Enjoyed Some Success; Faced Many Challenges
Boeing, the big kahuna
of aerospace, reported its 2003 year-end results on Thursday. Its
report revealed the very best and worst the aerospace giant could
hope for over the previous 12 month period.
Boeing reported net income of $1.1 billion for the fourth
quarter, or $1.37 per share, on revenues of $13.2 billion. Reported
net income for 2003 totaled $0.7 billion, or $0.86 per share, on
revenues of $50.5 billion. The results include a $1.01 per share
non-cash charge to revalue goodwill balances in the first quarter
and a $0.87 per share gain related to a federal tax refund in the
"This past year was notable both for the solid performance
turned in by most of our businesses, as well as the challenges we
faced," Boeing President and CEO Harry Stonecipher said.
"Integrated Defense Systems delivered strong fourth-quarter
operating performance and over $50 billion of new orders for the
year, which strengthen our revenue outlook going forward."
"Despite the most severe market challenges our industry has
faced, Boeing Commercial Airplanes continues to perform well in
terms of productivity and profitability. With the Board's approval
to begin selling the 7E7, we are well positioned as the industry
recovers with an airplane we believe will provide significant
benefits to airlines and passengers," he added.
"While there is no doubt that the emergence of ethical issues
during the year was deeply disappointing to all of us, I feel
strongly that we acted quickly and aggressively to address the
issues," Stonecipher said. "As we move into 2004, our focus is on
execution, demonstrating our commitment to integrity, and raising
our performance to a new level."
The Company’s 2003 earnings from operations of $0.4
billion reflect lower commercial airplane deliveries, commercial
space charges, lower pension income, and the revaluation of
commercial financing and goodwill assets . These factors were
partially offset by continued growth and strong operating
performance in the Company’s portfolio of defense businesses
and by continued improvements in operating efficiencies at
Commercial Airplanes. Excluding the goodwill impairment charges
reported earlier in the year, adjusted earnings from operations*
were $1.3 billion for 2003.
Boeing Commercial Airplanes
During 2003, Commercial
Airplanes aggressively managed for profitability through the
downturn in its markets while positioning itself for long-term
strength. In December, Commercial Airplanes received authority from
the Board of Directors to offer the 7E7 mid-sized airplane, which
is designed to provide airlines with substantial gains over
current-generation aircraft in efficiency, environmental
friendliness, and passenger comfort. Customer interest in the 7E7
is high and the Company projects the addressable market to be
approximately $400 billion over the next 20 years.
Commercial Airplanes’ results for the fourth quarter and
full year are summarized in Table 5 and reflect solid operating
performance on planned lower delivery volumes and the third-quarter
decision to complete 757 production after delivering more than
1,000 airplanes over two decades.
For 2003, Commercial Airplanes delivered 281 airplanes
generating $22.4 billion of revenue. Operating earnings for the
year totaled approximately $0.7 billion, reflecting lower revenues,
a goodwill impairment charge in the first quarter, and the decision
to conclude the 757 program. These impacts were partially offset by
continued improvements in operating efficiencies. Excluding the
goodwill impairment charge, adjusted operating earnings* for the
year totaled approximately $1.0 billion.
During the fourth quarter, deliveries of commercial airplanes
decreased 17 percent to 71 airplanes, and revenues fell 8 percent
to $5.8 billion, when compared with the fourth quarter of 2002.
Operating earnings totaled $471 million and operating margins
increased to 8.1 percent.
Commercial Airplanes captured 81 gross orders during the quarter
and 240 for the year from a broad cross-section of customers
including many leading low-cost airlines. Contractual backlog
totaled $63.9 billion on December 31 compared with $68.2 billion at
the end of 2002.
Integrated Defense Systems
Systems (IDS) delivered solid revenue growth and operating
profitability as its defense and intelligence businesses continued
to perform in strong markets. During 2003, IDS won unprecedented
orders of more than $50 billion. IDS faced challenges in 2003 that
impacted its results, primarily in its Launch and Orbital Systems
segment, including continued weakness in its commercial space
markets and ethics issues related to the U.S. Air Force EELV
contract. However, with a broad portfolio of traditional platforms
and transformational programs along with success in winning new
business, IDS is well positioned to deliver continued growth and
Revenues for 2003 were $27.4 billion, up 10 percent over 2002
driven by growth in all four of IDS’s reporting segments.
Operating earnings and margins were down from 2002 as a result of
charges related to its commercial space businesses that were
partially offset by improved performance in its Aircraft and Weapon
Systems, Network Systems, and Support Systems businesses.
