Chairman, President and Chief Executive Officer
The Boeing Company
"2007 Address to Shareholders"
April 30, 2007
Two thousand and six--our 90th year in this business--proved to be a year of accelerated top-line growth, bottom-line productivity, and strong cash generation.
Revenues for the year rose 15 percent to $61.5 billion. Excluding special items, core earnings per share rose 51 percent to $3.62 per share--reflecting strong performance across our principal businesses. Our cash flow grew to a record $7.5 billion--and that was after we had invested in our growth programs and fully funded our pension plans.
Customers in strong commercial and defense markets continued to demonstrate a preference for our products and services. Over the past two years, our backlog has increased 60 percent--to more than $250 billion. This is more than four times our 2006 revenues and by far the largest backlog in our history.
Wall Street recognized our progress, as well. Boeing's stock price increased 26.5 percent during 2006. And for the fourth consecutive year we delivered 25 percent or greater total return to shareholders.
At our operating units, Boeing Commercial Airplanes continued to gain airspeed and altitude--with a record order book and terrific lineup of new and proven products.
- For the second year in a row, BCA booked more than 1,000 orders, including the second consecutive record-order year for the 737--the world's most popular airplane.
- The 787 Dreamliner--which we will roll out on July 8th and which is scheduled for first flight later this year--has exceeded all market expectations. Since its launch just three years ago last Thursday, the Dreamliner has won 567 customer orders, making it the fastest-selling commercial airplane in history.
- Last year, we also delivered the first 777-200LR (for Longer Range) airplane--a twin-aisle jet that can connect almost any two cities on Earth.
- And we smoothly and efficiently increased commercial airplane production by more than a third--delivering 398 airplanes to customers around the world.
Meanwhile, Boeing Integrated Defense Systems continued demonstrating strong performance across a wide range of programs. IDS delivered record revenues in 2006, and this business is solidly positioned for the future with a strong and diverse array of capabilities.
Among the IDS highlights for 2006:
- We led the team that demonstrated the ability to "hit a bullet with a bullet" in space--with the sixth successful test-intercept of a ballistic missile target for the U.S. Missile Defense Agency.
- We secured a commitment from the Republic of Korea committed to provide four Airborne Early Warning and Control systems, which are based on the Boeing 737 airframe.
- We won important domestic and international C-17 orders that extended the line into 2009. This created an opportunity to win new orders this year that could take production further into the future.
- We moved into a market adjacent to our core defense business with our win of the Homeland Security SBInet program. We are now applying proven, low-risk technology to help U.S. law enforcement agencies more effectively sense and detect illegal activities along lengthy stretches of the border.
- And we were initially selected by the U.S. Air Force--subject to an ongoing review--to provide its new combat search-and-rescue helicopter based on the proven, low-risk technology of our H-47 Chinook.
Now, as we all know, not everything was perfect last year. We faced into some tough realities. The good news is not only that we dealt with them...but that we had the wherewithal to deal with them. There is no doubt that we are a stronger company today as a result.
- We exited Connexion by Boeing--an innovative idea executed by a great team...but an idea whose timing just wasn't right.
- We absorbed cost and schedule growth on some fixed-price development programs in our defense business.
- We increased our research-and-development spending for 2006 and 2007 to reduce risk on key commercial airplane programs.
- And we reached a significant settlement with the U.S. government, thereby ending investigations that had arisen from serious past misconduct by Boeing employees.
That, in an aerospace nutshell, was 2006 for Boeing. When we look back on it some years from now, I believe we will see it as a year in which we turned the corner and positioned ourselves for a very exciting future.
As always, the credit for our many accomplishments last year belongs to the men and women of Boeing. It is through their ingenuity, integrity, commitment and performance that this great company achieves great things. And I thank them.
Turing to 2007, we are off to a good, clean start. We delivered solid top-line performance in the first quarter, with strong double-digit growth in operating income, net income and earnings per share. Our results were in line with our expectations and represent solid progress toward our high goals for this year and beyond.
From this point forward, it really is all about execution--delivering on our commitments to our customers, and maintaining a laser-like focus on both growth and productivity.
Our model for growth is time-tested. We are driving growth primarily from organic--or internal--sources. We are well positioned in healthy, growing markets, with industry-leading products and services. And we need to take full advantage of this position to capture more market share and further grow our quarter-trillion-dollar backlog.
On the commercial airplane side, we know we have to stay one step ahead and provide our customers with what our competitors cannot. The 787 Dreamliner, for example, is a product that differentiates us in terms of innovation, passenger comfort, economic efficiency and environmental performance. It confirms the merits of our point-to-point strategy, and it is emblematic of our deep, companywide commitment to improving the environmental footprint of our products and facilities.
