Nine months ended September 30

Three months ended September 30


2019

These measures exclude certain components of pension and other postretirement 
benefit expense. See page 53 for important information about these non-GAAP 
measures and reconciliations to the most comparable GAAP measures.

Revenues

Revenues for the nine months ended September 30, 2019 decreased by $14,138 
million compared with the same period in 2018. Commercial Airplanes (BCA) 
revenues decreased by $16,175 million driven by lower deliveries and a revenue 
reduction of $5,610 million that was recorded in the second quarter of 2019 
related to estimated potential concessions and other considerations to 
customers for disruptions and associated delivery delays related to the 737 MAX 
grounding. Defense, Space & Security (BDS) revenues increased by $747 million 
primarily due to higher revenues from satellites, weapons, derivative aircraft, 
and early warning aircraft, partially offset by lower revenue for fighters and 
C-17. Global Services (BGS) revenues increased by $1,672 million primarily due 
to the acquisition of KLX, Inc. in the fourth quarter of 2018 and international 
government services revenue. The changes in Unallocated items, eliminations and 
other primarily reflect the timing of eliminations for intercompany aircraft 
deliveries.

Revenues for the three months ended September 30, 2019 decreased by $5,166 
million compared with the same period in 2018. BCA revenues decreased by $5,822 
million primarily due to lower deliveries resulting from the 737 MAX grounding. 
BDS revenues increased by $105 million primarily due to higher revenues from 
satellites, weapons, and T-7A Red Hawk, partially offset by lower revenues for 
the F-15 program. BGS revenues increased by $557 million, primarily due to the 
acquisition of KLX, Inc. in the fourth quarter of 2018 and international 
government services revenue.

The FAS/CAS service cost adjustment represents the difference between the FAS 
pension and postretirement service costs calculated under GAAP and costs 
allocated to the business segments.

Core operating (loss)/earnings is a Non-GAAP measure that excludes the FAS/CAS 
service cost adjustment. See page 53. Earnings from operations for the nine 
months ended September 30, 2019 decreased by $7,583 million compared with the 
same period in 2018, primarily due to lower earnings at BCA and a customer 
financing impairment of $250 million that was recorded in Unallocated Items, 
Eliminations and Other. The decrease was partially offset by higher earnings at 
BDS and BGS. BCA earnings from operations decreased by $9,043 million primarily 
due to the earnings charge for the 737 MAX grounding of $5,610 million and 
lower 737 deliveries, partially offset by higher 787 margins. BDS earnings from 
operations increased by $1,691 million, primarily due to lower charges on 
development programs. During the third quarter of 2018, upon contract award, we 
recorded charges of $400 million associated with anticipated losses on the T-7A 
Red Hawk and $291 million on the MQ-25. During the nine months ended September 
30, 2018, BDS recorded reach-forward losses of $674 million related to the 
KC-46A Tanker program. BGS earnings from operations increased by $214 million 
primarily due to higher revenues. Earnings from operations for the three months 
ended September 30, 2019 decreased by $968 million compared with the same 
period in 2018, primarily due to lower earnings at BCA, partially offset by 
higher earnings at BDS and BGS. BCA's earnings from operations decreased $2,073 
million primarily due to lower 737 deliveries, partially offset by higher 787 
margins. BDS earnings from operations increased by $1,002 million, compared 
with the same period in 2018 primarily due to charges on the T-7A Red Hawk, 
MQ-25, and KC-46A Tanker programs recorded in the third quarter of 2018. BGS 
earnings from operations increased by $125 million primarily due to higher 
revenues and improved performance and mix. Core operating earnings for the nine 
and three months ended September 30, 2019 decreased by $7,657 million and $995 
million compared with the same periods in 2018 primarily due to lower earnings 
at BCA, partially offset by higher earnings at BDS and BGS.

The deferred compensation expense increased by $42 million for the nine months 
ended September 30, 2019 compared with the same period in 2018 primarily driven 
by changes in broad market conditions. Research and development expense 
increased by $201 million and $47 million for the nine and three months ended 
September 30, 2019 compared with the same periods in 2018 primarily due to 
enterprise investments in new products and technologies. During the first 
quarter of 2019, we recorded a $250 million charge related to the impairment of 
lease incentives with one customer that is currently experiencing liquidity 
issues. During the second quarter of 2019, we recorded a charge of $109 million 
related to ongoing litigation associated with recoverable costs on U.S. 
government contracts. In the second quarter of 2018, we recorded a charge of 
$148 million related to the outcome of the Spirit litigation. A portion of 
service cost is recognized in Earnings from operations in the period incurred 
and the remainder is included in inventory at the end of the reporting period 
and recorded in Earnings from operations in subsequent periods.

The pension FAS/CAS service cost adjustment recognized in earnings in 2019 is 
largely consistent with the same periods in the prior year. The net periodic 
benefit costs included in Earnings from operations in 2019 is largely 
consistent with the same periods in the prior year.

Other income increased by $271 million and $109 million during the nine and 
three months ended September 30, 2019, primarily due to non-operating pension 
expense. Non-operating pension expense was a benefit of $280 million and $93 
million during the nine and three months ended September 30, 2019 compared with 
$98 million and $50 million during the same periods in 2018. The benefits in 
2019 reflect lower amortization of actuarial losses driven by higher discount 
rates. This is partially offset by higher interest costs and lower expected 
returns, as a result of the lower value of plan assets at December 31, 2018 
compared to 2017. Higher interest and debt expense for the nine and three 
months ended September 30, 2019 is a result of higher debt balances.

