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| Management’s
Discussion and Analysis | | | |
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| Employee
Severance The Company incurred and is expected to incur employment reductions
resulting from the decrease in aircraft demand, which directly related to the
attacks of September 11, 2001. For the year ended December 31, 2001, the Company
recorded a charge of $287 million attributable to the associated employee severance
obligations. | | 717 Forward Loss
In the fourth quarter of 2001, the accounting quantity of the 717 program was
revised to 135 units from 200 units. This revision resulted from a lack of firm
demand for the 717 aircraft subsequent to September 11, 2001, and the uncertainty
in estimating future revenues and costs for 200 units based upon the revised projected
delivery schedule. The forward loss of $250 million represents the amount by which,
as of December 31, 2001, the inventory balance plus estimated future inventory
costs exceeds the estimated revenue for the undelivered aircraft within the revised
accounting quantity. As of December 31, 2001, the Company cumulatively delivered
93 717 program aircraft. The estimates for the revised accounting quantity assume
that the 717 will remain an ongoing program. Although there are no plans to do
so, if the program were to be terminated after the delivery of 135 units, the
Company would be exposed to potentially material termination costs. |
| Used Aircraft Valuation The events
of September 11, 2001, resulted in a significant decrease in the market value
of used aircraft. The Company recorded a charge of $185 million relating to the
decrease in market value for aircraft held for resale as well as asset purchase
obligations relating to trade-in of used aircraft. | | Inventory
Valuation The Company recorded a charge of $96 million relating to excess
and obsolete commercial airplane spares inventory. Subsequent to September 11,
2001, commercial airline customers worldwide removed a substantial number of aircraft
from service. The ultimate realization of future sales for specific spare parts
held in inventory is highly dependent on the active aircraft fleet in which that
spare part supports. The revised projections for future demand of certain spare
parts indicate that current inventory quantities are in excess of total expected
future demand. | | Vendor Penalties
The decrease in production rates on certain commercial airplane models and related
products triggered contractual penalty clauses with various vendors and subcontractors,
and the Company recorded a charge of $68 million for these penalties. The decrease
in production rates resulted directly from the change in aircraft demand after
the events of September 11, 2001. | | Guarantee
Commitments The Company has extended certain guarantees and commitments
such as asset value guarantees discussed in Note 24. Based upon the impact of
the events of September 11, 2001, on aircraft market prices and aircraft demand
of customers who are counterparties in these guarantees, the Company recorded
a charge of $49 million associated with an adverse exposure under these guarantees. |
| Ongoing Assessment The Company will
continue to assess other potential losses and costs it might incur in relation
to the attacks. These future costs are not yet accruable; however, the Company
expects that such costs may be incurred throughout 2002. Liabilities totalling
$542 million were established as of December 31, 2001, associated with these charges
and are expected to be settled by the end of 2002. Any costs or adjustments in
estimates will continue to be recognized as a separate component of earnings from
operations entitled ‘Special charges due to events of September 11, 2001.’ |
| Research and Development | | Research
and development expenditures charged directly to earnings include design, development
and related test activities for new and derivative commercial jet aircraft, other
company-sponsored product development, and basic research and development, including
amounts allocable as overhead costs on U.S. Government contracts. |
| Total research and development expense in 2001 was $1,936 million, compared
with $1,998 million in 2000 and $1,341 million in 1999. Excluding the $557 million
of in-process research and development (IPR&D) expense in 2000, research and
development expense increased $495 million in 2001, principally reflecting increases
in the Commercial Airplanes segment and the Other segment, which includes activities
relating to Connexion by BoeingSM. Excluding IPR&D, research and development
expense increased $100 million in 2000, principally due to increases from the
Space and Communications segment. | | Commercial
Airplanes Commercial Airplanes research and development expense was
$858 million in 2001, $574 million in 2000 and $585 million in 1999. The increase
in 2001 over 2000 reflects increased spending attributable to the development
of two longer-range 777 models (777-300ER and 777-200LR), a longer-range 747-400
(747-400ER) and a sonic cruiser airplane. | | In addition to the
777-300ER, 777-200LR and the 747-400ER, the principal commercial aircraft developmental
programs during the 1999-2001 period were the 767-400ER, and the 737-900. In 2001,
the Company announced the 777-200LR program had been rephased approximately 18
months. | | The initial delivery of the 737-900, the largest member
of the Next-Generation 737 family occurred in the second quarter of 2001. The
initial delivery of the 767-400ER, a stretched version of 767-300ER, occurred
in the third quarter of 2000. The initial delivery of the 757-300, a stretched
derivative of the 757-200, occurred in March 1999. | |
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