I could go on and on about the Dreamliner, but I think the story is much more powerful when you hear it from the people who are buying the airplane. Here is a special look at the 787 courtesy of our newest Dreamliner customer--Virgin Atlantic.
On the defense side, our large and balanced portfolio of programs and services provides the foundation of our growth opportunities. Not only do we have a healthy mix of mature and emerging programs, but we are uniquely positioned to meet customer needs with commercial-derivative military aircraft that leverage the best of Boeing...such as the 737-based P-8A Poseidon anti-submarine/maritime patrol aircraft, the 737-based airborne early warning and control system, and the 767-based aerial-refueling tanker. The 767 tanker has earned success internationally and is now competing for a major U.S. Air Force order.
One of our core defense capabilities--and a source of recent and future growth--is integration and networking of complex systems. We are doing some amazing work in this area in providing customer-inspired and customer-driven solutions that leverage the best not only of Boeing, but of industry. Here is one Dennis Muilenburg to tell you how the Future Combat Systems program is revolutionizing the way U.S. forces operate.
While we expect U.S. defense spending to moderate, the international market for defense products is growing significantly. So we are focusing on strengthening and leveraging our relationships and operations internationally. Our growing presence in places like Japan, Korea, the Middle East and India illustrates the dual advantages of being integrated both within our own company and into the global economy.
These markets, alone, represent more than $60 billion in potential international defense business over the next 10 years.
Where necessary, we intend to accelerate our organic growth through disciplined acquisitions to expand our capabilities, geographic reach or market access. In fact, in 2006 we made several important niche acquisitions that are helping contribute to support-services growth in both our commercial and defense businesses.
But growth, by itself, isn't enough. To sustain and energize it, we must continuously improve productivity, and recycle that productivity into greater competitiveness.
Last year, we introduced four initiatives aimed at improving productivity--Lean+, Internal Services Productivity, Global Sourcing, and Development Process Excellence. We are making good progress in each of these areas.
For example, Lean+ principles are fueling continued productivity improvements on our 737 moving production line in Renton, Washington. Since 1999, the 737 program has cut in half the time it takes to assemble a 737--from 22 days to 11 days, specifically. The result is not only savings in the hundreds of millions of dollars, but increased capacity without adding bricks and mortar.
Our Shared Services group last year partnered with the 787 team to consolidate and competitively bid a logistics contract for final assembly and delivery of certain parts and materials; we expect savings of $200 million over 10 years from that.
And we expect comparable savings in our office areas over the next several years by applying a similar integrated approach to our purchases and maintenance of office equipment and services.
Ever-improving productivity generates cash to expand our margins and invest in the future--with all-new airplanes like the 787 and with major modifications of existing airplanes like the 747. Here is Dan Mooney to tell us about the latest and most technologically advanced version of the "Queen of the Skies"--the 747-8.
What we've seen through the Boeing leaders in these videos reinforces my belief that if the people who run and participate in a company grow, that company's growth will follow naturally. So we ask Boeing leaders to approach leadership in the following ways--to model it, teach it, measure it, expect it, and reward it.
Our leaders must learn to do certain things well. They should chart the course for their teams, set high expectations of them and inspire them, find a way to conquer unexpected obstacles, live the company's values (the most important of which is unwavering integrity), and deliver results. The challenge for our leaders is to embody not one or two of those leadership attributes, but all of them.
Ultimately, we want to inspire every member of our enterprise to contribute to the business and make us the strongest, most competitive, best-integrated aerospace company in the world. Toward that end, all managers and executives at Boeing are now being graded on the six leadership attributes that I just mentioned. These assessments, together with performance, will increasingly influence pay and career advancement.
In the nearly five and a half years since I joined Boeing as a board member, I have never felt better about this company's prospects than I do today. Clearly, we have a lot of challenging work ahead of us--this year and next in particular. But as a business, we are in a position that I wouldn't trade with anyone--inside or outside our industry.
The 155,000 people who make up The Boeing Company...and the even larger group of people who act as our suppliers and partners and who are therefore part of the Boeing team...are motivated by doing things others can't--and are turning dreams into reality.
I will close by letting you hear from some of the people who make all of this possible. This last video borrows from our new television advertising campaign, which we launched in January. The people speaking in the ads are not actors--they are real Boeing employees from different jobs and different locations across the company. They represent the spirit of all our people and the passion that we bring to what we do for our customers...and the world. When we talk about unleashing the full potential of Boeing, this is where it comes from.
Thank you. That concludes the Chairman's Report.