Investing activities The majority of BCC's customer financing is funded by debt and cash flow from its own operation. As of December 31, 2003, we had outstanding irrevocable commitments of approximately $1.5 billion to arrange or provide financing related to aircraft on order or under option for deliveries scheduled through the year 2007. Not all of these commitments are likely to be used; however, a significant portion of these commitments are with parties with relatively low credit ratings. (See Note 19 and Note 20.)

In 2003, there was a significant decrease in cash used for investing activities compared to 2002. In 2002, BCC made investments of $408 million in Enhanced Equipment Trust Certificates (EETCs), while no such investments were made in 2003 or 2001. EETCs are investment trusts widely used in the airline industry as a method of financing aircraft. In 2003, we received $360 million in cash related to the settlement of purchase price contingencies associated with our acquisition of Hughes' satellite manufacturing operations. Additions to Property, Plant, and Equipment in 2003 were approximately $250 million less than 2002. The BCC portfolio continued to grow in 2003 but compared to 2002 additions to customer financing and properties on lease were approximately $650 million less. The change related to customer financing reductions is mainly due to the receipt of customer payments.

Financing activities Debt maturities, which include BCC amounts, were $1.8 billion in 2003, $1.3 billion in 2002, and $0.5 billion in 2001. We issued approximately $1.0 billion of debt in 2003 to refinance corporate debt that matured in 2002 and 2003. Additionally, BCC issued $1.0 billion of debt in 2003, $2.8 billion in 2002 and $3.9 billion in 2001. In 2003 and 2002, BCC debt issuance was generally used for growth in the customer financing portfolio. BCC's debt issuance in 2001 was performed in conjunction with the transfer of a significant portion of our customer financing assets to BCC, as well as growth in BCC's customer financing portfolio. Additionally, we have a share repurchase program, but there were no share repurchases in 2003 or 2002. In 2001, we repurchased 40,734,500 shares. (See Note 17.)

Credit Ratings

On December 17, 2003, Moody's resolved the negative watch they had on us and BCC. Moody's downgraded our long-term rating from A2 to A3 and our short-term rating from P-1 to P-2. Moody's confirmed BCC's ratings, largely because we put a support agreement in place in which we commit to maintain certain financial metrics at BCC. All of Moody's ratings for Boeing and BCC now have a stable outlook.

Capital Resources

Boeing and BCC each have a commercial paper program that continues to serve as a significant potential source of short-term liquidity. As of December 31, 2003, neither Boeing nor BCC had any outstanding commercial paper issuances.

We have consolidated debt obligations of $14.4 billion, which are unsecured. Approximately $1.1 billion will mature in 2004, and the balance has a weighted average maturity of approximately 13 years. Excluding non-recourse debt of $0.5 billion and BCC debt of $9.2 billion total debt represents 43% of total shareholders' equity plus debt. Our consolidated debt, including BCC, represents 64% of total shareholders' equity plus debt.

We have substantial borrowing capacity. Currently, $3.4 billion remains available to BCC from shelf registrations filed with the SEC and $4.0 billion ($2.0 billion exclusively available for BCC) of unused borrowing on revolving credit line agreements with a group of major banks. (See Note 14.) We believe our internally generated liquidity, together with access to external capital resources, will be sufficient to satisfy existing commitments and plans, and also provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise within the next year.

Disclosures about Contractual Obligations and Commitments

The following table summarizes our known obligations to make future payments pursuant to certain contracts as of December 31, 2003, as well as an estimate of the timing in which these obligations are expected to be satisfied.

Contractual obligations

Purchase obligations Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and approximate timing of the transaction. In addition, the agreements are not cancelable without a substantial penalty. Long-term debt, capital leases, and operating leases are shown in the above table regardless of whether they meet the characteristics of purchase obligations. Purchase obligations include both amounts that are and are not recorded on the statements of financial position. Approximately 20% of the purchase obligation amounts disclosed above are reimbursable to us pursuant to cost-type government contracts.

Purchase obligations - not recorded on the statement of financial position

Pension and other postretirement benefits Pension funding is an estimate of our minimum funding requirements through 2005 to provide pension benefits for employees based on service provided through 2003 pursuant to the Employee Retirement Income Security Act, although we may make additional discretionary contributions. Obligations relating to other postretirement benefits are based on both our estimated future benefit payments, since the majority of our other postretirement benefits are not funded through a trust, and the estimated contribution to the one plan that is funded through a trust through 2008. Our estimate may change significantly depending on the actual rate of return on plan assets, discount rates, discretionary pension contributions, regulatory rules, and medical trends.