For the fourth quarter, IDS revenues increased to $7.2 billion
primarily as a result of significant growth in its Network Systems
and Support Systems segments. IDS delivered strong fourth-quarter
operating margins of 8.3 percent, up from 8.0 percent in the fourth
quarter of 2002.
Aircraft and Weapon Systems delivered another year of excellent
profitability. Revenues rose 2 percent to $10.8 billion on
increased JDAM and F/A-22 volume, which offset lower rotorcraft
deliveries. Performance remained outstanding with operating margins
of 13.2 percent net of investment in the 767 Tanker program, up
from 12.0 percent in 2002.
Network Systems continued its rapid growth and solid performance
in 2003. Revenues rose 16 percent to almost $9.4 billion on
increased activity in its Proprietary, Homeland Security, and
Future Combat Systems programs. Operating margins remained solid at
6.7 percent on higher revenues and favorable program mix offset by
cost growth on DoD satellite programs as well as a non-cash charge
taken for the Resource 21 venture in the third quarter. Results for
2002 included a $100 million charge related to the development of
the 737 Airborne Early Warning & Control aircraft.
Support Systems also delivered strong growth and excellent
profitability in 2003. Revenues increased 21 percent to $4.2
billion on significant increases in spares for tactical aircraft,
maintenance and modifications on transport aircraft, and integrated
logistic support and services. Operating margins continued to
improve, totaling 11.2 percent on higher revenue and strong program
performance. During the fourth quarter, Support Systems was awarded
the Malcolm Baldrige quality award in recognition of their
Launch and Orbital Systems’ 2003 results were impacted by
the continued weakness in commercial space markets and cost growth
in its satellite business. Revenues rose 7 percent on higher
deliveries of Delta launch vehicles. Operating losses totaled
approximately $1.8 billion, primarily reflecting the write-down of
goodwill balances in the first quarter and the charge associated
with its launch and satellite businesses in the second quarter.
During 2003, IDS captured new business that boosted its year-end
contractual backlog to $40.9 billion compared with $36.0 billion at
the end of 2002. Unobligated backlog also rose significantly to
$50.6 billion. Total IDS backlog, comprised of contractual and
unobligated, ended 2003 at $91.5 billion compared with $70.7
billion at the end of 2002.
Boeing Capital Corporation
During 2003, Boeing Capital Corporation (BCC) shifted its
strategy to create value by supporting the operations of the
Company’s business units while reducing risk. BCC’s
performance reflected this new strategy as customer financing
portfolio growth slowed over the course of the year.
In 2003, BCC annual revenues and pre-tax income increased to
$1.2 billion and $143 million, respectively, primarily reflecting
the portfolio growth that occurred during the second half of 2002.
For the fourth quarter, revenues rose by 11 percent to $307 million
as portfolio growth slowed during 2003. Pre-tax income rose to $76
million, driven by a sharp reduction in non-cash charges compared
with the fourth quarter of 2002.
BCC’s customer financing portfolio grew slightly in 2003
to $12.2 billion, up from $11.8 billion at the end of 2002. New
business volume of approximately $2.0 billion was offset by $1.6
billion of asset run-off and depreciation. In the fourth quarter,
BCC’s portfolio balance was unchanged from the $12.2 billion
reported at the end of the third quarter as asset run-off and
depreciation offset new business volume. The allowance for losses
on finance leases and notes receivable at year-end was 4.8 percent
compared to 4.6 percent at the end of the third quarter and 3.5
percent at the end of 2002. Leverage, as measured by the ratio of
debt-to-equity, dropped sharply to 4.7-to-1, down from 5.2-to-1 at
the end of the third quarter and 5.7-to-1 at the end of 2002.
At year end,
approximately 80 percent of BCC's portfolio was related to Boeing
products and services (primarily commercial aircraft), up slightly
from the end of the third quarter. On January 15, 2004, BCC
announced it is assessing strategic options with regard to the
future of its Commercial Financing unit.
The “Other” segment consists chiefly of the
Connexion by BoeingSM, Air Traffic Management, and Boeing
Technology units, as well as certain results related to the
consolidation of all business units. For 2003, losses from
operations were $449 million up slightly from 2002.
Connexion by BoeingSM continues to prepare for launch of
commercial service on Lufthansa in March 2004, while Air Traffic
Management builds support for a modernized global air traffic
management system. During the fourth quarter, Connexion by Boeing
signed initial service agreements with Japan Airlines and All
Nippon Airways for 10 aircraft each bringing the total number of
aircraft under contract for its service to 119.