Total Costs and Expenses (“Cost of Sales”) Cost of sales, for both products and 
services, consists primarily of raw materials, parts, sub-assemblies, labor, 
overhead and subcontracting costs. Our BCA segment predominantly uses program 
accounting to account for cost of sales. Under program accounting, cost of 
sales for each commercial airplane program equals the product of (i) revenue 
recognized in connection with customer deliveries and (ii) the estimated cost 
of sales percentage applicable to the total remaining program. For long-term 
contracts, the amount reported as cost of sales is recognized as incurred. 
Substantially all contracts at our BDS segment and certain contracts at our BGS 
segment are long-term contracts with the U.S. government and other customers 
that generally extend over several years. Costs on these contracts are recorded 
as incurred.

Cost of sales for commercial spare parts is recorded at average cost. Cost of 
sales for the nine and three months ended September 30, 2019 decreased by 
$6,015 million, or 10% and by $4,110 million, or 20% compared with the same 
periods in 2018, primarily due to lower revenue and lower reach-forward losses. 
Cost of sales as a percentage of Revenues increased in 2019 resulting from the 
reduction in revenue due to the 737 MAX grounding.

Research and development expense increased by $53 million during the nine 
months ended September 30, 2019 compared to the prior period in 2018, primarily 
due to enterprise and BCA investments in product development, partially offset 
by lower 777X and 737 MAX spending. Research and development expense decreased 
by $48 million during the three months ended September 30, 2019 compared to the 
prior period in 2018, primarily due to lower spending on 777X and 737 MAX, 
partially offset by higher enterprise and BCA investments in product 
development.

Backlog

Contractual backlog of unfilled orders excludes purchase options, announced 
orders for which definitive contracts have not been executed, and unobligated 
U.S. and non-U.S. government contract funding. The decrease during the nine 
months ended September 30, 2019 was primarily due to BCA deliveries in excess 
of new orders and a reduction in backlog related to orders from a customer 
experiencing liquidity issues, partially offset by BDS current year contract 
awards in excess of revenue recognized on contracts awarded in prior years. 
Unobligated backlog includes U.S. and non-U.S. government definitive contracts 
for which funding has not been authorized. The decrease during the nine months 
ended September 30, 2019 was primarily due to reclassifications to contractual 
backlog related to BGS and BDS contracts. Export-Import Bank of the United 
States Many of our non-U.S. customers finance purchases through the 
Export-Import Bank of the United States. Following the expiration of the bank’s 
charter on June 30, 2015, the bank’s charter was reauthorized in December 2015. 
However, from the time of that reauthorization until May 8, 2019, when the U.S. 
Senate confirmed members sufficient to constitute a quorum of the bank’s board 
of directors, the bank was not able to approve any transaction totaling more 
than $10 million. The bank is authorized through November 21, 2019. If the 
bank's charter is not reauthorized on a timely basis, or if the bank’s future 
funding authority is insufficient to meet our customers’ needs, we may fund 
additional commitments and/or enter into new financing arrangements with 
customers. Certain of our non-U.S. customers also may seek to delay purchases 
if they cannot obtain financing at reasonable costs, and there may be further 
impacts with respect to future sales campaigns involving non-U.S. customers.

Global Trade In June 2018, the U.S. Government began imposing tariffs on steel 
and aluminum imports. In response to these tariffs, several major U.S. trading 
partners have imposed, or announced their intention to impose, tariffs on U.S. 
goods. In May 2019, the U.S. Government, Mexico and Canada reached an agreement 
to end the steel and aluminum tariffs between these countries. We continue to 
monitor this agreement and the potential for any extra costs that may result 
from the remaining global tariffs. In July 2018, the U.S. and China began 
imposing tariffs on approximately $34 billion of each other's exports. Certain 
aircraft parts and components that Boeing procures are subject to these 
tariffs. Subsequently, the U.S. imposed tariffs on an additional $216 billion 
in Chinese goods, and China imposed tariffs on an additional $76 billion worth 
of U.S goods. Negotiations to resolve the trade dispute are currently ongoing. 
The continued global trade tension has resulted in market uncertainties and 
fewer orders than anticipated for our commercial aircraft. In the third quarter 
of 2019, we decided to reduce the production rate on the 787 program for 
approximately two years beginning in late 2020. We continue to monitor the 
potential for additional disruption and adverse revenue and/or cost impacts 
that may result from global trade tension including, the potential imposition 
of further tariffs, or other future geopolitical economic developments. The 
U.S. Government continues to impose and/or consider imposing sanctions on 
certain businesses and individuals in Russia. Although our operations or sales 
in Russia have not been impacted to date, we continue to monitor additional 
sanctions that may be imposed by the U.S. Government and any responses from 
Russia that could affect our supply chain, business partners or customers. 
Segment Results of Operations and Financial Condition Commercial Airplanes 
Business Environment and Trends Airline Industry Environment Our updated 
20-year forecast, published in June 2019, projects a long-term average growth 
rate of 4.6% per year for passenger traffic and 4.2% for cargo traffic. Based 
on long-term global economic growth projections of 2.7% average annual GDP 
growth, we project a $6.8 trillion market for 44,040 new airplanes over the 
next 20 years.


Results of Operations

Nine months ended September 30

Three months ended September 30


2019

Revenues Revenues for the nine months ended September 30, 2019 decreased by 
$16,175 million compared with the same period in 2018 driven by lower 
deliveries and a revenue reduction of $5,610 million that was recorded in the 
second quarter of 2019 related to estimated potential concessions and other 
considerations to customers for disruptions and associated delivery delays 
related to the 737 MAX grounding. Revenues for the three months ended September 
30, 2019 decreased by $5,822 million compared with the same period in 2018 
driven by lower deliveries due to the 737 MAX grounding. The 737 MAX grounding 
will continue to have a significant impact on revenues until deliveries resume.

