Let me start with a pair of snapshots. The first is a picture of where we were a year ago. The second is a picture of where we are today. Taken together, these two pictures tell an interesting and compelling story.
In comparing them, we see an improving business environment – not yet robust, but improved … and improving.
Looking at our own performance, we see a company that is working its way through a difficult period with its financial strength and competitive strategies intact. We also see a company that has made important strides in passing critical milestones.
Despite the challenges of the past couple of years, we now have an unprecedented number of major programs at entry into service, or nearing the end of their development and about to enter into service. These include not only the 787 and 747-8 but also the E/A-18G electronic-warfare variant of the Super Hornet, the P-8A marine reconnaissance aircraft, our next-generation Airborne Early Warning & Control programs, the 777 Freighter, and our international aerial-refueling tankers.
That adds up to pretty good news for our future. And it demonstrates the intense focus of our teams on extending the market-leading positions of all our product lines. Clearly, this company is gaining solid momentum. As we look back on the past year and ahead to the rest of this year, next year, and beyond, we do so with growing confidence.
A year ago, the world economy was reeling from the worst recession in more than sixty years. We (and others in the business world) were looking at suddenly reduced levels of demand, rising unemployment, decreased trade, and worries of a contagion of bank failures. Rather than hitting bottom, the world economy seemed to be in free fall.
Today, it's a very different picture. Despite continuing high unemployment and other concerns, we can look back and say that the economy hit bottom sometime in the second half of 2009. World trade has rebounded and the U.S. growth rate for the fourth quarter of 2009 came in at a surprisingly high 5.6 percent. And most economists predict that world GDP growth for 2010 will come in at about two to two and a half percent.
Now let's narrow the focus to Boeing, our products and our markets.
- At this time last year, we were still working our way through issues that caused multiple delays in the first flight of the game-changing Boeing 787 Dreamliner (and in fact, we had yet to discover the problem that led to the most recent delay, last June). We were also experiencing difficulties in the latter stages of development in the 747-8 program.
- Our airline customers were facing massive declines in both passenger and cargo air traffic. 2009, in fact, marked one of the biggest single-year declines in air traffic in the history of aviation. It was a year of heavy losses for world airlines … and a tight market for airplane financing.
- One year ago, we announced that 777 production would decline from seven to five airplanes a month beginning this June. We also deferred increases in 747 and 767 production.
That's how things looked in April of last year. Now contrast all that with where we are today:
- The 787 had its first flight on December 15th and we now have four Dreamliners up and flying. Together they have logged more than 500 hours in flight test. The 787 has completed a series of important flight test segments, been cleared for expanded type certification testing by the FAA, and passed the ultimate load test of the wing, where we flexed the wings upward by approximately 26 feet and subjected it to 150 percent of the maximum load it would ever see in flight. The 747-8 flew for the first time in early February, and it, too, is making good progress in flight test, with three airplanes now flying regularly. Both programs are on track for first deliveries by the end of this year.
- Today, we see a strong resurgence in world air travel. Recently the International Air Transport Association raised its forecast for 2010 traffic growth to 5.6 percent for passengers and 12 percent for cargo. The growth in premium or business travel has been especially impressive, and most financing sources for our customers are back in the game.
- And last month, Boeing Commercial Airplanes announced an accelerated schedule of rate increases in both the 777 and the 747 programs. We will be bringing these two programs back to pre-recession production rates in 2011 and 2012 -- a half-year earlier than previously planned. We also expect a decision this quarter on a possible increase in the production rate of the 737, which would be another reflection of the improving economic situation.
Our total commercial airplane backlog has held strong -- equal to more than six times our 2009 deliveries. Under existing contracts and at current production rates, we are essentially sold out of delivery positions through 2012 -- and for certain models, such as the 787 and 737, for several years beyond that. Barring another major downturn in the world economy, we look forward to several years of steady (and in the case of the 787, increasing-rate) production, with ample time to begin to replenish the order book for deliveries scheduled for late this decade or early in the 2020s.
