The Boeing Company 2004 Annual Report The Boeing Company 2004 Annual Report

110 Pages·2005·3.84 MB·English

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Table of Contents Annual Meeting or call 425-393-4964 or 800-457-7723
The annual meeting of Boeing shareholders
is scheduled to be held on Monday, Boeing on the Internet
1 Operational Highlights 18 Boeing Internal Services May 2, 2005. Details are provided in the The Boeing home page—www.boeing.com
proxy statement. —is your entry point for viewing the latest
2 Message to Shareholders 20 Financials
Company information about its products
7 Executive Council 99 Selected Products, Programs and Services and people. You may also view electronic
versions of the annual report, proxy state-
8 Boeing Commercial Airplanes 105 Board of Directors
ment, Form 10-K or Form 10-Q.
10 Boeing Integrated Defense Systems 106 Company Officers
A.
12 Connexion by Boeing 107 Shareholder Information S.
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14 Boeing Capital Corporation he
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16 Boeing Technology d i
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Operational Highlights
Sharper focus on execution
led to impressive operational
performance in 2004.
(cid:1) Delivered solid growth and profitability, improving (cid:1) Won $3.9 billion Multi-mission Maritime Aircraft
revenues by 4.4 percent and earnings by 161 per- contract—with a potential value of $44 billion—
cent over 2003; also increased earnings per share besting the 40-year incumbent to build next-
by 164 percent. generation “submarine hunters.”
(cid:1) Generated strong cash flow of $3.5 billion after (cid:1) Signed a $6 billion extension to expand the scope
$4.4 billion in discretionary and nondiscretionary of the Future Combat Systems program and
pension funding. accelerate delivery of technologies and capabili-
ties to the U.S. Army.
(cid:1) Continued robust stock performance with Boeing
stock appreciation of 22.9 percent in 2004, (cid:1) Sold our commercial equipment financing busi-
compared with 9 percent for the S&P 500, 14 per- ness to GE for more than $2 billion, strengthening
cent for S&P 500 Aerospace and Defense Index an already strong cash balance; with strong
and 3.2 percent for the Dow. operating cash flows, allowed Boeing Capital
Corporation to retire more than $2 billion in debt.
(cid:1) Launched the 787 (formerly 7E7) Dreamliner with
our largest-ever inaugural order, ending the year (cid:1) Began initial deployment of Connexion by
with customers ordering 56 787s and placing com- BoeingSMservice on four airlines, and reached
mitments for 70 additional airplanes. Announced definitive service agreements with three and
sales in early 2005 brought the total to 193. preliminary agreements with four others.
2004 Financial Highlights
(U.S. dollars in millions except per share data) 2004 2003 2002 2001 2000
Revenues 52,457 50,256 53,831 57,970 51,119
Net earnings* 1,872 718 492 2,827 2,128
Earnings per share* 2.24 0.85 2.84 3.40 2.37
Operating margins 3.8% 0.8% 6.4% 6.2% 6.0%
Contractual backlog 109,600 104,812 104,173 106,591 120,600
*Before cumulative effect of accounting change.
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Message to the
Shareholders and Employees
of The Boeing Company
Lewis E. Platt
Non-Executive Chairman
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An intense focus on execution led to strongly im- Two, we understand the U.S. government’s
proved results in 2004. Earnings were up 161 percent, desire—and indeed its obligation—to leave no
and Boeing outperformed the S&P 500 Aerospace stone unturned in investigating lingering allegations
and Defense Index in total shareholder return for of favoritism or abuse of the public trust. We are co-
the year. Based on the numbers, the company is operating with the government in its investigations.
doing well. Even so, it was a distressing year for all Three, as a result of our own internal reviews, I
who admire this company or feel privileged to be a am more convinced than ever that the misdeeds are
part of it. Simply put, our reputation suffered as the not systemic or characteristic of the overall behavior
company operated under a cloud of uncertainty of the 159,000 people that make up this company.
throughout 2004 and into 2005. That said, we have spent an enormous amount of
While the U.S. Air Force lifted the suspension of time and effort to ensure that the people throughout
our launch business in early 2005, we continue to Boeing understand fully that integrity is a business
bear the effects of events involving a very few peo- fundamental. Our guiding principle is to exhibit the
ple who are no longer part of the company. We did highest standards of business conduct at all times.
not conclude a long-sought contract with the U.S. We have drawn bright lines to define ethical decision
Air Force for a new fleet of tankers. And sadly, the making, and we have made it clear to all of our peo-
man who had started to turn the company around ple that there will be zero tolerance for anyone who
made a serious error in judgment. The board asked crosses the line into dishonest or unethical behavior.
for Harry Stonecipher’s resignation because it deter-
mined his actions surrounding a personal relation- Strategy and Execution
ship were inconsistent with Boeing’s code of
conduct, reflected poor judgment and eroded his Boeing is an aerospace company of unrivaled bal-
ability to lead this company. ance and breadth, and our strategy is well known.