Production related Production related purchase obligations include agreements for production goods, tooling costs, electricity and natural gas contracts, property, plant and equipment, and other miscellaneous production related obligations. The most significant obligation relates to inventory procurement contracts. We have entered into certain significant inventory procurement contracts that specify determinable prices and quantities, and long-term delivery timeframes. These agreements require suppliers and vendors to be prepared to build and deliver items in sufficient time to meet our production schedules. The need for such arrangements with suppliers and vendors arises due to the extended production planning horizon for many of our products, including commercial aircraft, military aircraft and other products where delivery to the customer occurs over an extended period of time. A significant portion of these inventory commitments are either supported by firm contracts from customers, or have historically resulted in settlement through either termination payments or contract adjustments should the customer base not materialize to support delivery from the supplier.

Industrial participation agreements We have entered into various industrial participation agreements with certain customers in foreign countries to effect economic flow back and/or technology transfer to their businesses or government agencies, as the result of their procurement of goods and/or services from us. These commitments may be satisfied by our placement of direct work, placement of vendor orders for supplies, opportunities to bid on supply contracts, transfer of technology, or other forms of assistance to the foreign country. However, in certain cases, our commitments may be satisfied through other parties (such as our vendors) who purchase supplies from our foreign customers. We do not commit to industrial participation agreements unless a contract for sale of our products or services is signed. In certain cases, penalties could be imposed if we do not meet our industrial participation commitments. During 2003, we incurred no such penalties. As of December 31, 2003, we have outstanding industrial participation agreements totaling $8.6 billion that extend through 2015. In cases where we satisfy our commitments through the purchase of supplies and the criteria described in "purchase obligations" is met, amounts are included in the table above. To be eligible for such a purchase order commitment from us, the foreign country or customer must have sufficient capability and capacity and must be competitive in cost, quality and schedule.

Purchase obligations recorded on the statement of financial position Purchase obligations recorded on the statement of financial position primarily include accounts payable and certain other liabilities including accrued compensation, supplier penalties, accrued property taxes, and dividends payable.

Off-Balance Sheet Arrangements

We are a party to certain off-balance sheet arrangements including certain guarantees and variable interests in unconsolidated entities.

Guarantees The following tables provide quantitative data regarding our third-party guarantees. The maximum potential payment amounts represent "worst-case scenarios" and do not necessarily reflect our expected results. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under guarantees. The carrying amount of liabilities recorded on the balance sheet reflects our best estimate of future payments we may incur as part of fulfilling our guarantee obligations.

In conjunction with signing a definitive agreement for the sale of new aircraft (Sale Aircraft), we have entered into specified-price trade-in commitments with certain customers that give them the right to trade in used aircraft for the purchase of Sale Aircraft. Additionally, we have issued contingent repurchase commitments with certain customers wherein we agree to repurchase the Sale Aircraft at a specified price at a future point in time, generally ten years after delivery of the Sale Aircraft, if the customer wishes to sell it to us at that time. Our repurchase of the Sale Aircraft is contingent upon a future, mutually acceptable agreement for the sale of additional new aircraft. If, in the future, we execute an agreement for the sale of additional new aircraft, and if the customer exercises its right to sell the Sale Aircraft to us, a contingent repurchase commitment would become a trade-in commitment. Contingent repurchase commitments and trade-in commitments are now included in our guarantees discussion based on our current analysis of the underlying transactions. Based on our historical experience, we believe that very few, if any, of our outstanding contingent repurchase commitments will ultimately become trade-in commitments. During 2003, we recorded no expense and made no net cash payments related to our contingent repurchase commitments.

Exposure related to the trade-in of used aircraft resulting from trade-in commitments may take the form of: (1) adjustments to revenue related to the sale of new aircraft determined at the signing of a definitive agreement, and/or (2) charges to cost of products and services related to adverse changes in the fair value of trade-in aircraft that occur subsequent to signing of a definitive agreement for new aircraft but prior to the purchase of the used trade-in aircraft. The trade-in aircraft exposure included in accounts payable and other liabilities in the tables above is related to item (2) above.

There is a high degree of uncertainty inherent in the assessment of the likelihood of trade-in commitments. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources and is continually assessed by management. During 2003, we recorded expense of $11 million and made net cash payments totaling $746 million related to our trade-in commitments.

We have issued various asset-related guarantees, principally to facilitate the sale of certain commercial aircraft. Under these arrangements, we are obligated to make payments to a guaranteed party in the event the related aircraft fair values fall below a specified amount at a future point in time. No aircraft have been delivered with these types of guarantees in several years. Recent declines in asset values of commercial aircraft increase the risk of future payment by us under these guarantees. During 2003, we recorded expense of $15 million and made no net cash payments related to our asset-related guarantees.