I want to make another then-and-now comparison:
- A year ago, the World Trade Organization case brought by the U.S. Trade Representative against European government subsidies to Airbus was simply an assertion.
- And now, according to extensive media reporting,the USTR's assertion is a finding -- a final WTO ruling that those subsidies, especially the one known as launch aid, provided Airbus a distinct competitive advantage that cost the United States and Boeing billions of dollars in export sales. This ruling brings into focus the less-than-level playing field on which we have been competing in the international marketplace.
Now, let me turn then to our other major business -- Boeing Defense, Space & Security. This business is one of the largest DoD contractors in volume of U.S. defense-contracting work. It is a leader in a wide range of space-related products and activities. And it is building a growing portfolio in adjacent civilian and government security markets, where Boeing's innovation in defense, space and systems integration may be applied to emerging business opportunities.
We had good reason for concern this time last year, when the U.S. Department of Defense had just announced its new priorities. Clearly, a few of our defense programs were going to come under pressure. And we have not been immune from cuts -- feeling the impact most in our Army modernization and missile-defense programs.
That said, it's also clear that the bottom hasn't fallen out of defense and security budgets -- and isn't about to, either.
First, the United States faces an extraordinarily broad and complex threat environment. Thus, we expect to maintain a large and stable business in continuing to provide a wide array of advanced platforms, support and services to the U.S. armed forces.
At the same time, we are actively pursuing other opportunities for growth -- in expanding international defense markets … and in new markets, both at home and abroad. I'll say more about that in a moment.
Now I have not yet mentioned what many of you as Boeing shareholders probably regard as the most striking difference between where we were a year ago and where we are today.
While many stocks were at or near all-time lows a year ago, ours has had a stronger recovery than most. Today, our share price stands at about $75, up more than 90 percent -- or nearly double -- from a year ago. Over the past 12 months, Boeing has performed twice as well as the S&P 500 in stock-price appreciation. But our performance is not just short-term. In fact, Boeing has outpaced the S&P 500 whether you measure it at one-year, two-year, five-year, or indeed very strongly on a ten-year basis.
This performance is supported by the fact that the fundamental operating engine of this company continues to run well. Our current production and services programs are generating the earnings and cash we need to fund our growth programs, which themselves are achieving visible and important progress.
And driven by the strong financial discipline with which we have run this company year-in and year-out, we continued throughout the downturn to pay dividends to our shareholders. Our dividend payout ratio and yield continue to compare favorably with both the market and our peers.
Now, this is all great news. But it calls for a cautionary note.
Whatever progress we have made, now is no time for complacency. We are operating in a still-tenuous economy with large challenges ahead. As a company, we must be prepared to execute exceptionally well. The most fundamental challenge in front of us is to fuel our long-term strategic opportunity with short-term results.
With that in mind, we have drawn up a list of seven top strategic priorities for 2010, and beyond, that sets out certain things that we must do in order to secure our long-term success.
The first of our top priorities is to deliver on our development programs, starting with the 787 Dreamliner. Made mostly with composites rather than aluminum, the Dreamliner represents breakthrough innovation at the highest level. It marks major advances in fuel efficiency and in passenger comfort and convenience. It will change the way many airplanes are made through the rest of this century.
It is also critical to the successful achievement of our revenue goals. As the best-selling new airplane in commercial-aviation history, it accounts for nearly 40 percent of BCA's backlog.
Over the last year, we have taken steps to reduce risk in our 787 supply chain, we have brought certain work back inside Boeing, and we have increased visibility and coordination across our suppliers, with new information-technology tools.
Through the purchase of Vought and Global Aeronautica facilities in North Charleston, South Carolina, and the establishment of a 787 final-assembly and delivery facility (currently under construction) there, we will also improve our long-term competitiveness and reduce the risk of production interruptions for our customers.
As I mentioned earlier, our investment in the future is generating great excitement today. Here's evidence that supports our optimism: a behind-the-scenes look at our flight-test activities for a broad array of amazing new products, including the 787.