Aircraft accounted for as revenues by BCA and as operating leases in 
consolidation identified by parentheses. Loss/Earnings From Operations Loss 
from operations for the nine months ended September 30, 2019 was $3,813 million 
compared with earnings from operations of $5,230 million in the same period in 
2018. This decrease of $9,043 million is primarily due to the earnings charge 
for the 737 MAX grounding of $5,610 million and lower 737 deliveries, partially 
offset by higher 787 margins. Loss from operations for the three months ended 
September 30, 2019 was $40 million compared with earnings from operations of 
$2,033 million in the same period in 2018. This decrease of $2,073 million is 
primarily due to lower 737 deliveries, partially offset by higher 787 margins. 
The 737 MAX grounding will continue to adversely impact margins until 
deliveries resume. Backlog Our total backlog represents the estimated 
transaction prices on unsatisfied and partially satisfied performance 
obligations to our customers where we believe it is probable that we will 
collect the consideration due and where no contingencies remain before we and 
the customer are required to perform. Backlog does not include prospective 
orders where customer controlled contingencies remain, such as the customer 
receiving approval from its board of directors, shareholders or government or 
completing financing arrangements. All such contingencies must be satisfied or 
have expired prior to recording a new firm order even if satisfying such 
conditions is highly certain. Backlog excludes options and BCC orders. A number 
of our customers may have contractual remedies that may be implicated by 
program delays. We address customer claims and requests for other contractual 
relief as they arise. The value of orders in backlog is adjusted as changes to 
price and schedule are agreed to with customers and is reported in accordance 
with the requirements of Topic 606. BCA total backlog decreased from $408,140 
million as of December 31, 2018 to $387,397 million at September 30, 2019 
primarily due to deliveries in excess of new orders and a reduction in backlog 
related to orders from a customer experiencing liquidity issues. While the 737 
MAX grounding has not resulted in significant order cancellations, we are 
experiencing fewer new 737 MAX orders than we were receiving prior to the 
grounding.

At September 30, 2019, the 747 accounting quantity includes one already 
completed aircraft that has not been sold and is being remarketed.

The accounting quantity for the 777X will be determined in the year of first 
airplane delivery. Program Highlights 737 Program See the discussion of the 737 
MAX Grounding and 737NG Structure (Pickle Fork) in Note 11 and 19 to our 
Condensed Consolidated Financial Statements. 747 Program We are currently 
producing at a rate of 0.5 aircraft per month. We continue to evaluate the 
viability of the 747 program. We believe that a decision to end production of 
the 747 at the end of the current accounting quantity would not have a material 
impact on our financial position, results of operations or cash flows. 767 
Program The 767 assembly line includes a 767 derivative to support the tanker 
program. We are currently producing at a rate of 2.5 per month and plan to 
increase to 3 per month in 2020. 777 Program The accounting quantity for the 
777 program increased by 10 units during the three months ended June 30, 2019 
due to the program’s normal progress of obtaining additional orders and 
delivering airplanes. In 2013, we launched the 777X, which features a new 
composite wing, new engines and folding wing-tips. We have experienced issues 
in engine design and development on the 777X and have delayed first flight to 
early 2020, with first delivery now targeted for early 2021. The 777 and 777X 
programs have a combined production rate of 5 per month. We plan to produce 
more 777 models and fewer 777X models in the near term than previously planned. 
We expect to deliver at an average rate of 3 per month in 2020. The 777X will 
have a separate program accounting quantity, which will be determined in the 
year of first airplane delivery. 787 Program At the end of the first quarter of 
2019, we increased the production rate from 12 per month to 14 per month. We 
delivered the first 787-10 in March 2018. Continued global trade tension has 
resulted in market uncertainties and fewer orders than anticipated. During the 
third quarter of 2019, we decided to reduce the 787 production rate to 12 per 
month for approximately two years beginning in late 2020.

Additional Considerations The development and ongoing production of commercial 
aircraft is extremely complex, involving extensive coordination and integration 
with suppliers and highly-skilled labor from employees and other partners. 
Meeting or exceeding our performance and reliability standards, as well as 
those of customers and regulators, can be costly and technologically 
challenging. In addition, the introduction of new aircraft and derivatives, 
such as the 777X, involves increased risks associated with meeting development, 
production and certification schedules. As a result, our ability to deliver 
aircraft on time, satisfy performance and reliability standards and achieve or 
maintain, as applicable, program profitability is subject to significant risks. 
Factors that could result in lower margins (or a material charge if an airplane 
program has or is determined to have reach-forward losses) include the 
following: changes to the program accounting quantity, customer and model mix, 
production costs and rates, changes to price escalation factors due to changes 
in the inflation rate or other economic indicators, performance or reliability 
issues involving completed aircraft, capital expenditures and other costs 
associated with increasing or adding new production capacity, learning curve, 
additional change incorporation, achieving anticipated cost reductions, flight 
test and certification schedules, costs, schedule and demand for new airplanes 
and derivatives and status of customer claims, supplier assertions and other 
contractual negotiations. While we believe the cost and revenue estimates 
incorporated in the consolidated financial statements are appropriate, the 
technical complexity of our airplane programs creates financial risk as 
additional completion costs may become necessary or scheduled delivery dates 
could be extended, which could trigger termination provisions, order 
cancellations or other financially significant exposure. Defense, Space & 
Security Business Environment and Trends United States Government Defense 
Environment Overview The Bipartisan Budget Act (BBA) of 2019 raised the Budget 
Control Act limits on federal discretionary defense and non-defense spending 
for fiscal years 2020 and 2021 (FY20 and FY21), reducing budget uncertainty and 
the risk of sequestration. Although overall funding levels have been agreed to, 
the timeliness of FY20 funding for government departments and agencies, 
including the Department of Defense (DoD), the National Aeronautics and Space 
Administration (NASA) and the Federal Aviation Administration (FAA), remains a 
risk. The Continuing Resolution (CR), enacted on September 27, 2019, continues 
federal funding at FY19 appropriations levels through November 21, 2019. 
Congress and the President must enact either full-year FY20 appropriations 
bills or an additional CR to fund government departments and agencies beyond 
November 21, 2019 in order to prevent a future government shutdown. A 
government shutdown may impact the Company's operations. For example, 
requirements to furlough employees in the U.S. DoD, the Department of 
Transportation or other government agencies could result in payment delays, 
impair our ability to perform work on existing contracts, and/or negatively 
impact future orders. Congress may fund FY20 by passing one or more CRs; 
however, this could restrict the execution of certain program activities and 
delay new programs or competitions. There continues to be uncertainty with 
respect to future program-level appropriations for the U.S. DoD and other 
government agencies, including NASA. Future budget cuts or investment priority 
changes could result in reductions, cancellations and/or delays of existing 
contracts or programs. Any of these impacts could have a material effect on our 
results of operations, financial position and/or cash flows.

