
involving non-U.S. customers. We continue to work with our customers to mitigate risks associated with
the lack of a quorum of the bank’s board of directors and assist with alternative third party financing sources.
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment Global economic activity and global trade, which are the primary drivers
of the demand for air travel, grew below the long-term average for the fourth year in a row in 2015. Despite
this, passenger traffic continued to grow more than 5%, as it has every year since 2010, and accelerated
to more than 6% in 2015. While growth was strong across all major world regions, there continues to be
significant variation between regions and airline business models. Airlines operating in the Middle East
and Asia Pacific regions as well as low-cost-carriers globally are currently leading passenger growth.
Air cargo traffic grew at 5% in the first quarter and 3% in the second quarter of 2015 compared with the
same periods in 2014. However, weaker global industrial production and world trade resulted in little to no
cargo traffic growth during the remainder of the year. The slowing air cargo market recovery has resulted
in reduced orders and demand for new freighter aircraft and freighter conversions, and in January 2016,
we announced plans to further reduce production rates on the 747 program.
Airline financial performance also plays a role in the demand for new capacity. Airlines continue to focus
on increasing revenue through alliances, partnerships, new marketing initiatives, and effective leveraging
of ancillary services and related revenues. Airlines are also relentlessly focusing on reducing costs by
renewing fleets to leverage more efficient airplanes and in 2015 benefited significantly from lower fuel
costs. Net profits for the global airline industry are estimated to total $33 billion in 2015 compared to $17
billion in 2014. We expect airline profits to continue to grow in 2016, driven by strong passenger demand
and relatively low oil prices.