Chairman, President and Chief Executive Officer
The Boeing Company
"2008 Address to Shareholders"
April 28, 2008
At Boeing, we aim to be the world's strongest, best, and best-integrated aerospace company for today--and tomorrow. Measured against that goal, we made substantial progress in 2007. And that progress has continued into 2008, as reflected in our strong first-quarter results.
During 2007, we achieved record revenues, earnings and backlog; and we feel confident that we can do better than that in 2008. We also expect to set new records this year in all three of those categories.
Our strong financial performance reflects the potent combination of good top-line growth and continued gains in productivity.
Our 2007 revenues rose 8 percent to an all-time high of $66.4 billion, and our core earnings were up 35 percent. For the first time ever, our two big businesses--Boeing Commercial Airplanes and Boeing Integrated Defense Systems--simultaneously achieved double-digit operating margins. Gains in productivity and performance in existing programs contributed significantly to earnings and helped offset additional investment in key growth programs.
Our cash flow went from strong to stronger--increasing from $7.5 billion in 2006 to $9.6 billion in 2007. And we stepped up our return of cash to shareholders by repurchasing $2.8 billion of our shares and increasing the cash dividend by 14 percent.
We also had our best year ever in capturing new business adding another $77 billion to a backlog that today totals $346 billion--more than five times our total revenues.
Commercial Airplanes landed a record 1,423 airplane orders in 2007, reaching more than 1,000 orders for an unprecedented third consecutive year. Meanwhile, Integrated Defense Systems won nine out of 11 strategically important competitions--an outstanding success rate, by any measure.
Despite growing concerns about the world economic outlook, as we go deeper into 2008, Boeing is adding to--rather than subtracting from--its order book. We expect that to be true for the entire year.
During the first quarter, we delivered 115 commercial airplanes, and we received new orders for 287 airplanes to be delivered in future years. This brings our commercial backlog to an all-time high of $271 billion.
IDS continued to produce excellent results, as well. In the first quarter, we delivered 22 fighters and other aircraft to military customers, along with one satellite. With a multi-year buy for the V-22 Osprey, IDS added $3 billion to its order book during the first quarter--bringing its total backlog to $75 billion.
Let me say a little more about the quality of this backlog--and the growth it relates to.
Nearly 70 percent of our commercial backlog (as measured by revenue) is in high-value twin-aisle airplanes. It is spread across the world's leading airlines, which operate a wide variety of business models ranging from low-fare to full-service, short haul to long haul. Geographically speaking, only 11 percent of this backlog is with airlines based in the United States, where the current economic situation is a bit tenuous. A large part of our backlog is with customers in Asia and the Middle East, where economic conditions are more favorable.
And today, nearly half of the company's revenue is generated from our defense business, which is fairly well insulated against the recent economic uncertainty. That defense backlog is a healthy mix of both new and mature production and development programs that we believe we can continue to expand even through a period of more modest growth in U.S. defense spending.
In addition, we see significant potential in overseas defense markets. During 2008, we will deliver C-17 Globemaster IIIs to the United Kingdom, Canada and Australia. During the first part of this year, we delivered the first two (of four) 767J aerial refueling tankers to Japan. In 2007, Australia agreed to buy 24 F/A-18 E/F Super Hornets, with deliveries extending to the year 2013. And we expect to add to our international F-15 backlog again this year--including a follow-on order of 21 aircraft for Korea, which was announced last week.
Our potential for growth in overseas markets also includes some of the more futuristic programs. The U.S. Government, for instance, has placed Boeing under contract to develop a missile-defense interceptor site for Europe. With the help of some lessons learned from the U.S. Army's Future Combat Systems program, Boeing won the Future Rapid Effect System for the U.K. and is competing for similar projects in other countries.
Having said that, one recent international competition took place here in the United States, where, as you know, the U.S. Air Force selected a European design over our KC-767 aerial refueling tanker.
