Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Results of Operations and Financial Condition

Overview

We are a global market leader in the design, development, manufacture, sale, service and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services. We are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and one of the largest defense contractors in the U.S. While our principal operations are in the U.S., we conduct operations in an expanding number of countries and rely on an extensive network of non-U.S. partners, key suppliers and subcontractors.

Our strategy is centered on successful execution in healthy core businesses – Commercial Airplanes (BCA), Defense, Space & Security (BDS), and Global Services (BGS) – supplemented and supported by Boeing Capital (BCC). Taken together, these core businesses have historically generated substantial earnings and cash flow that permit us to invest in new products and services. We focus on producing the products and providing the services that the market demands, and continue to find new ways to improve efficiency and quality to provide a fair return for our shareholders. BCA is committed to being the leader in commercial aviation by offering airplanes and services that deliver superior design, safety, efficiency and value to customers around the world. BDS integrates its resources in defense, intelligence, communications, security, space and services to deliver capability-driven solutions to customers at reduced costs. Our BDS strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets, underscored by an intense focus on growth and productivity. BGS provides support for commercial and defense through innovative, comprehensive, and cost-competitive product and service solutions. BCC facilitates, arranges, structures and provides selective financing solutions for our Boeing customers.

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. Deliveries of the 737 MAX have been suspended until clearance is granted by the appropriate regulatory authorities. The grounding is having a significant adverse impact on our operations and creates significant uncertainty. We are focused on safely returning the 737 MAX to service.

Consolidated Results of Operations

The following table summarizes key indicators of consolidated results of operations:

(Dollars in millions, except per share data)
Years ended December 31,	2019				2018				2017
Revenues		$76,559				$101,127				$94,005
GAAP
(Loss)/earnings from operations		($1,975	)			$11,987				$10,344
Operating margins	(2.6		)%		11.9		%		11.0		%
Effective income tax rate	71.8		%		9.9		%		16.3		%
Net (loss)/earnings		($636	)			$10,460				$8,458
Diluted (loss)/earnings per share		($1.12	)			$17.85				$13.85
Non-GAAP (1)
Core operating (loss)/earnings		($3,390	)			$10,660				$8,906
Core operating margins	(4.4		%)		10.5		%		9.5		%
Core (loss)/earnings per share		($3.47	)			$16.01				$12.33

(1)	These measures exclude certain components of pension and other postretirement benefit expense. See page 42 - 43 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

Revenues

The following table summarizes Revenues:

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Commercial Airplanes		$32,255				$57,499				$54,612
Defense, Space & Security	26,227				26,392				23,938
Global Services	18,468				17,056				14,611
Boeing Capital	244				274				307
Unallocated items, eliminations and other	(635		)		(94		)		537
Total		$76,559				$101,127				$94,005

Revenues decreased by $24,568 million in 2019 compared with 2018 primarily due to lower revenues at BCA, partially offset by higher revenues at BGS. Lower BCA revenues are primarily driven by lower 737 MAX deliveries and a revenue reduction of $8,259 million recorded in 2019 for estimated potential concessions and other considerations to customers for disruptions and associated delivery delays related to the 737 MAX grounding, net of insurance recoveries.

Revenues increased by $7,122 million in 2018 compared with 2017 due to higher revenues at BCA, BDS, and BGS. BCA revenues increased by $2,887 million due to higher 737 and 787 deliveries and favorable 737 and 787 model mix, which more than offset lower 777 and 747 deliveries. BDS revenues increased by $2,454 million primarily due to non-US contract awards for fighters, higher weapons revenue, the final C-17 aircraft sale and higher satellites revenue. BGS revenues increased by $2,445 million due to higher parts revenue, including the acquisition of KLX, Inc. (KLX) in the fourth quarter of 2018.

The changes in Unallocated items, eliminations and other in 2019, 2018 and 2017 primarily reflect the timing of eliminations for intercompany aircraft deliveries and the sale of aircraft previously leased to customers.

