Boeing 2015 Annual Report Download - page 98

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82
Recoverable Costs on Government Contracts
Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government,
which can result in payment demands related to costs they believe should be disallowed. We work with
the U.S. government to assess the merits of claims and where appropriate reserve for amounts disputed.
If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge
and/or provide refunds to the U.S. government.
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.
747 Program
During the fourth quarter of 2015, we recorded a charge of $885 to recognize a reach-forward loss on the
747 program primarily due to slower than expected growth in global cargo markets, resulting in market
and pricing pressures and fewer orders than anticipated driving reductions in our planned production rates.
The charge is primarily related to lower anticipated revenues reflecting ongoing pricing and market
pressures as well as higher estimated costs due to the reduction in the production rate from 1.0 per month
to 0.5 per month in September 2016. We currently plan to return to a rate of 1.0 per month in 2019. We
have a number of completed aircraft in inventory as well as unsold production positions and we remain
focused on obtaining additional orders and implementing cost-reduction efforts. If we are unable to obtain
sufficient orders in 2016 and/or market, production and other risks cannot be mitigated, the program could
face an additional reach-forward loss that may be material.
787 Program
During 2015 the 787 program continued to have near breakeven gross margins. The combination of
production challenges, change incorporation on early build aircraft, schedule delays, customer and supplier
impacts and changes to price escalation factors has created significant pressure on program profitability.
If risks related to this program, including risks associated with planned production rate increases or
introducing and manufacturing the 787-10 derivative as scheduled cannot be mitigated, the program could
face additional customer claims and/or supplier assertions, as well as a reach-forward loss that may be
material.