We have previously issued credit guarantees to creditors of the Sea Launch venture, of which we are a 40% partner, to assist the venture in obtaining financing. In the event we are required to perform on these guarantees, we have the right to recover a portion of the loss from other venture partners and have collateral rights to certain assets of the venture.

In addition, we have issued other credit guarantees to facilitate the sale of certain commercial aircraft. Under these arrangements, we are obligated to make payments to a guaranteed party in the event that lease or loan payments are not made by the original debtor or lessee. Our commercial aircraft credit-related guarantees are collateralized by the underlying commercial aircraft. A substantial portion of these guarantees have been extended on behalf of original debtors or lessees with less than investment-grade credit. Recent financial weakness in certain airlines further exposes us to loss under our credit guarantees. During 2003, we recorded expense of $2 million and made net cash payments totaling $13 million related to our credit guarantees.

As a liquidity provider for equipment trust certificate (ETC) passthrough arrangements, we have certain obligations to investors in the trusts, which require funding to the trust to cover interest due to such investors resulting from an event of default by United Airlines. In the event of funding, we would receive a first priority position in the ETC collateral in the amount of the funding. On February 7, 2003, we advanced $101 million to the trust perfecting our collateral position and terminating our liquidity obligation. The trust currently has collateral value that significantly exceeds the amount due to us.

Also relating to an ETC investment, we have potential obligations relating to shortfall interest payments in the event that the interest rates in the underlying agreements are reset below a certain level. These obligations would cease if United Airlines were to default on our interest payments to the trust. There were no significant payments made by us during 2003.

We have outstanding performance guarantees issued in conjunction with joint venture investments. Pursuant to these guarantees, we would be required to make payments in the event a third-party fails to perform specified services. We have made no significant payments in relation to these performance guarantees.

Material variable interests in unconsolidated entities In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which clarified the application of Accounting Research Bulletin No. 51 (ARB 51), Consolidated Financial Statements, relating to consolidation of variable interest entities (VIEs). FIN 46 requires identification of our participation in VIEs, which are defined as entities with a level of invested equity insufficient to fund future activities to operate on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIEs, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party, if any, bears a majority of the exposure to the expected losses, or stands to gain from a majority of the expected returns. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. In December 2003, the FASB revised and re-released FIN 46 as "FIN 46(R)." The provisions of FIN 46(R) are effective beginning in first quarter 2004, however we elected to adopt FIN 46(R) as of December 31, 2003.

One of the significant modifications made by the revised interpretation includes a scope exception for certain entities that are deemed to be "businesses" and meet certain other criteria. Entities that meet this scope exception are not subject to the accounting and disclosure rules of FIN 46(R), but are subject to the pre-existing consolidation rules under ARB 51, which are based on an analysis of voting rights. This scope exception applies to certain operating joint ventures that we previously disclosed as VIEs, such as the Sea Launch venture and other military aircraft-related ventures. Under the applicable ARB 51 rules, we are not required to consolidate these ventures.

Our investments in ETCs and EETCs continue to be included in the scope of FIN 46(R), but do not require consolidation. However, we will continue to make certain disclosures about these entities, as required by FIN 46(R).

We have investments in ETCs and EETCs, which are trusts that passively hold debt investments for a large number of aircraft to enhance liquidity for investors, who in turn pass this liquidity benefit directly to airlines in the form of lower coupon and/or greater debt capacity. ETCs and EETCs provide investors with tranched rights to cash flows from a financial instrument, as well as a collateral position in the related asset. As of December 31, 2003, our investment balance in ETCs and EETCs was $433 million. During the year ended December 31, 2003, we recorded revenues of $39 million and cash flows of $94 million.

We are a subordinated lender to certain SPEs that are utilized by the airlines, lenders, and loan guarantors, including, for example, the Export-Import Bank of the United States. All of these SPEs are included in the scope of FIN 46(R), however only certain SPEs require consolidation. SPE arrangements are utilized to isolate individual transactions for legal liability or tax purposes, or to perfect security interests from our perspective, as well as, in some cases, that of a third-party lender in certain leveraged lease transactions. As of December 31, 2003, our investment balance in non-consolidated SPE arrangements that are VIEs was $201 million. During the year ended December 31, 2003, we recorded revenues of $17 million and cash flows of $62 million.

Commercial commitments The following tables summarize our commercial commitments outstanding as of December 31, 2003, as well as an estimate of the timing in which these commitments are expected to expire.

Related to the issuance of certain standby letters of credit and surety bonds included in the above table, we received advance payments of $1.0 billion and $608 million as of December 31, 2003 and 2002, respectively.

Other commercial commitments include irrevocable financing commitments related to aircraft on order and commercial equipment financing. (See Note 19.)