Earnings From Operations

The following table summarizes Earnings from operations:

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Commercial Airplanes		($6,657	)			$7,830				$5,285
Defense, Space & Security	2,608				1,657				2,383
Global Services	2,697				2,536				2,251
Boeing Capital	28				79				114
Segment operating (loss)/profit	(1,324		)		12,102				10,033
Pension FAS/CAS service cost adjustment	1,071				1,005				1,127
Postretirement FAS/CAS service cost adjustment	344				322				311
Unallocated items, eliminations and other	(2,066		)		(1,442		)		(1,127		)
(Loss)/earnings from operations (GAAP)		($1,975	)			$11,987				$10,344
FAS/CAS service cost adjustment *	(1,415		)		(1,327		)		(1,438		)
Core operating (loss)/earnings (Non-GAAP) **		($3,390	)			$10,660				$8,906

*	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 earnings is a Non-GAAP measure that excludes the FAS/CAS service cost adjustment. See page 42.

Loss from operations was $1,975 million in 2019 compared with earnings from operations of $11,987 million in 2018. The decrease of $13,962 million is primarily due to a loss from operations at BCA of $6,657 million in 2019 compared to earnings from operations of $7,830 million in 2018, partially offset by higher earnings at BDS and BGS in 2019 compared with 2018. BCA decreased by $14,487 million due to lower 737 deliveries and the earnings charge for the 737 MAX grounding of $8,259 million, net of insurance recoveries. BDS earnings from operations increased by $951 million primarily due to lower charges in 2019 for development programs. BGS earnings from operations increased by $161 million primarily due to higher revenues, which was partially offset by less favorable performance and mix.

Earnings from operations increased by $1,643 million in 2018 compared with 2017 primarily due to higher earnings at BCA and BGS, which more than offset the decrease at BDS and the change in Unallocated items, eliminations and other. BCA earnings from operations increased by $2,545 million due to higher revenues and improved operating margins. The increase in operating margins is primarily due to higher 787 margins, improved cost performance and favorable delivery mix. BGS earnings from operations increased by $285 million primarily due to higher revenues, partially offset by higher period costs. BDS earnings from operations decreased by $726 million as earnings growth from higher revenues was more than offset by charges of $691 million related to winning the T-7A Red Hawk and MQ-25 competitions, as well as higher KC-46A Tanker reach-forward losses.

During 2019, 2018 and 2017, we recorded reach-forward losses on the KC-46A Tanker program of $148 million, $736 million, and $445 million, respectively.

Core operating earnings decreased by $14,050 million in 2019 compared with 2018 primarily due to a loss from operations at BCA in 2019, partially offset by higher earnings at BDS and BGS.

Core operating earnings increased by $1,754 million in 2018 compared with 2017 primarily due to higher earnings at BCA and BGS, partially offset by lower earnings at BDS and higher unallocated expenses.

Unallocated Items, Eliminations and Other The most significant items included in Unallocated items, eliminations and other are shown in the following table:

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Share-based plans		($65	)			($76	)			($77	)
Deferred compensation	(174		)		(19		)		(240		)
Amortization of previously capitalized interest	(89		)		(92		)		(96		)
Research and development expense, net	(384		)		(132		)		42
Customer financing impairment	(250		)
Litigation	(109		)		(148		)
Eliminations and other unallocated items	(995		)		(975		)		(756		)
Unallocated items, eliminations and other		($2,066	)			($1,442	)			($1,127	)

Deferred compensation expense increased by $155 million in 2019 and decreased by $221 million in 2018, primarily driven by changes in broad stock market conditions and our stock price.

Research and development expense increased by $252 million in 2019 and increased by $174 million in 2018 primarily due to spending by Boeing NeXt on product development.

In 2019, we recorded a $250 million charge related to the impairment of lease incentives with one customer that experienced liquidity issues, and a $109 million charge related to ongoing litigation associated with recoverable costs on U.S. government contracts. In 2018, we recorded a $148 million charge related to the outcome of the Spirit litigation.

Eliminations and other unallocated expense increased by $20 million in 2019 and $219 million in 2018 primarily due to timing of expense allocations.