As the senior leader of this company, I wish to Most Boeing employees could recite the three main
make three main points from the outset. elements of our strategy in their sleep. First, we will
One, no one should underestimate the strength run healthy core businesses. Next, we will leverage
of our business or the firmness of our resolve. It is our strengths and move into adjacent businesses
harder to rebuild a reputation than it is to build one where we have a competitive advantage in technol-
in the first place. We’ve taken decisive action to fix ogy or in customer knowledge and insight. Last, we
the problems identified and feel confident that we will lead, not follow, in opening the new frontiers
will succeed in that endeavor because we have that are critical to long-term growth and competi-
attracted the right people, and we continue to do tiveness within the aerospace industry.
so. Our people are motivated by a fierce pride in That is our strategy. It is working well, and it is
what they do and what it means to be part of The not about to change. What has changed is a return
Boeing Company. to the fundamentals of executing the business. We
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All in all, there is exceptional upside for
Boeing in our defense businesses.
took a good, hard look at the business case behind that strategy to a wide array of conventional
every one of our programs and businesses—re- and nonconventional threats. It excels as the lead
examining targets, establishing new and more integrator of complex defense systems that involve
meaningful ones where needed, and really holding different platforms (such as aircraft, tanks, ships
people accountable for their performance. and satellites) and has dramatically increased the
As a result of these thorough reviews, we took sharing of information and capabilities among them.
corrective action in several areas. We decided, for During 2004, IDS captured more than $30 billion
instance, that, even though our 717 brings tremen- in orders, including major contract awards from the
dous value to the airlines that operate it, the overall U.S. Navy, Army and Air Force:
market does not support continuing production (cid:1) A $3.9 billion Navy contract to build the Multi-
beyond delivery on our current commitments. We mission Maritime Aircraft that will replace the
also determined that Boeing Air Traffic Management Navy’s aging fleet of 223 P-3s with new aircraft
simply isn’t a business right now. So we scaled based on the Boeing 737 airframe. This program
back the program and moved it into our Phantom represents $44 billion in potential revenues.
Works research and development group. There, it (cid:1) A $6 billion extension of the Army’s transforma-
will be nurtured as an extremely promising technol- tional Future Combat Systems program to expand
ogy and business concept until customers are ready the program’s scope and accelerate delivery of
to make a financial commitment to radical improve- key technologies and capabilities to current
ment of the global air traffic control system. forces. This brings the total value for Boeing’s
But the biggest payoff came in the improved part of the program to $21 billion.
performance of our primary businesses—Integrated (cid:1) A contract with a potential value of $4.9 billion
Defense Systems and Commercial Airplanes. to provide maintenance and support work for the
Air Force’s C-17 fleet.
Integrated Defense Systems In addition to resolving issues from an earlier
time period that affected the tanker procurement,
Boeing Integrated Defense Systems (IDS) performed the one remaining challenge for IDS is the commer-
extraordinarily well in 2004. Revenues grew by 11 cial satellite business. This business continues to
percent; operating margins improved to 9.6 percent; suffer from cost growth and technical problems.
and IDS continued to add to its backlog, already the However, we have assigned good people to the
highest in the defense industry. business, and we expect to fix those problems in
IDS has established Boeing as the leading indus- the coming year.
try partner to the U.S. government in developing a All in all, there is exceptional upside for Boeing
“network-centric” view of the world and applying in our defense businesses. Defense customers have
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a high level of confidence in our company. They see of 126 new 787s. With announced sales in early
Boeing as a clear leader in understanding the com- 2005, that total reached 193.
plex challenges of today’s defense environment and Through the use of new materials and advances
in being able to marshal the resources (and espe- in aerodynamics, we’ve designed the sleek-looking
cially the information and communications) that are 787 to open a new frontier in commercial flight. As
needed to meet them. the first widebody with high-strength, lightweight
composite body, wings and tail, it is expected to
Commercial Airplanes outperform other midsize airplanes, delivering
higher speed, more range, reduced fuel burn and
In the leanest of times, Boeing Commercial Airplanes emissions, greater interior comfort, reduced noise
(BCA) learned to excel at lean production and assem- on landings and takeoffs, and superior economics.
bly. Since the collapse of the commercial airplane In opening nonstop service between scores of new
market in September 2001, BCA has exercised great city pairs, the 787 is designed to bring an unrivaled
ingenuity in finding new ways to reduce unit costs combination of convenience and comfort to long-
and speed cycle times. As a result, it has remained distance travel. Even more compelling, with a 10
profitable despite a huge downturn in production, percent improvement in direct operating costs and
and it has continued to invest in the future. Now 45 percent more cargo revenue capacity than com-
BCA is in an excellent position to grow and prosper peting aircraft, the 787 can accommodate both low
in what promises to be a sustained upturn in the ticket prices for the traveling public and high mar-
commercial airplane market. gins for airlines. That makes it a winner on all counts.
