In a challenging year that showed disappointing results in commercial space, Boeing Integrated Defense Systems continued to deliver strong performance in other sectors and captured new business valued at $50 billion over the next decade. Moving forward, we are intensifying our focus on execution and business discipline, and the segment, as a whole, is expected to achieve strong profitability

Year in Review Because of the hard work of our skilled and dedicated workforce, several transformational programs achieved significant milestones in 2003. We started system development and demonstration for the U.S. Army’s Future Combat Systems program under a new contract worth $14.8 billion. We continued on-time construction of the new missile defense capability at Fort Greely, Alaska. Enhancing our leadership in airborne early warning and homeland security, we won contracts for the next-generation E-10A aircraft and mission system and were selected to implement Operation Safe Commerce, a secure cargo program at the Ports of Los Angeles and Long Beach and the Port Authority of New York and New Jersey.

We captured important new weapons systems business, too, winning the U.S. Air Force Small Diameter Bomb contract, valued at $2.5 billion over the next 10 years, and two U.S. Navy contracts for procurement of 210 F/A-18 Super Hornets and system design and development of EA-18G aircraft, valued at $9.6 billion.

We made significant progress on the Joint Unmanned Combat Air System program, completing planned simulation and flight test demonstrations on the X-45A air vehicles. Next, we will demonstrate autonomous, two-ship, coordinated flights and the release of inert ordnance on simulated targets. Larger U.S. Air Force X-45C and Navy X-45CN versions with increased payload and range capability are scheduled to fly in 2006 and 2007.

Space launch milestones for 2003 included our 300th Delta launch, the nation’s first USAF Evolved Expendable Launch Vehicle and three Sea Launch missions. We are working with NASA to implement the Columbia Accident Investigation Board’s findings and support the President’s new vision for space exploration.

We extended our global reach with several key wins, including teaming with Israeli Aircraft Industries to coproduce the Arrow missile, selling 28 AH-64D Apache Longbow helicopters to Kuwait and Greece, and contracting with Japan for the first of four 767-200ER Tanker Transports. In addition, we delivered the first Italian Air Force 767-200ER Tanker Transport to Wichita for modifications and finalized a contract with Turkey for four 737-based airborne early warning aircraft.

Lean manufacturing improvements helped Boeing Aerospace Support capture a Malcolm Baldrige National Quality Award. Similar efforts helped our Super Hornet assembly team cut its cycle time almost in half and enabled our Joint Direct Attack Munition program to more than double its capacity.

Future Outlook Boeing believes that defense funding will remain a priority for the U.S. government and its allies for the foreseeable future. The outlook for IDS is continued strong revenue growth and solid profitability. We are pursuing key opportunities in next-generation spaceflight, advanced military communications and multimission aircraft with significant market potential. Most important, we are focusing on program execution and regaining the confidence of our customers.