2014 Address to Shareholders

Annual Meeting, Chicago, IL

W. James McNerney, Jr.
Chairman and Chief Executive Officer, The Boeing Company

April 28, 2014

Last year at this meeting, I described how Boeing was moving forward to deliver greater value to our customers and shareholders as we position ourselves for a second century of innovation-based global aerospace leadership.

With our sights set high in 2013, we extended our market-share lead in commercial airplanes; maintained our strong position in defense, space and security; achieved major milestones on key new development programs; and retired significant risk from our current and future business plans.

In fact, looking back over the last several years, we have begun to fulfill our aspiration to deliver strong, sustained business performance—the year-in, year-out excellence that defines the world’s top-performing companies. This is even as competitive and fiscal pressures on our customers intensify. They expect more capability, efficiency, quality and reliability in our products and services—all for less money and at lower risk.

Our strong operational performance trend is a result of the exceptional efforts of Boeing employees, who are generating both game-changing and incremental innovation for our customers, along with the productivity to fund that innovation and thereby fuel our growth. I’m proud to share the results of their work—and our outlook—with you today.

Across our businesses, Boeing achieved outstanding results in 2013:

  • Higher commercial and military deliveries increased our revenues by 6 percent to a record $86.6 billion.
  • Strong demand for our market-leading products and services fueled $135 billion in new orders, resulting in a record backlog of $441 billion.
  • Disciplined execution across our major businesses drove record core operating earnings of $7.9 billion and record core EPS of $7.07 per share.
  • And healthy operating cash flow of $8.2 billion underpinned our decisions in December to raise our dividend by 50 percent and authorize an additional $10 billion in share repurchases. In the first quarter of 2014 alone, we returned more than $3 billion to our deserving shareholders.

Taking a closer look at our businesses and our markets:

Last year, Boeing Commercial Airplanes delivered an industry-record 648 new airplanes, on historic highs in planned production rates for the 737, 777 and 787 programs. We won 1,355 net new orders—the second-highest total in company history—and booked an additional 235 net orders through the first quarter of this year. That brings our backlog of firm orders to more than 5,100 airplanes valued at a record $374 billion. That’s an unprecedented foundation for strong and long-lasting growth.

In the single-aisle segment, last year we captured 1,046 orders across the 737 family; these commitments will effectively bridge production between today’s 737 models and the new 737 MAX, which now has won more than 1,900 orders.

In the high-value twin-aisle segment, we solidified our long-term product-strategy advantage with record launches of both the 787-10 and the 777X. The unprecedented fuel efficiency and operating economics of these new airplanes make them compelling additions to our growing product family. Six top global customers quickly signaled their approval for the 787-10, which now has 132 firm orders. And the 777X delivered the largest product launch in commercial jetliner history—worth more than $95 billion at list prices for 259 orders and commitments.

We also made excellent progress on flight testing of the 787-9 and delivered 24 747-8s.

Boeing Defense, Space & Security also performed well despite extreme budget pressures in our traditional markets and increased global competition.

During the year, we delivered 164 military aircraft, 10,711 weapons systems and seven satellites. Revenue held strong at $33.2 billion, and international business accounted for 26 percent of those revenues and 37 percent of the division’s year-end $67 billion backlog—further validating our ongoing global-strategy expansion.

We fortified our market position over the past year with an impressive string of strategic wins, including:

  • Multiyear contracts for 99 V-22 Osprey tiltrotor aircraft for the U.S. Marine Corps and the U.S. Air Force and up to 215 CH-47F Chinook helicopters for the U.S. Army
  • Full-rate production of the P-8A Poseidon with U.S. Navy contracts for  29 aircraft
  • 82 Apache helicopters and support for the U.S. Army ... and 36 for the Republic of Korea
  • U.S. Air Force contracts for GPS modernization and A-10 wing replacement
  • And, on the international front, additional stated commitments for 24 Apaches, eight P-8As and three 737-based AEW&C aircraft

We also made progress on several of our innovative new programs:

  • Our X-51A WaveRider made the longest hypersonic flight to date.
  • Our Space Launch System for NASA had a successful preliminary design review.
  • And our liquid hydrogen–powered Phantom Eye unmanned airborne system won its first payload customer.

Beyond our product and program positioning, we are pursuing a number of quality, productivity and growth initiatives, that we also made progress on last year.

For example, we successfully negotiated long-term contract extensions with our Machinists in the Pacific Northwest and in St. Louis. These unprecedented agreements ensure labor continuity for us and our customers, with economic and productivity incentives that will improve our global competitiveness.