Airline traffic finally pushed ahead of pre-9/11
levels in 2004. Outside the United States, many air- Time to Level the Playing Field
lines have achieved strongly improved profitability.
With load factors at record highs, airlines need While we continue to create value for our customers
more seats. Boeing is primed to meet that need through Boeing products, we must also insist on a
with a full family of airplanes—including the most level competitive playing field in the marketplace.
exciting new airplane since the dawn of the jet age. Four years ago, Airbus drew on substantial launch
We launched the Boeing 787 (formerly 7E7) aid from four European governments to begin de-
Dreamliner on the biggest single order for a new air- velopment of the A380 super jumbo jet, which is a
plane in Boeing history—a firm order for 50 787s direct competitor to our 747. Now it is asking for ad-
from ANA (All Nippon Airways), with first deliveries ditional launch aid to support a competitor to the 787.
scheduled in 2008. At the end of 2004, we reached Enough is enough. Subsidized competition is
56 firm orders, with airline commitments for a total unfair competition, and it is clearly forbidden by
In the leanest of times,
Boeing Commercial Airplanes
learned to excel at lean
production and assembly.
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Boeing is prepared to make the tough
decisions to ensure real leadership
in the aerospace industry for a long
time to come.
World Trade Organization rules. If Airbus wants to performance substantially. On a competitive basis,
develop another airplane, it should pay for it out of this company is better than ever, with great strength
cash from operations, or it should borrow the both in existing programs and in the leading-edge
money at market rates—just as Boeing does. developments that will define the future.
Founded in 1970, Airbus is 35 years old. It has Our defense systems business accounted for
been treated as an “infant industry” for far too long. more than 58 percent of total revenues in 2004. This
It’s time for Airbus to play by the rules that apply to is a business that is broad and deep. And, as long
large, mature enterprises. as we execute, I am confident that it will continue to
grow despite potential defense budget reductions.
Connecting Global Travelers At the same time, we are on the cusp of what we
believe will be a sustained recovery in the commer-
With the launch of our in-flight Connexion by cial airplane market, with an all-new airplane that
BoeingSMservice in 2004, we continued to solidify our will set whole new standards for operating perform-
leadership in providing secure, high-speed Internet ance and passenger comfort in long-distance travel.
and e-mail connectivity to travelers worldwide. At In every way, we are executing the strategy. We
year-end, the service was offered to passengers on are running healthy core businesses. We are experi-
four global airlines, on routes between Europe, Asia encing strong growth in adjacent businesses such
and the United States, with additional airlines plan- as aerospace services. Last, but not least, we have
ning to offer the in-flight service in 2005 and shown that Boeing is prepared to make the tough
beyond. With in-flight service launched, Connexion decisions to ensure real leadership in the aerospace
by Boeing expanded its efforts to the open seas, industry for a long time to come.
conducting a successful three-month maritime
demonstration of its real-time connectivity solution.
Boeing’s Future
Lewis E. Platt
Despite major distractions, people around the com- Non-Executive Chairman
pany kept their eyes on the ball throughout 2004. As
a result, almost all parts of Boeing increased their
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The Executive Council
Pictured left to right: James F. Albaugh Thomas R. Pickering
James A. Bell Executive Vice President; Senior Vice President,
President and Chief Executive Officer; President and International Relations
Chief Financial Officer Chief Executive Officer,
Integrated Defense Systems Richard D. Stephens
Laurette T. Koellner Senior Vice President,
Executive Vice President; Rudy F. deLeon Internal Services
President, Connexion by Boeing Senior Vice President,
Government Operations Bonnie W. Soodik
Tod R. Hullin Senior Vice President,
Senior Vice President, Douglas G. Bain Office of Internal Governance
Communications Senior Vice President;
General Counsel James M. Jamieson
Senior Vice President;
Alan R. Mulally Chief Technology Officer
Executive Vice President;
President and
Chief Executive Officer,
Commercial Airplanes
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“We’ve restructured to operate
profitably through the downturn
while investing in new products
and services for our customers.
We’re well positioned for the
recovery in our business.”
Alan R. Mulally,
President and Chief Executive Officer, Commercial Airplanes
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