Boeing has taken what is, for us, the rare step of protesting this decision. We feel strongly that we had the better bid and that inconsistencies in the competition led to a selection that did not match the stated requirements. We are hoping that the GAO will confirm our view, and we expect a decision by early summer.
Regardless of what happens in this case, we continue to see a distinct competitive advantage in being able to deliver commercial-derivative aircraft to our military customers--both at home and abroad. The Airborne Laser for the U.S. Air Force is one example of that--where we are using a modified Boeing 747-400F. We also see potential for international versions of the P-8A Poseidon (based on the Next-Generation 737), which we are producing as a surveillance and anti-submarine aircraft for the U.S. Navy. And we are developing the 737-700 Airborne Early Warning and Control System for Australia, Turkey and Korea.
One of our fastest-growing and most profitable areas is our commercial and military support services business--meaning maintenance and other life-cycle support for both commercial and military products. Our growth here will be based on sticking to our strategy of expanding our core business and then moving to logical adjacencies.
The overall size of our growth opportunity carries with it certain responsibilities--chief among them to deliver first-time quality, drive out waste, consistently improve our productivity, and add capability to our products.
If you look at what Boeing is doing today, our people work on more than 200 programs. Notwithstanding the challenges we face on the 787 (which I will discuss in a few minutes) we are executing well--executing to plan--in virtually all of them.
Like BCA, IDS has a family of programs that combine both highly-valued and sought-after products of today and the game-changing products and systems of tomorrow.
On the one side, that includes the C-17, the F/A-18 E/F and G, Apache and Chinook helicopters, and the revolutionary V-22. On the other side, it includes an array of programs that demonstrate Boeing's ability to apply network-enabled solutions to the most complex problems.
Among these: the Future Combat Systems program, which I mentioned a moment ago. This on-cost and on-schedule program will revolutionize the way U.S. forces operate.
In our Ground-based Midcourse Defense program, a Boeing-led team has repeatedly demonstrated the ability to "hit a bullet with a bullet" in space--including last year's seventh successful intercept.
In our Commercial Airplanes business, we're operating four very healthy production lines.
For example, our Next-Generation 737, the largest-selling airplane in the world, is a Boeing leader in execution and productivity. We now assemble a 737 in 11 days versus 22 a few years ago. It's also a productivity enabler for our customers--leading the industry with 99.5 percent reliability. And the 737 continually incorporates technologies and design innovations that improve the airplane's performance, reduce emissions, cut fuel and maintenance costs, and provide access to more airports. As a result, the 737 has a backlog of more than five years of production.
In the twin-aisle category, the market-leading 777 is fulfilling its promise of providing efficient and comfortable service to passengers on long-haul flights. Nearly all of the world's premiere airlines operate the 777, which consistently ranks at the top of polls among air travelers as well as those who finance airplanes. During the last three years alone, 16 new customers have ordered the 777, and our new 777 Freighter will enter service with launch customer Air France later this year.
Speaking of freighters, we expect the air cargo market to grow even faster than passenger travel over the next 20 years. We are strongly positioned here. We have a broad, innovative product offering that addresses the entire market. And Boeing freighters provide more than 90 percent of the world's freighter capacity today.
So, let's turn to the 787 program.
From a marketing viewpoint, the 787 Dreamliner represents the most successful new launch in aviation history. It took the best-selling 737 more than 15 years from the time it was launched to reach 1,000 orders. In just four years the 787 is knocking on the door, with a total of 896 orders from 58 customers.
From a technological viewpoint, the 787--as the first large jetliner with a composite fuselage and wing--is truly a game-changing airplane for airline economics, passenger comfort, fuel efficiency and (very importantly) environmental impact. The 787 program's global business model also represents a substantial advancement.
To me, two themes have emerged from the 787 at this early stage of its life. One revolves around innovation, the other around execution.
We have gotten the innovation part of it right--though we are constantly scanning for the ever-present potential of unknowns. In fact, we believe the design innovations embedded in the 787 have given us roughly a five-year lead on the competition.