Building on our work to broaden our footprint and expand our manufacturing capacity (think the second 787 production line in South Carolina), we have taken similar steps with key functions (such as engineering and information technology), where we have been strategically locating centers of excellence in the U.S. and around the world.

Our Partnering for Success program with our suppliers—which aims to decrease the cost and increase the quality of our products—is progressing well. Similarly, we are finding ways to innovate for less—and lower the cost of development programs. We expect further gains to materialize in both of these efforts over the next few years.

Finally, our team’s awareness of workplace safety increased and injuries declined in 2013, as we moved to strengthen this aspect of our operations and culture.

Turning to our outlook for the remainder of 2014...

Global customer demand for our fuel-efficient and value-creating commercial airplane family stands strong, and commercial aviation remains a very attractive near- and long-term market.

With the launch of the 777X and 787-10, we have effectively completed a decade-long refresh of our commercial product family that advantages us in each market segment and continues to position us for significant and sustained growth. Our priorities for capturing that growth are clear:

First is to profitably build out our record backlog. We have increased our commercial-jet output by 40 percent over the last three years, and rates will continue to climb. By 2017, we will be producing nearly 70 airplanes per month across all programs.

Second is to execute on our development programs.

  • First delivery of the 787-9 is on track for mid-2014.
  • The 737 MAX is scheduled to enter service in 2017.
  • The 787-10 is on plan for first delivery in 2018
  • And the 777X arrives in 2020.

A third priority: Ensuring smooth entry into service of these new airplanes will be paramount. In that regard, I’m pleased to report that the 787 fleet is flying an average of more than 260 flights per day with overall dispatch reliability trending positively at greater than 98 percent. More work remains to be done there, but we are on the right course.

Finally, continuing to leverage and grow our services business rounds out our priorities for Commercial Airplanes.

At Boeing Defense, Space & Security: While we are encouraged that Fiscal Year 2015 deliberations have provided some near-term sequestration relief for the Department of Defense and our other U.S. government customers, we remain concerned about longer-term budget uncertainty and the ultimate consequences of sequestration.

However, strong overall support for our programs continues to be driven by the on-cost, on-schedule performance that customers expect in today’s more-for-less world. Our portfolio of reliable, proven and affordable systems and services remains a competitive advantage in today’s constrained budget environment.

Having anticipated these challenges, we continue to proactively take the necessary steps to compete effectively. We achieved $4 billion in cost reductions over the past three years and are on plan to drive out another $2.1 billion in annual operating costs.

This productivity has improved the affordability of our products and enabled us to fund investments that boost our long-term position and differentiate us from our competitors—many of whom have scaled back defense-related R&D in these more austere times.

We continue to target organic growth through investments in technology and innovation in areas such as: commercial-derivative airplanes; space; unmanned systems; intelligence, surveillance and reconnaissance; cyber security, and the few but critical future large-scale programs identified as priorities by our customer—like Long Range Strike, UCLASS and the T-X Trainer.

In summary, our Defense, Space & Security priorities are to:

  • Extend and grow our core business by bringing enhanced capability and affordability to our customers
  • Maintain on-track performance of our development programs
  • And continue to invest in growth areas amid further international expansion.

Every day, the people of Boeing strive to build better communities and a better planet with the same intensity that we apply to building better products and providing better services to our customers.

For example, in 2013, we helped to build better communities worldwide through our contributions of time, talent and money. Perhaps most notably, our teams worked in concert with community, business and public-sector partners to help strengthen educational programs that will, in turn, help future workers develop the critical skills that they will need in the 21st century’s global economy.

We also continued to expand the potential for sustainable biofuels and tested new technologies that show promise of further reducing emissions and noise in our products. And, even as our output increases, we have committed to zero growth in our own facilities’ greenhouse-gas emissions, water use, hazardous-waste generation and solid waste to landfills.

Achieving our plans for 2014 and beyond will challenge us to take all that we have done, and all that we have learned, and build on it—to do our jobs safely and more efficiently; deliver our products and services on time, on cost and with the reliability we promised; and leverage the global strengths and capability of One Boeing ... while adhering to the values and integrity that have long defined who we are as a company.

This enduring spirit within our company, and our people, fueled our passion to: break the sound barrier, introduce international air travel, launch the first satellites, usher in manned space flight, advance the technologies of air warfare—and much, much more.

I have the utmost confidence in our future as we move toward a second century of building a bigger, better Boeing ... together.