Results of Operations

(Dollars in millions)

Nine months ended September 30

Three months ended September 30

Since our operating cycle is long-term and involves many different types of 
development and production contracts with varying delivery and milestone 
schedules, the operating results of a particular period may not be indicative 
of future operating results. In addition, depending on the customer and their 
funding sources, our orders might be structured as annual follow on contracts, 
or as one large multi-year order or long-term award. As a result, 
period-to-period comparisons of backlog are not necessarily indicative of 
future workloads. The following discussions of comparative results among 
periods should be viewed in this context.

Revenues BDS revenues for the nine months ended September 30, 2019 increased by 
$747 million compared with the same period in 2018, primarily due to higher 
revenues from satellites, weapons, derivative aircraft, and early warning 
aircraft, partially offset by lower revenue for fighters and C-17. The 
favorable impact of cumulative contract catch-up adjustments to revenue for the 
nine months ended September 30, 2019 was $230 million higher than the 
comparable period in the prior year, reflecting decreased unfavorable 
adjustments on the KC-46A Tanker. BDS revenues for the three months ended 
September 30, 2019 increased by $105 million compared with the same period in 
2018, primarily due to higher revenues from satellites, weapons, and T-7A Red 
Hawk, partially offset by lower revenues for the F-15 program. Net unfavorable 
cumulative contract catch-up adjustments to revenue for the three months ended 
September 30, 2019 was $70 million lower compared with the same period in 2018, 
reflecting decreased unfavorable adjustments on the KC-46A Tanker.

Earnings From Operations BDS earnings from operations for the nine and three 
months ended September 30, 2019 increased by $1,691 million and $1,002 million 
compared with the same periods in 2018, primarily due to lower charges on 
development programs. During the third quarter of 2018, upon contract award, we 
recorded charges of $400 million associated with anticipated losses on the T-7A 
Red Hawk and $291 million on the MQ-25. During the nine and three months ended 
September 30, 2018, BDS recorded reach-forward losses of $674 million and $176 
million related to the KC-46A Tanker program. The favorable impact of 
cumulative contract catch-up adjustments for the nine months ended September 
30, 2019 was $495 million higher than the comparable period in the prior year, 
reflecting decreased unfavorable adjustments on the KC-46A Tanker. Net 
unfavorable cumulative contract catch-up adjustments were lower by $160 million 
for the three months ended September 30, 2019 compared with the same period in 
2018, reflecting decreased unfavorable adjustments on the KC-46A Tanker. BDS 
earnings from operations include equity earnings of $125 million and $60 
million for the nine and three months ended September 30, 2019 compared to $139 
million and $48 million for the same periods in 2018 primarily reflecting 
earnings on our ULA joint venture. Backlog Total backlog increased from $61,277 
million at December 31, 2018 to $61,740 million at September 30, 2019 primarily 
due to current year contract awards including F/A-18 fighters, P-8A Poseidon, 
KC-46A Tanker, and E-7 Airborne Early Warning & Control, partially offset by 
revenue recognized on contracts awarded in prior years. Additional 
Considerations Our BDS business includes a variety of development programs 
which have complex design and technical challenges. Many of these programs have 
cost-type contracting arrangements. In these cases, the associated financial 
risks are primarily in reduced fees, lower profit rates or program cancellation 
if cost, schedule or technical performance issues arise. Examples of these 
programs include Ground-based Midcourse Defense, Proprietary and Space Launch 
System programs. Some of our development programs are contracted on a 
fixed-price basis and BDS customers are increasingly seeking fixed priced 
proposals for new programs. Examples of significant fixed-price development 
programs include Commercial Crew, USAF KC-46A Tanker, T-7A Red Hawk (formerly 
T-X Trainer), VC-25B Presidential Aircraft, MQ-25, and commercial and military 
satellites. New programs could also have risk for reach-forward loss upon 
contract award and during the period of contract performance. In the third 
quarter of 2018, we were awarded contracts to develop the T-7A Red Hawk 
aircraft with complementary devices and the MQ-25. We recorded orders of $1,618 
million and recognized losses of $691 million associated with these contracts. 
Many development programs have highly complex designs. As technical or quality 
issues arise during development, we may experience schedule delays and cost 
impacts, which could increase our estimated cost to perform the work or reduce 
our estimated price, either of which could result in a material charge or 
otherwise adversely affect our financial condition. These programs are ongoing, 
and while we believe the cost and fee estimates incorporated in the financial 
statements are appropriate, the technical complexity of these programs creates 
financial risk as additional completion costs may become necessary or scheduled 
delivery dates could be extended, which could trigger termination provisions, 
the loss of satellite in-orbit incentive payments, or other financially 
significant exposure. These programs have risk for reach-forward losses if our 
estimated costs exceed our estimated contract revenues. KC-46A Tanker In 2011, 
we were awarded a contract from the U.S. Air Force (USAF) to design, develop, 
manufacture and deliver four next generation aerial refueling tankers. The 
KC-46A Tanker is a derivative of our 767 commercial aircraft. This Engineering, 
Manufacturing and Development (EMD) contract is a fixed-price incentive fee 
contract valued at $4.9 billion and involves highly complex designs and systems 
integration. In 2015, we began work on low rate initial production (LRIP) 
aircraft for the USAF. In 2016, following our achievement of key flight testing 
milestones, the USAF authorized two LRIP lots for 7 and 12 aircraft valued at 
$2.8 billion and in 2017, the USAF authorized an additional LRIP lot for 15 
aircraft valued at $2.1 billion. On September 10, 2018, the USAF authorized an 
additional LRIP lot for 18 aircraft valued at $2.9 billion. On September 27, 
2019, the USAF authorized an additional LRIP lot for 15 aircraft valued at $2.6 
billion. The contract contains production options for both LRIP aircraft and 
full rate production aircraft. If all options under the contract are exercised, 
we expect to deliver 179 aircraft for a total expected contract value of 
approximately $30 billion. During 2018, we recorded additional reach-forward 
losses of $736 million primarily reflecting higher estimated costs associated 
with certification, flight testing and change incorporation on aircraft, as 
well as higher than expected effort to meet customer requirements in order to 
support delivery of the initial aircraft. As with any development program, this 
program remains subject to additional reach-forward losses if we experience 
further production, technical or quality issues. United Launch Alliance See the 
discussion of Indemnifications to ULA and Financing Commitments in Notes 5, 11 
and 12 of our Condensed Consolidated Financial Statements. Sea Launch See the 
discussion of the Sea Launch receivables in Note 9 to our Condensed 
Consolidated Financial Statements. Commercial Crew See the discussion of 
Fixed-Price Development Contracts in Note 11 to our Condensed Consolidated 
Financial Statements. T-7A Red Hawk In September 2018, we were selected by the 
U.S. Air Force to build the next generation training capability, known as T-7A 
Red Hawk (formerly T-X Trainer). The program includes aircraft and simulators 
as well as support and ground equipment. The contract is structured as an 
indefinite delivery/indefinite quantity (IDIQ) fixed-price contract with a 
minimum of 206 aircraft and a maximum of 475 aircraft. The EMD contract is a 
fixed-price contract valued at $813 million and includes five aircraft and 
seven simulators, with a period of performance that runs through 2022. The 
production and support contracts are structured as options that begin with 
authorization from fiscal year 2022 to 2034. In connection with winning this 
competition, we recorded a reach-forward loss of $400 million associated with 
anticipated losses on the options for 346 aircraft that we believe are probable 
of being exercised. We believe that our investment in this contract positions 
us for additional market opportunities for both trainer and light attack 
aircraft. MQ-25 In August 2018, we were awarded an EMD contract to build the 
MQ-25 for the U.S. Navy. The EMD contract is a fixed-price contract that 
includes development and delivery of four aircraft and test articles at a 
contract price of $805 million. In connection with winning this competition, we 
recognized a reach-forward loss of $291 million. The period of performance runs 
from 2018 through 2024. The MQ-25 is the U.S. Navy’s first operational 
carrier-based unmanned aircraft, and we believe that our investment in this 
contract positions us for long-term leadership in autonomy and artificial 
intelligence technologies along with additional market opportunities.


