Sustained growth begins with sustained investment in innovation. Thanks to the dedication and ingenuity of Boeing employees, we've had four consecutive years of strong growth in productivity, which has provided the cash and earnings to fund our investment in innovative new products and services.
In 2010, we had near-double-digit operating margins in both our major businesses while delivering outstanding value to customers across hundreds of programs.
We ended the year with $3.3 billion of net earnings; $3 billion in positive cash flow; and a strong $10.5 billion in liquidity--all of this despite development-program challenges in both businesses and increased budget pressures on defense programs.
Taking a closer look at our businesses and our markets: In 2010, Boeing Commercial Airplanes delivered 462 airplanes, including a record 376 Boeing 737s. Thanks to a strong recovery in global air travel, we added new orders for 530 airplanes. Through the first quarter of this year, we booked an additional 106 new orders. This brings our backlog of firm orders to 3,445 airplanes valued at $263 billion--which equates to about seven years of production at current rates and sets a remarkable foundation for growth.
Our outlook for the commercial airplanes and services market remains extremely attractive. The global economy is transitioning to a sustained recovery, and that's fueling increased demand for new airplanes for the world's airlines.
In response to this demand, we have set a course to increase production on all current programs. Add to that the coming introduction and ramp-up of our exciting new 787 Dreamliner and the 747-8, and commercial production at Boeing will rise by more than 40 percent during the next three years alone.
This opportunity for sustained growth and continued leadership in commercial airplanes is nearly unprecedented. We are committed to capturing it with four clear priorities in mind.
- First, complete 787 and 747-8 development and begin deliveries as planned this year.
- These programs are in the final phases of flight testing.
- The 787 has completed nearly 95 percent of the flight-test points needed to begin deliveries.
- The flight test program for the 747-8 Freighter is about 75-percent complete.
- The 747-8 Intercontinental--the new passenger version of this iconic airplane--flew for first time on March 20th and is expected to enter service at year's end.
- Our second priority is to successfully shift to the higher production rates I just mentioned, in order to convert our backlog to earnings more quickly, and to open delivery slots for customers who want airplanes sooner than we currently have them available.
- Priority No. 3: Continue growing our commercial aviation services business. This is a steady, high-margin business that draws us closer to our customers.
- And finally, Priority No. 4, expand our lead in product innovation and value with either improvements to, or replacements of, our 737 and 777 families.
As we go forward, we must also prepare for the arrival of an aggressive set of new global competitors. These emerging competitors (and their host nations) see the same massive economic opportunity in the commercial airplane market over the next 20 years that we do. They're hungry, they're capable, and they want a share of the action.
In both the near term and the long, we are well equipped for this competitive challenge, in my view. Our commercial airplane product family offers unmatched capability and value. Head-to-head, our airplanes are more efficient and less expensive to operate and maintain than our competitor's products. And we cover the full spectrum of sizes in both passenger and freighter models.
Most important, though, with the 787 Dreamliner we have built a three- to four-year lead in innovation and technology over our closest competitor. With its light-weight composite structure and advanced electric systems, the 787 has already changed the way commercial jetliners will be designed and built through most of this century. And when it enters into service later this year, it will dramatically improve the operating economics for airlines and the travel experience for their passengers.
Notwithstanding the challenges of execution that we've had on the 787, it becomes clearer with each and every flight that we got the airplane--and the innovation behind it--right. With 835 orders from 56 customers, it remains the best-selling new airplane in history and the competition is a long way from catching up.
Going forward, our goal is not to sit on this lead, but to build on it. To continue bringing the right products to market at the right time with the right technology and the right value proposition for our customers. That's the historic Boeing approach that has made every one of our airplanes a commercial market success.
Let me turn now to Boeing Defense, Space & Security. In 2010, BDS delivered 115 new and 66 re-manufactured aircraft, along with more than 10,000 precision-guided weapon systems, two launch vehicles, and an industry-leading four satellites. We also supported successful Space Shuttle missions and provided high-value services to government customers worldwide.
It was also a strong year on the upside for BDS sales, and we substantially strengthened our business base as a result. New orders totaled $32 billion, including contracts for multiyear procurement of 124 F/A-18 and EA-18G aircraft for the U.S. Navy; eight C-17s for the U.S. Air Force; important customer buys of V-22, Apache and Chinook rotorcraft; various satellite and unmanned systems orders, and a contract worth more than $1 billion for logistics services in the United Kingdom.
Of course, the biggest news in this business--and it happened not in 2010 but in the first quarter of 2011--was our win of the U.S. Air Force Tanker program. Our initial contract calls for us to build and deliver the first 18 of a planned 179 KC-46A tankers.
In this hard-fought, decade-long contest, we won with the best product at the best price. Our proposal brought together the best of Boeing from across the enterprise. And through our selection, we demonstrated the unique power we have when we compete as one, truly integrated aerospace company. As a result, our 60-year franchise as the supplier of Air Force Tankers continues.
As for our markets: Despite ongoing budget pressures and shifts in customer priorities, demand for defense products and services in the United States remains high. This is driven primarily by the need to modernize current capabilities to meet existing and future threats. International demand is also growing significantly, particularly in the Middle East and South Asia. In fact, we anticipate that within the next few years international sales will represent 25 percent of our sales in this segment, compared to 17 percent last year and 5 percent just a few years ago.
Our priorities in Defense, Space & Security remain:
- First, extend and grow our strong core businesses.
- Second, win a larger share of burgeoning international sales and service opportunities.
- Third, continue expanding in the new growth areas of unmanned systems; intelligence, surveillance and reconnaissance; logistics; and cyber and infrastructure security.
- And fourth, maintain our intense focus on affordability in support of the Pentagon's drive to reduce costs and improve efficiencies in defense spending.
Technology and innovation will be key ingredients to our success, as well. In addition to a great many proven and affordable aircraft and satellites, we are pushing the envelope of unmanned flight, and we are pioneering other technologies critical to national security.
With the incredible opportunity that lies before us, we are taking actions to ensure we deliver on our commitments to customers--and on our own expectations.
While we have acknowledged that game-changing innovation in aerospace is never easy, we have also taken the lessons learned from our experiences on the 787 and other programs to make extensive and fundamental improvements in the way we operate.
For example, we have strengthened leadership and organizational structures across our large development programs. We have inserted ourselves deeper into the supply chain to improve visibility and early awareness of problems.
We are doing more engineering, manufacturing, and assembly work at in-house Boeing locations, including our new facilities in South Carolina.
We've also strengthened the role and impact of our engineering function and installed a back-to-basics approach for managing all new programs that includes a disciplined, 11-step technical review process for identifying and mitigating risk from the very outset.
Taken together, these actions will help ensure the disciplined execution that has sustained and enabled innovation at Boeing for 95 years.
One of the most appealing aspects of working for a great engineering and aerospace enterprise is the ability to have an impact on some of the most important challenges of our times. Energy and the environment are two such matters.
We continue to work with our customers and other partners in researching, developing and testing advanced biofuels that will provide a sustainable alternative for jet fuel--without adversely affecting world food or water supplies or impeding valuable land use. We are also helping to improve the efficiency of the global air traffic management system...keeping airplanes from wasting fuel on the ground and in the air.