Net periodic pension benefit costs included in Earnings from operations were as follows:

(Dollars in millions)	Pension
Years ended December 31,	2019				2018				2017
Allocated to business segments		($1,384	)			($1,318	)			($1,637	)
Pension FAS/CAS service cost adjustment	1,071				1,005				1,127
Net periodic benefit cost included in (Loss)/earnings from operations		($313	)			($313	)			($510	)

The pension FAS/CAS service cost adjustment recognized in Earnings from operations in 2019, 2018, and 2017 was largely consistent across all periods. The net periodic benefit cost included in Earnings from operations in 2019 was consistent with 2018, as reductions in current year service cost were offset by higher amortization of prior year service costs. The decrease in net periodic benefit cost included in Earnings from operations in 2018 compared to 2017 was primarily due to a lower portion of service cost recognized in Earnings from operations.

For additional discussion related to Postretirement Plans, see Note 17 to our Consolidated Financial Statements.

Other Earnings Items

(Dollars in millions)
Years ended December 31,	2019				2018				2017
(Loss)/earnings from operations		($1,975	)			$11,987				$10,344
Other income, net	438				92				123
Interest and debt expense	(722		)		(475		)		(360		)
(Loss)/earnings before income taxes	(2,259		)		11,604				10,107
Income tax benefit/(expense)	1,623				(1,144		)		(1,649		)
Net (loss)/earnings from continuing operations		($636	)			$10,460				$8,458

Other income, net increased by $346 million in 2019 primarily due to higher non-operating pension income. Other income, net decreased by $31 million in 2018 primarily due to lower gains from foreign exchange, partially offset by higher interest income.

The non-operating pension income included in Other income, net was $374 million in 2019, $143 million in 2018, and $117 million in 2017. The increased income in 2019 compared to 2018 was due to lower amortization of actuarial losses, partially offset by decreases in expected return on assets and increases in interest cost. The increase in 2018 compared to 2017 was due to decreases in interest cost and increases in estimated return on assets, partially offset by higher amortization of actuarial losses.

Interest and debt expense increased by $247 million in 2019 and increased by $115 million in 2018 as a result of higher debt balances.

For additional discussion related to Income Taxes, see Note 5 to our Consolidated Financial Statements.

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.

The following table summarizes cost of sales:

(Dollars in millions)
Years ended December 31	2019				2018			Change				2018				2017			Change
Cost of sales		$72,093				$81,490			($9,397	)			$81,490				$76,612			$4,878
Cost of sales as a % of revenues	94.2		%		80.6		%	13.6		%		80.6		%		81.5		%	(0.9		)%

Cost of sales decreased by $9,397 million in 2019 compared with 2018, primarily due to lower revenue and lower reach-forward losses. Cost of sales as a percentage of Revenues increased in 2019 primarily due to the 737 MAX grounding.

Cost of sales increased by $4,878 million in 2018 compared with 2017, primarily due to higher revenue and higher reach-forward losses.

Research and Development The following table summarizes our Research and development expense:

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Commercial Airplanes		$1,956				$2,188				$2,247
Defense, Space & Security	758				788				834
Global Services	121				161				140
Other	384				132				(42		)
Total		$3,219				$3,269				$3,179

Research and development expense decreased by $50 million in 2019 compared with 2018 primarily due to lower spending on 777X and 737 MAX, partially offset by higher spending by BCA and Boeing NeXt on product development.

Research and development expense increased by $90 million in 2018 compared with 2017 due to investment in product development, partially offset by lower spending on 777X and 787-10.

Backlog

Our backlog at December 31 was as follows:

(Dollars in millions)
Years ended December 31,	2019				2018
Commercial Airplanes		$376,593				$408,140
Defense, Space & Security	63,908				61,277
Global Services	22,902				21,064
Total Backlog		$463,403				$490,481
Contractual backlog		$436,473				$462,070
Unobligated backlog	26,930					$28,411
Total Backlog		$463,403				$490,481

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 in contractual backlog during 2019 was primarily due to BCA deliveries in excess of new orders and a reduction in backlog related to orders from a customer that experienced 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 in unobligated backlog in 2019 was primarily due to reclassifications to contractual backlog related to BDS and BGS contracts partially offset by contract awards.

