BA » Topics » Commercial Airplanes Segment

This excerpt taken from the BA 10-K filed Feb 28, 2005.

Commercial Airplanes Segment

 

The Commercial Airplanes segment is involved in developing, producing and marketing commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide. We are a leading producer of commercial aircraft and offer a family of commercial jetliners designed to meet a broad spectrum of passenger and cargo requirements of domestic and foreign airlines. This family of commercial jet aircraft currently includes the 717 and 737 Next-Generation narrow-body models and the 747, 767 and 777 and 787 wide-body models. Due to lack of demand for the 757 program, a decision was made in the third quarter of 2003 to end production of the program. Final delivery of the 757 aircraft is scheduled to occur in the first half of 2005. On January 12, 2005 we decided to conclude production of the 717 commercial airplane in 2006 due to the lack of overall market demand for the airplane.

 

Commercial jet aircraft are normally sold on a fixed-price basis with an indexed price escalation clause. Our ability to deliver jet aircraft on schedule depends on a variety of factors, including execution of internal performance plans, availability of raw materials, performance of suppliers and subcontractors, and regulatory certification. The introduction of new and derivative commercial aircraft programs involves increased risks associated with meeting development, production and certification schedules.

 

The commercial jet aircraft market and the airline industry remain extremely competitive. We expect the existing long-term downward trend in passenger revenue yields worldwide (measured in real terms) to continue into the foreseeable future. Market liberalization in Europe and Asia has continued to enable low-cost airlines to gain market share. These airlines have increased the downward pressure on airfares. This results in continued cost pressures for all airlines and price pressure on our products. Major productivity gains are essential to ensure a favorable market position at acceptable profit margins.

 

World-wide air travel experienced a strong rebound in 2004. This rebound is notable in that it represents a recovery from the levels of 2003 which were depressed by the SARS outbreak in Asia, and represents a traffic level that exceeds the previous record which was set in 2000. It has taken the industry 4 years to exceed that level, indicating the difficulties faced by the world’s airlines as they have dealt with the effects of recession, terrorism, and disease. This traffic volume has been driven by strong world-wide economic growth which stimulates demand, and declining real airline yields which makes air travel more affordable to more people.

 

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We continually evaluate opportunities to improve current models, and assess the marketplace to ensure that our family of commercial jet aircraft is well positioned to meet future requirements of the airline industry. The fundamental strategy is to maintain a broad product line that is responsive to changing market conditions by maximizing commonality among our family of commercial aircraft. Additionally, we are determined to continue to lead the industry in customer satisfaction by offering products with the highest standards of quality, safety, technical excellence, economic performance and in-service support.

 

The major focus of commercial aircraft development activities over the past three years has been the the 747-400ER, the 747-400ERF, the 747-400SF, the 777-200LR, the 777-300ER, and the 787. Certification and first delivery of the 747-400ER and 747-400ERF occurred during the fourth quarter of 2002. Certification and first delivery of the 777-300ER occurred during the first half of 2004. Certification and first delivery of the 777-200LR is scheduled for the first quarter of 2006. Certification and first delivery of the 787 is scheduled for the first half of 2008.

 

We are currently focusing our new airplane product development efforts on the 787 program, which with the three planned versions will seat 223 to 296 passengers in multiple class configurations. In early 2004, we received the initial launch order for the 787 and Board of Directors (BoD) approval to proceed with full development and production. We project a continued increase in our research and development spending in 2005, primarily driven by spending on the 787 while we also continue to develop derivatives and features for our other programs primarily the 737, 747-400 Special Freighter modification and 777 programs. Commercial Airplanes’ development work to support the Multi-Mission Maritime Aircraft (737) contract with the US Navy is being deferred as part of the contract costs, not as research and development. We have selected Everett, Washington as the final assembly location for the 787 aircraft.

 

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