Global Services

Results of Operations

(Dollars in millions)

Nine months ended September 30

Three months ended September 30

Revenues BGS revenues for the nine and three months ended September 30, 2019 
increased by $1,672 million and $557 million compared with the same periods in 
2018 primarily due to the acquisition of KLX, Inc. in the fourth quarter of 
2018 and international government services revenue. Net favorable cumulative 
contract catch-up adjustments to revenue were lower by $50 million for the nine 
months ended September 30, 2019 compared with the same period in 2018. The 
unfavorable impact of cumulative contract catch-up adjustments to revenue was 
higher by $74 million for the three months ended September 30, 2019 compared 
with the same period in 2018. Earnings From Operations BGS earnings from 
operations for the nine months ended September 30, 2019 increased by $214 
million compared with the same period in 2018 primarily due to higher revenues. 
BGS earnings from operations for the three months ended September 30, 2019 
increased by $125 million primarily due to higher revenues and improved 
performance and mix. Net favorable cumulative contract catch-up adjustments 
were lower by $27 million and lower by $31 million for the nine and three 
months ended September 30, 2019 compared with the same periods in 2018. Backlog 
BGS total backlog increased from $21,064 million as of December 31, 2018 to 
$21,088 million at September 30, 2019.


Boeing Capital Results of Operations

(Dollars in millions)

Nine months ended September 30

Three months ended September 30

Revenues Boeing Capital (BCC) segment revenues consist principally of lease 
income from equipment under operating lease, interest income from financing 
receivables and notes, and other income. BCC’s revenues for the nine and three 
months ended September 30, 2019 decreased compared with the same periods in 
2018 primarily due to lower gains on the sale of assets. Earnings From 
Operations BCC’s earnings from operations are presented net of interest 
expense, provision for (recovery of) losses, asset impairment expense, 
depreciation on leased equipment and other operating expenses. Earnings from 
operations for the nine and three months ended September 30, 2019 increased 
compared with the same periods in 2018 primarily due to lower operating 
expenses. Financial Position

BCC’s customer financing and investment portfolio at September 30, 2019 
decreased from December 31, 2018 primarily due to $585 million of note payoffs 
and portfolio run-off and $250 million related to the impairment of lease 
incentives, partially offset by new volume. BCC enters into certain 
transactions with Boeing, reflected in Unallocated items, eliminations and 
other, in the form of intercompany guarantees and other subsidies that mitigate 
the effects of certain credit quality or asset impairment issues on the BCC 
segment. The $250 million impairment of lease incentives did not result in an 
earnings charge in the BCC segment because of an intercompany guarantee. 
Aircraft subject to leases with a carrying value of approximately $101 million 
are scheduled to be returned off lease in the next 12 months. We are seeking to 
remarket these aircraft or have the leases extended.