Additional Considerations

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. The bank is authorized through December 31, 2026.

Global Trade We continually monitor the global trade environment for changes in tariffs, trade agreements, sanctions or other potential geopolitical economic developments that may impact the company.

Beginning in June 2018, the U.S. Government has imposed 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. Passage of the U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower tariffs. We continue to monitor the potential for any extra costs that may result from the remaining global tariffs.

Since 2018, the U.S. and China imposed tariffs on approximately $34 billion of each other's exports in July 2018. 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. The U.S. and China Phase I agreement in January 2020 is a positive development for overall trade with China. Negotiations to resolve remaining trade issues continue.

Overall global trade tensions and increased market uncertainty have resulted in fewer orders than anticipated for our commercial aircraft.

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 Global economic growth, a primary driver for air travel, was 2.6% in 2019, slightly below the long-term average of approximately 3%. Passenger traffic is estimated to grow by 4% to 5% in 2019, close to the long-term average of approximately 5%. The grounding of the 737 MAX and suspension of 737 MAX deliveries has slowed growth at certain airlines. While growth was solid across most major world regions, there continues to be variation between regions and airline business models. Despite some moderation in the growth rates, airlines operating in Asia Pacific and Europe, as well as low-cost-carriers globally, are leading the 2019 growth in passenger traffic. Air cargo traffic growth is expected to contract this year due to weak global trade growth.

Airline financial performance also plays a role in the demand for new capacity. Airlines continue to focus on increasing revenue through alliances, partnerships, new marketing initiatives, and effective leveraging of ancillary services and related revenues. Airlines are also focusing on reducing costs and renewing fleets to leverage more efficient airplanes. Net profits in 2019 are expected to approximate $26 billion.

The long-term outlook for the industry continues to remain positive due to the fundamental drivers of air travel demand: economic growth and the increasing propensity to travel due to increased trade, globalization, and improved airline services driven by liberalization of air traffic rights between countries. Our 20-year forecast 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 approximately 44,000 new airplanes over the next 20 years. The industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics and increased global environmental regulations.

Industry Competitiveness The commercial jet airplane market and the airline industry remain extremely competitive. Market liberalization in Europe, the Middle East and Asia is enabling low-cost airlines to continue gaining market share. These airlines are increasing the 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.

Continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns. Approximately 80% of Commercial Airplanes’ total backlog, in dollar terms, is with non-U.S. airlines.

We face aggressive international competitors who are intent on increasing their market share. They offer competitive products and have access to most of the same customers and suppliers. The grounding of the 737 MAX and the associated suspension of 737 MAX deliveries have significantly reduced our market share with respect to deliveries of single aisle aircraft in 2019 and may provide competitors with an opportunity to obtain more orders and increase market share. We are continuing to monitor the impact of the 737 MAX grounding on our suppliers and working to ensure that our supply chain can support our production plans once production resumes. With government support, Airbus has historically invested heavily to create a family of products to compete with ours. After the acquisition of a majority share of Bombardier’s C Series (now A220) in 2018, Airbus continues to expand in the 100-150 seat transcontinental market. Additionally, other competitors from Russia, China and Japan are developing commercial jet aircraft. Some of these competitors have historically enjoyed access to government-provided financial support, including “launch aid,” which greatly reduces the cost and commercial risks associated with airplane development activities. This has enabled the development of airplanes without commercial viability; others to be brought to market more quickly than otherwise possible; and many offered for sale below market-based prices. Many competitors have continued to make improvements in efficiency, which may result in funding product development, gaining market share and improving earnings. This market environment has resulted in intense pressures on pricing and other competitive factors, and we expect these pressures to continue or intensify in the coming years.