On the execution side, where we have been challenged, I'm pleased to say we are making significant progress toward resolving the start-up issues in our supply chain and in our own factories. We have put people and processes in place at our major suppliers to help ensure their performance going forward. And we are removing the bottlenecks of our final assembly line to complete both the work that traveled into our facility from our suppliers, and some unanticipated rework on certain sections of the airplane.
Overall, the fundamentals on the program are improving steadily, and the right team is in place to do the job. I expect them to deliver, and I believe they will.
Of course, it cannot go unsaid that we deeply regret having disappointed our customers on this program. And we are working with them to minimize disruptions to their plans.
To the degree that the schedule has slipped, the 787 Dreamliner may be a dream deferred; but I do not believe it will be a dream denied.
Looking to the future, we see a more competitive environment for all our businesses, largely driven by the impact of globalization.
In responding to this changing competitive landscape, Boeing is striving (as I said before) to build the world's strongest, best, and best-integrated aerospace company for today--and tomorrow.
What does "best-integrated" really mean, and why is it important?
Our aspiration is for Boeing to become even greater than the sum of its many parts (as sizeable as those parts already are).
With that in mind, we are drawing, first, on a fundamental headset:
- We are developing strong leaders who are driving an equal focus on both top-line growth and bottom-line productivity.
- We are maintaining a strong focus on ethics and compliance.
- We are driving a culture of openness, collaboration and innovation that will enable us to learn from each other.
- And we are acting with a sense of stewardship toward the world in which we are privileged to live and work.
Let me cite several more concrete examples, among many, of how we are becoming better integrated, in addition to the unique strength in commercial derivatives that I mentioned earlier:
We are driving functional excellence in our shared corporate functions (which to us means following proven, common and consistent processes).
In 2007, we adopted a true companywide research-and-development strategy and structure that ties all of our previously independent efforts together.
We've integrated and elevated our corporate environmental function, because we recognize that climate change and pollution are serious global concerns.
Today's Environment, Health and Safety organization is charged with a big task: reducing the environmental impact of our operations, our products and our services. We know we can do more--and we know we can do it faster.
Integration will also advance our large commercial and military services businesses, which I mentioned earlier. We believe that we can share processes, technology, products, and infrastructure in a way that strengthens both.
Finally, I will cite India as an example of how we are capitalizing on cooperation across our company to find new opportunities for growth internationally.
With air travel in India growing at a phenomenal 25-percent annual rate, we are in the fortunate position of being the leading supplier of commercial airplanes to Indian carriers. We are also helping India to build its aviation infrastructure. We are buying from local Indian companies, and tapping into an amazing talent pool in engineering and technology. These companies--and others--could play an increasingly valuable role in driving both growth and productivity for the total Boeing enterprise.
While Integrated Defense Systems is new to India, it has entered the market as a part of Boeing--a known and trusted company. Given the breadth and depth of its capabilities, IDS is uniquely positioned to provide defense products that fit almost all of India's major stated procurement needs.
In following an integrated approach to doing business in this market, we are bringing "the best of Boeing" to India and "the best of India" to Boeing and our customers. . .and we are replicating this effort in many countries around the world.
To be . . .
- the strongest
- the best
- and the best-integrated
. . . is a real team effort.
It is my privilege to lead an outstanding Boeing team that displays the courage, commitment and accountability that it takes to lead, learn, grow and improve.
By focusing our collective efforts on a combination of quality, execution and productivity, the 161,000 people of Boeing are providing the means by which the company can grow. The improvements they make every day are generating the resources we need to overcome our occasional hurdles. . .in a big way. With this commitment on the part of all the people of Boeing, we are able to meet our very challenging business plan. . .and ensure an extraordinarily bright future.
I will close with a video. In it, you will see for yourself the enterprising spirit that fuels our people--who are the engine of this company.
Thank you very much. That concludes my Chairman's Report.