Liquidity and Capital Resources

Cash Flow Summary

Operating Activities Net cash used by operating activities was $0.2 billion 
during the nine months ended September 30, 2019, compared with cash provided of 
$12.4 billion during the same period in 2018. The decrease in operating cash 
flows compared with the same period in 2018 primarily reflects the impacts of 
the 737 MAX grounding that is resulting in higher inventory, the lack of 
delivery payments and lower advances and progress payments. The reduction in 
net earnings from operations for the nine months ended September 30, 2019 
compared with the same period in 2018, is primarily due to the $5.6 billion 
charge in the second quarter of 2019 for estimated potential concessions and 
other considerations to 737 MAX customers, which did not affect cash flows, and 
lower 737 deliveries. Cash used by Inventory was $9.6 billion during the nine 
months ended September 30, 2019, primarily due to the suspension of 737 MAX 
deliveries, which resulted in higher commercial airplane program inventory as 
we continue to produce 737 MAX aircraft at a rate of 42 per month. Cash 
provided by Advances and progress billings was $2.4 billion and $3.5 billion 
during the nine months ended September 30, 2019 and 2018 reflecting the 
suspension of 737 MAX deliveries and lower 737 MAX orders. Net cash provided by 
operating activities in future quarters is expected to be adversely impacted by 
the 737 MAX grounding. Investing Activities Cash used by investing activities 
was $2.0 billion during the nine months ended September 30, 2019, compared with 
$2.2 billion during the same period in 2018, primarily due to lower net 
contributions to investments and higher proceeds from property sales in 2019, 
partially offset by higher cash paid for acquisitions and capital expenditures 
in 2019. In the nine months ended September 30, 2019 and 2018, capital 
expenditures totaled $1.4 billion and $1.2 billion. We expect capital 
expenditures in 2019 to be consistent with 2018. Financing Activities Cash 
provided by financing activities was $4.3 billion during the nine months ended 
September 30, 2019 compared with cash used of $10.9 billion during the same 
period in 2018, primarily reflecting higher net borrowings and lower share 
repurchases, partially offset by higher dividend payments in 2019. During the 
nine months ended September 30, 2019, new borrowings net of repayments 
increased by $10.6 billion compared with an increase of $0.7 billion in the 
same period in 2018. At September 30, 2019, the recorded balance of debt was 
$24.7 billion, of which $4.4 billion was classified as short-term. Debt, 
including intercompany loans, attributable to BCC totaled $1.9 billion, of 
which $0.7 billion was classified as short-term. During the nine months ended 
September 30, 2019 we repurchased 6.9 million shares totaling $2.7 billion 
through our open market share repurchase program. In addition, 0.6 million 
shares were transferred to us from employees for tax withholdings. Share 
repurchases during the nine months ended September 30, 2018 totaled $8.4 
billion. At September 30, 2019, the amount available under the share repurchase 
plan, announced on December 17, 2018, totaled $17.3 billion. Share repurchases 
under this plan are currently suspended. Capital Resources We have substantial 
borrowing capacity. Any future borrowings may affect our credit ratings and are 
subject to various debt covenants as described below. We have a commercial 
paper program that serves as a source of short-term liquidity. At September 30, 
2019 and December 31, 2018 commercial paper borrowings totaled $2,990 million 
and $1,895 million. Currently, we have $6.6 billion of unused borrowing 
capacity on revolving credit line agreements. We anticipate that these credit 
lines will primarily serve as backup liquidity to support our general corporate 
borrowing needs. Financing commitments totaled $15.6 billion and $19.5 billion 
at September 30, 2019 and December 31, 2018. The decrease primarily relates to 
financing commitment expirations. We anticipate that we will not be required to 
fund a significant portion of our financing commitments as we continue to work 
with third party financiers to provide alternative financing to customers. 
Historically, we have not been required to fund significant amounts of 
outstanding commitments. However, there can be no assurances that we will not 
be required to fund greater amounts than historically required. In addition, 
many of our non-U.S. customers have financed purchases through the 
Export-Import Bank of the United States. Following the expiration of the bank’s 
charter on June 30, 2015, the bank’s charter was reauthorized in December 2015. 
However, from the time of that reauthorization until May 8, 2019, when the U.S. 
Senate confirmed members sufficient to constitute a quorum of the bank’s board 
of directors, the bank was not able to approve any transaction totaling more 
than $10 million. The bank is authorized through November 21, 2019. If the 
bank's charter is not reauthorized on a timely basis, or if the bank’s future 
funding authority is insufficient to meet our customers’ needs, we may fund 
additional commitments and/or enter into new financing arrangements with 
customers. Certain of our non-U.S. customers also may seek to delay purchases 
if they cannot obtain financing at reasonable costs, and there may be further 
impacts with respect to future sales campaigns involving non-U.S. customers. In 
the event we require additional funding to support strategic business 
opportunities, our commercial aircraft financing commitments, unfavorable 
resolution of litigation or other loss contingencies, or other business 
requirements, including impacts related to the 737 MAX grounding, we expect to 
meet increased funding requirements by issuing commercial paper or term debt. 
We believe our ability to access external capital resources should be 
sufficient to satisfy existing short-term and long-term commitments and plans, 
and also to provide adequate financial flexibility to take advantage of 
potential strategic business opportunities should they arise within the next 
year. However, there can be no assurance of the cost or availability of future 
borrowings, if any, under our commercial paper program or in the debt markets. 
At September 30, 2019, we were in compliance with the covenants for our debt 
and credit facilities. The most restrictive covenants include a limitation on 
mortgage debt and sale and leaseback transactions as a percentage of 
consolidated net tangible assets (as defined in the credit agreements), and a 
limitation on consolidated debt as a percentage of total capital (as defined). 
When considering debt covenants, we continue to have substantial borrowing 
capacity. Off-Balance Sheet Arrangements We are a party to certain off-balance 
sheet arrangements including certain guarantees. For discussion of these 
arrangements, see Note 12 to our Condensed Consolidated Financial Statements. 
Contingent Obligations We have significant contingent obligations that arise in 
the ordinary course of business, which include the following: Legal Various 
legal proceedings, claims and investigations are pending against us. Legal 
contingencies are discussed in Note 19 to our Condensed Consolidated Financial 
Statements. Environmental Remediation We are involved with various 
environmental remediation activities and have recorded a liability of $582 
million at September 30, 2019. For additional information, see Note 11 to our 
Condensed Consolidated Financial Statements.