We are focused on safely returning the 737 MAX to service, improving our products and services and continuing our cost-reduction efforts, which enhances our ability to compete. We are also focused on taking actions to ensure that Boeing is not harmed by unfair subsidization of competitors.

Results of Operations

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Revenues		$32,255				$57,499				$54,612
% of total company revenues	42		%		57		%		58		%
(Loss)/earnings from operations		($6,657	)			$7,830				$5,285
Operating margins	(20.6		)%		13.6		%		9.7		%
Research and development		$1,956				$2,188				$2,247

Revenues

BCA revenues decreased by $25,244 million in 2019 compared with 2018 driven by lower 737 MAX deliveries and a revenue reduction of $8,259 million that was recorded in 2019 for estimated potential concessions and other considerations to customers for disruptions and associated delivery delays related to the 737 MAX grounding, net of $500 million of insurance recoveries. BCA revenues increased by $2,887 million in 2018 compared with 2017 primarily due to higher 737 and 787 deliveries and favorable 737 and 787 model mix, which more than offset lower 777 and 747 deliveries. The 737 MAX grounding will continue to have a significant impact on revenues until deliveries resume.

Commercial Airplanes deliveries as of December 31 were as follows:

	737		*	747		†	767		*	777		†	787		Total
2019
Cumulative deliveries	7,439			1,555			1,176			1,627			939
Deliveries	127		(19)	7			43		(23)	45		(2)	158		380
2018
Cumulative deliveries	7,312			1,548			1,133			1,582			781
Deliveries	580		(18)	6			27		(10)	48			145		806
2017
Cumulative deliveries	6,732			1,542			1,106			1,534			636
Deliveries	529		(17)	14		(1)	10			74			136		763

• Intercompany deliveries identified by parentheses

† Aircraft accounted for as revenues by BCA and as operating leases in consolidation identified by parentheses

Loss/Earnings From Operations

BCA loss from operations was $6,657 million in 2019 compared with earnings from operations of $7,830 million in 2018. The decrease of $14,487 million is primarily due to lower 737 deliveries and earnings charges related to the 737 MAX. The 737 MAX grounding and associated changes to our production rate will continue to adversely impact 737 program and overall BCA margins.

BCA earnings from operations increased by $2,545 million in 2018 compared with 2017. The increase in operating earnings reflects higher revenues and improved operating margins. The increase in operating margins is primarily due to higher 787 margins, improved cost performance and favorable delivery mix.

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, including rights to reject individual airplane deliveries if the actual delivery date is significantly later than the contractual delivery date. 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 ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

BCA total backlog of $376,593 million at December 31, 2019 decreased from $408,140 million at December 31, 2018, primarily due to deliveries in excess of new orders and a reduction in backlog related to orders from a customer that experienced liquidity issues. We are experiencing fewer new 737 MAX orders than we were receiving prior to the grounding. If 737 MAX aircraft remain grounded for an extended period of time, we may experience reductions to backlog and/or significant order cancellations. To date, the 737 MAX grounding has not resulted in significant order cancellations.

Accounting Quantity The accounting quantity is our estimate of the quantity of airplanes that will be produced for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates of the revenue and cost of existing and anticipated contracts. It is a key determinant of the gross margins we recognize on sales of individual airplanes throughout a program’s life. Estimation of each program’s accounting quantity takes into account several factors that are indicative of the demand for that program, including firm orders, letters of intent from prospective customers and market studies. We review our program accounting quantities quarterly.

The accounting quantity for each program may include units that have been delivered, undelivered units under contract, and units anticipated to be under contract in the reasonable future (anticipated orders). In developing total program estimates, all of these items within the accounting quantity must be considered.

The following table provides details of the accounting quantities and firm orders by program as of December 31. Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders.

