Boeing 2015 Annual Report Download - page 97

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Should additional orders not materialize, it is reasonably possible that we will decide to end production of
the F/A-18 in 2018. We are still evaluating the full financial impact of a potential production shutdown,
including any recovery that may be available from the U.S. government.
KC-46A Tanker
We have also begun work on low rate initial production aircraft for the U.S. Air Force (USAF). The USAF
is expected to authorize two low rate initial production lots in 2016 for a total of 19 aircraft, subject to
satisfactory progress being made on the Engineering, Manufacturing and Development contract. At
December 31, 2015, we had approximately $429 of capitalized precontract costs and $1,589 of potential
termination liabilities to suppliers associated with the KC-46A Tanker.
Company Owned Life Insurance
McDonnell Douglas Corporation insured its executives with Company Owned Life Insurance (COLI), which
are life insurance policies with a cash surrender value. Although we do not use COLI currently, these
obligations from the merger with McDonnell Douglas are still a commitment at this time. We have loans
in place to cover costs paid or incurred to carry the underlying life insurance policies. As of December 31,
2015 and 2014, the cash surrender value was $487 and $466 and the total loans were $456 and $439.
As we have the right to offset the loans against the cash surrender value of the policies, we present the
net asset in Other assets on the Consolidated Statements of Financial Position as of December 31, 2015
and 2014.
United States Government Defense Environment Overview
The enactment of The Bipartisan Budget Act of 2015 in November 2015 established overall defense
spending levels for FY2016 and FY2017. However, uncertainty remains with respect to levels of defense
spending for FY2018 and beyond, including risk of future sequestration cuts. Significant uncertainty also
continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD)
and other government agencies, including the National Aeronautics and Space Administration, within the
overall budgetary framework described above. Future budget cuts, including cuts mandated by
sequestration, or future procurement decisions associated with the authorization 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 to the risks described above, if Congress is unable to pass appropriations bills in a timely
manner, a government shutdown could result which may have impacts above and beyond those resulting
from budget cuts, sequestration impacts or program-level appropriations. For example, requirements to
furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair
our ability to perform work on existing contracts, and/or negatively impact future orders.
KC-46A Tanker and BDS Fixed-Price Development Contracts
Fixed-price development work is inherently uncertain and subject to significant variability in estimates of
the cost and time required to complete the work. BDS fixed-price contracts with significant development
work include Commercial Crew, Saudi F-15, USAF KC-46A Tanker and commercial and military satellites.
The operational and technical complexities of these contracts create financial risk, which could trigger
termination provisions, order cancellations or other financially significant exposure. Changes to cost and
revenue estimates could result in lower margins or material charges for reach-forward losses. For example,
during the second quarter of 2015, higher estimated costs to complete the KC-46A Tanker contract for the
USAF resulted in a reach-forward loss of $835.