Non-GAAP Measures Core Operating Earnings, Core Operating Margin and Core 
Earnings Per Share Our unaudited condensed consolidated interim financial 
statements are prepared in accordance with Generally Accepted Accounting 
Principles in the United States of America (GAAP) which we supplement with 
certain non-GAAP financial information. These non-GAAP measures should not be 
considered in isolation or as a substitute for the related GAAP measures, and 
other companies may define such measures differently. We encourage investors to 
review our financial statements and publicly-filed reports in their entirety 
and not to rely on any single financial measure. Core operating earnings, and 
core operating margin and core earnings per share exclude the FAS/CAS service 
cost adjustment. The FAS/CAS service cost adjustment represents the difference 
between the FAS pension and postretirement service costs calculated under GAAP 
and costs allocated to the business segments. Core earnings per share excludes 
both the FAS/CAS service cost adjustment and non-operating pension and 
postretirement expenses. Non-operating pension and postretirement expenses 
represent the components of net periodic benefit costs other than service cost. 
Pension costs, comprising service and prior service costs computed in 
accordance with GAAP are allocated to BCA and certain BGS businesses supporting 
commercial customers. Pension costs allocated to BDS and BGS businesses 
supporting government customers are computed in accordance with U.S. Government 
Cost Accounting Standards (CAS), which employ different actuarial assumptions 
and accounting conventions than GAAP. CAS costs are allocable to government 
contracts. Other postretirement benefit costs are allocated to all business 
segments based on CAS, which is generally based on benefits paid. The Pension 
FAS/CAS service cost adjustment recognized in earnings was a benefit of $823 
million and $274 million for the nine and three months ended September 30, 
2019, compared with a benefit of $780 million and $260 million during the same 
periods in 2018. The non-operating pension expense included in Other income was 
a benefit of $280 million and $93 million for the nine and three months ended 
September 30, 2019 compared with $98 million and $50 million for the same 
periods in 2018. The benefits in 2019 reflect lower amortization of actuarial 
losses driven by higher discount rates. This is partially offset by higher 
interest costs and lower expected returns, as a result of the lower value of 
plan assets at December 31, 2018 compared to 2017. For further discussion of 
pension and other postretirement costs see the Management’s Discussion and 
Analysis on page 39 of this Form 10-Q and on page 45 of our 2018 Annual Report 
on Form 10-K. Management uses core operating earnings, core operating margin 
and core earnings per share for purposes of evaluating and forecasting 
underlying business performance. Management believes these core earnings 
measures provide investors additional insights into operational performance as 
unallocated pension and other postretirement benefit cost, primarily represent 
costs driven by market factors and costs not allocable to U.S. government 
contracts.

Critical Accounting Policies and Estimates 737 MAX Grounding On March 13, 2019, 
the Federal Aviation Administration (FAA) issued an order to suspend operations 
of all 737 MAX aircraft in the U.S. and by U.S. aircraft operators following 
two fatal 737 MAX accidents. Non-U.S. civil aviation authorities have issued 
directives to the same effect. The grounding is having a significant adverse 
impact on our operations and creates significant uncertainty. Multiple legal 
actions have been filed against us as a result of the October 29, 2018 accident 
of Lion Air Flight 610 and the March 10, 2019 accident of Ethiopian Airlines 
Flight 302. Further, we are fully cooperating with all ongoing governmental and 
regulatory investigations and inquiries relating to the accidents and the 737 
MAX. We cannot reasonably estimate a range of loss, if any, not covered by 
available insurance that may result given the ongoing status of these lawsuits, 
investigations, and inquiries. We have also experienced claims and/or 
assertions from customers in connection with the grounding.

In the preparation of our financial statements, we have made assumptions 
regarding outcomes of accident investigations, timing and conditions of return 
to service, timing of future 737 production rate increases, supplier readiness 
to support production rate changes, timing and sequence of future customer 
deliveries as well as outcomes of negotiations with customers impacted by the 
grounding. While these assumptions reflect our best estimate at this time, they 
are highly uncertain and significantly affect the estimates inherent in our 
financial statements. The 737 MAX grounding also affects projected revenues and 
costs associated with the 737 program accounting quantity. As a result of the 
grounding, we have reduced the 737 production rate from 52 per month to 42 per 
month and continue to evaluate further reductions in production rate, including 
a temporary shutdown in 737 production. Prior to the grounding, we had planned 
to increase the production rate to 57 per month in 2019. The FAA and other 
non-U.S. civil aviation authorities will determine the timing and conditions of 
the 737 MAX’s return to service. At September 30, 2019, we have assumed that 
regulatory approval of 737 MAX return to service begins in the fourth quarter 
of 2019. We have further assumed a gradual increase in the production rate from 
42 per month to 57 per month by late 2020, and that deliveries of 737 MAX 
airplanes produced during the grounding and included within inventory will be 
delivered over several quarters with the majority of them delivering in the 
first year. The resulting impacts increased estimated costs to produce aircraft 
included in the current accounting quantity by $3,636 million and $872 million 
in the nine and three months ended September 30, 2019. These increases in the 
costs to produce aircraft in the current accounting quantity will reduce 737 
program and overall BCA segment operating margins in future quarters after 
deliveries resume. If the timing and conditions surrounding a return to service 
differ from our assumptions, it could have a material effect on our financial 
statements. We recorded an earnings charge of $5,610 million, net of insurance 
recoveries of $500 million, in the second quarter in connection with an 
estimate of potential concessions and other considerations to customers for 
disruptions related to the 737 MAX grounding and associated delivery delays. 
This charge represents our current best estimate of future concessions and 
other considerations we expect to provide to customers. This estimate relies on 
the exercise of judgment by management and is significantly impacted by the 
assumptions described above, as well as the status of negotiations with our 
customers. Any delays in return to service, further disruptions to our 
production system, supplier claims or assertions, or changes to estimated 
concessions and other considerations we expect to provide to customers could 
have a material adverse effect on our financial position, results of 
operations, and/or cash flows.

