Boeing Commercial Airplanes (BCA) second-quarter revenues were $8.6 billion, 2 percent below the same period last year, driven by customer and model mix and lower aircraft trading revenues, partially offset by higher delivery unit volume (Table 4). Operating earnings were $777 million versus $960 million in the year ago period due to customer and model mix, as well as timing of period expenses and infrastructure costs absorbed by the production programs due to the 787 schedule push-out announced in April.
Table 4. Commercial Airplanes Operating Results
(Millions, except
deliveries & margin 2nd Quarter First Half
percent) 2008 2007 Change 2008 2007 Change
Commercial Airplanes
Deliveries 126 114 11% 241 220 10%
Revenues $8,567 $8,707 (2%) $16,728 $16,262 3%
Earnings from
Operations $777 $960 (19%) $1,760 $1,666 6%
Operating Margins 9.1% 11.0% (1.9)Pts 10.5% 10.2% 0.3 Pts
For the first half, BCA revenues rose 3 percent to $16.7 billion on higher deliveries partially offset by lower aircraft trading volume and customer mix. Operating earnings grew 6 percent to $1.8 billion while margins expanded to 10.5 percent driven by higher deliveries and lower R&D, partially offset by higher period expenses, and the infrastructure cost absorption noted above.
BCA booked 187 gross orders during the quarter and 476 during the first half. Contractual backlog rose to a record $275 billion, increasing 8 percent year-to-date to nearly eight times BCA's annual revenues.
Progress on the new 787 Dreamliner continues on the revised schedule announced in April. Having completed the power-on milestone, the program is in the final stages of assembly of the first airplane in preparation for flight test. While Boeing continues to address challenges associated with assembly of the initial airplanes, the program has achieved meaningful improvements in the completeness of structure and systems installation. The company completed its acquisition of a 50 percent equity interest in Global Aeronautica which will allow Boeing to exercise greater operational control of this key 787 integration facility. The risks that are always inherent in the latter stages of new airplane program production still remain. The company expects the first flight of the 787 to occur in the fourth quarter of 2008 with first delivery in the third quarter of 2009. To date, the program has won orders for 896 airplanes from 58 customers.
Integrated Defense Systems
Boeing Integrated Defense Systems (IDS) reported second-quarter revenue of $7.9 billion, virtually unchanged from last year. Operating earnings were $637 million and were affected by the previously disclosed $248 million charge on the AEW&C program. This charge reduced IDS operating margins by 3.2 points to 8.0 percent.
For the first half, IDS revenue declined slightly to $15.5 billion, operating earnings declined 9 percent to $1.5 billion and operating margins declined to 9.7 percent, reduced 1.6 points by the charge.
Table 5. Integrated Defense Systems Operating Results
(Millions, except 2nd Quarter First Half
margin percent) 2008 2007 Change 2008 2007 Change
Revenues
Precision
Engagement
& Mobility
Systems $3,293 $3,416 (4%) $6,549 $6,743 (3%)
Network & Space
Systems $2,802 $2,902 (3%) $5,495 $5,680 (3%)
Support Systems $1,839 $1,654 11% $3,465 $3,266 6%
Total IDS
Revenues $7,934 $7,972 (0%) $15,509 $15,689 (1%)
Earnings (Loss)
from Operations
Precision
Engagement &
Mobility Systems $160 $405 (60%) $549 $838 (34%)
Network & Space
Systems $237 $257 (8%) $504 $405 24%
Support Systems $240 $193 24% $444 $396 12%
Total IDS Earnings
from Operations $637 $855 (25%) $1,497 $1,639 (9%)
Operating Margins 8.0% 10.7% (2.7)Pts 9.7% 10.4% (0.7)Pts
Precision Engagement & Mobility Systems, which was just renamed Boeing Military Aircraft, reported second-quarter revenues slightly lower at $3.3 billion because of fewer aircraft deliveries. Although overall production program performance was strong, the operating margins were 4.9 percent for the quarter due to the charge noted above which reduced margins by 7.5 points.
For the quarter, revenues in Network & Space Systems declined slightly to $2.8 billion on lower Proprietary volume. Operating margins of 8.5 percent were due to solid performance across the segment's broad array of programs partially offset by lower Proprietary earnings. N&SS achieved significant milestones on several key programs in the quarter including Future Combat Systems' successful completion of the Joint Expeditionary Force Experiment.
Support Systems again generated strong growth and profitability on its broad portfolio of services and logistics programs. Revenues rose 11 percent to $1.8 billion on growth in integrated logistics and aircraft modifications. Operating earnings rose 24 percent to $240 million, and the operating margin grew to 13.1 percent on solid program execution, productivity improvements and contract mix.
The IDS backlog at quarter-end was $71.3 billion, down from the beginning of the quarter reflecting current-period revenues that exceeded new orders. Significant new awards in the quarter included a follow-on Republic of Korea contract for F-15Ks, KC-135 Programmed Depot Maintenance and a significant Proprietary contract.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) reported second-quarter pre-tax earnings of $45 million down from $70 million in the same period last year which included a larger portfolio (Table 6). In the Other segment, the company also increased aircraft financing reserves by $82 million. BCC's portfolio balance at the end of the quarter was $6.2 billion, down from $6.5 billion at the beginning of the year primarily on normal portfolio run-off and depreciation. BCC contributed $39 million in cash dividends to Boeing during the quarter and $74 million in the first half. BCC's debt-to-equity ratio remained steady at 5.0-to-1.