Legal Proceedings Currently, we are involved in a number of legal proceedings. 
For a discussion of contingencies related to legal proceedings, see Note 19 to 
our Condensed Consolidated Financial Statements, which is hereby incorporated 
by reference. Item 1A. Risk Factors Certain risks described below update the 
risk factors in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K 
for the year ended December 31, 2018. The 737 MAX fleet is currently grounded, 
and we are subject to a number of risks and uncertainties related to the timing 
and conditions surrounding the aircraft’s return to service, including 
potential future reductions to the production rate and/or additional delivery 
delays, as well as risks associated with assumptions and estimates made in our 
financial statements regarding the 737 program.

On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to 
suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft 
operators following two fatal 737 MAX accidents. Non-U.S. civil aviation 
authorities have issued directives to the same effect. We are working closely 
with the relevant government authorities to support both accident 
investigations and are fully cooperating with other U.S. government 
investigations related to the accidents. Multiple legal actions have also been 
filed against us as a result of the accidents. While production continues on 
the 737 MAX, deliveries have been suspended until clearance is granted by the 
appropriate regulatory authorities. The grounding has reduced revenues, 
operating margins, and cash flows, and will continue to do so until deliveries 
resume and production rates increase. In connection with the effort to return 
the 737 MAX to service, we have developed software updates for the 737 MAX, 
together with an associated pilot training and supplementary education program. 
We continue to work with the FAA and non-U.S. civil aviation authorities to 
complete remaining steps toward certification and readiness for return to 
service, including addressing their questions on the software updates and how 
pilots will interact with the airplane controls and displays in different 
flight scenarios. The FAA and other civil aviation authorities worldwide will 
determine the timing and conditions of return to service in each relevant 
jurisdiction. Any unanticipated delays in certification and/or return to 
service or other liabilities associated with the accidents or grounding could 
have a material adverse effect on our financial position, results of 
operations, and/or cash flows. On April 5, 2019, we announced plans to reduce 
the 737 production rate from 52 aircraft per month to 42 per month effective 
April 15, 2019. In addition to being unable to deliver completed aircraft until 
the required certifications are obtained, impacts related to the reduced 
production rate have increased costs to produce aircraft included in the 
current accounting quantity and will result in reduced 737 program and overall 
BCA segment operating margins when deliveries resume. If we are unable to 
return the 737 MAX aircraft to service in one or more jurisdictions or begin 
deliveries to customers in a timely manner, we would incur additional costs 
and/or further reduce the 737 production rate. In addition, unanticipated 
delays in certification and/or return to service of the 737 MAX in one or more 
jurisdictions could result in significant additional disruption to the 737 
production system, including further reductions in the production rate and/or a 
temporary shutdown in 737 production, delaying efforts to restore and/or 
implement previously planned increases in the 737 production rate. Cash flows 
could also be negatively impacted through a combination of delayed payments 
from customers and higher costs and inventory levels. In addition, we have 
experienced claims and assertions from customers in connection with the 
grounding, and we recorded an earnings charge of $5,610, net of insurance 
recoveries of $500, in the second quarter in connection with an estimate of 
potential concessions and other considerations to customers for disruptions 
related to the grounding and associated delivery delays. Any such delays in 
return to service, further disruptions to our production system, supplier 
claims or assertions, or changes to estimated concessions or other 
considerations we expect to provide to customers could have a material adverse 
effect on our financial position, results of operations, and/or cash flows. The 
FAA and other civil aviation authorities worldwide will determine the timing 
and conditions of return to service in each relevant jurisdiction. However, we 
have assumed that regulatory approval of 737 MAX return to service begins in 
the fourth quarter of 2019. This assumption reflects our best estimate at this 
time based on factors such as the estimated duration of the certification 
process. In the event of unanticipated additional training requirements in one 
or more jurisdictions, delays in the certification process, and/or delays in 
return to service, we may be required to take actions with longer-term impact, 
such as further production rate changes, employment reductions and/or the 
expenditure of significant resources to support our supply chain and/or 
customers. As with our other commercial aircraft programs, we have made 
significant estimates with respect to the 737 program regarding the number of 
units to be produced, the period during which those units are likely to be 
produced, and the units’ expected sales prices, production costs, program 
tooling and other non-recurring costs, and routine warranty costs. In addition 
to the estimated timing of return to service, we have made assumptions 
regarding outcomes of accident investigations, timing of future 737 production 
rate increases, timing and sequence of future deliveries, as well as outcomes 
of negotiations with customers. Any changes in these estimates and/or 
assumptions with respect to the 737 program could have a material impact on our 
financial position, results of operations, and/or cash flows.