	Program
	737		†	747*		767			777		†	777X		787		†
2019
Program accounting quantities	10,400			1,574		1,195			1,690			******		1,600
Undelivered units under firm orders	4,398			17		94			68			309		520		(29)
Cumulative firm orders	11,837			1,572		1,270			1,695			309		1,459		(29)
2018
Program accounting quantities	10,400			1,574		1,195			1,680			**		1,600
Undelivered units under firm orders	4,708		(75)	24		111			100		(2)	326		604		(30)
Cumulative firm orders	12,020			1,572		1,244			1,682			326		1,385
2017
Program accounting quantities	9,800			1,570		1,171			1,625			**		1,400
Undelivered units under firm orders	4,613			12		98			97			326		640
Cumulative firm orders	11,345			1,554		1,204			1,631			326		1,276

† Aircraft ordered by BCC are identified in parentheses.

• At December 31, 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 14 to our Consolidated Financial Statements*.*

747 Program We are currently producing at a rate of 0.5 aircraft per month. We believe that ending 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 the commercial program and a derivative to support the tanker program. We are increasing our combined production rate from 2.5 to 3 per month in 2020.

777 Program The accounting quantity for the 777 program increased by 10 units during 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. The first flight of the 777X was completed on January 25, 2020, and first delivery is targeted for 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. As a result of fewer orders than anticipated, we plan to reduce the 787 production rate to 12 per month in late 2020 and to 10 per month in early 2021. We plan to return to a production rate of 12 per month in 2023.

Fleet Support We provide the operators of our commercial airplanes with assistance and services to facilitate efficient and safe airplane operation. Collectively known as fleet support services, these activities and services begin prior to airplane delivery and continue throughout the operational life of the airplane. They include flight and maintenance training, field service support, engineering services, information services and systems and technical data and documents. The costs for fleet support are expensed as incurred and have historically been approximately 1% of total consolidated costs of products and services.

Program Development The following chart summarizes the time horizon between go-ahead and planned initial delivery for major Commercial Airplanes derivatives and programs.

Go-ahead and Initial Delivery
737 MAX 7	2011									2020
737 MAX 8	2011						2017
737 MAX 9	2011							2018
737 MAX 10							2017				2021
787-10			2013					2018
777X			2013								2021

Reflects models in development during 2019

We launched the 737 MAX 7, 8 and 9 in August 2011 and the 737 MAX 10 in June 2017. We launched the 787-10 in June 2013 and the 777X in November 2013.

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 claims or 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 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. The consolidated appropriations acts for FY20, enacted in December 2019, provided FY20 appropriations for government departments and agencies, including the United States Department of Defense (U.S. DoD), the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA).

The enacted FY20 appropriations included funding for Boeing’s major programs, such as the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, 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, including changes associated with the authorizations and appropriations process, 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.

Non-U.S. Defense Environment Overview The non-U.S. market continues to be driven by complex and evolving security challenges and the need to modernize aging equipment and inventories. BDS expects that it will continue to have a wide range of opportunities across Asia, Europe and the Middle East given the diverse regional threats. At the end of 2019, 29% of BDS backlog was attributable to non-U.S. customers.

Results of Operations

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Revenues		$26,227				$26,392				$23,938
% of total company revenues	34		%		26		%		25		%
Earnings from operations		$2,608				$1,657				$2,383
Operating margins	9.9		%		6.3		%		10.0		%

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 year, or year-to-year comparisons of revenues, earnings and backlog 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.

Deliveries of units for new-build production aircraft, including remanufactures and modifications were as follows:

Years ended December 31,	2019			2018			2017
F/A-18 Models	23			17			23
F-15 Models	11			10			16
C-17 Globemaster III	1
CH-47 Chinook (New)	13			13			9
CH-47 Chinook (Renewed)	22			17			35
AH-64 Apache (New)	37						11
AH-64 Apache (Remanufactured)	74			23			57
KC-46 Tanker	28
P-8 Models	18			16			19
C-40A	2
Total	229			96			170

New-build satellite deliveries were as follows:

Years ended December 31,	2019		2018		2017
Commercial and civil satellites	2		1		3
Military satellites			1		1

Revenues

BDS revenues in 2019 decreased by $165 million compared with 2018 due to timing associated with non-U.S. contract awards for fighters and the final C-17 sale in 2018, lower revenue related to charges on Commercial Crew, and lower volume from certain unmanned and vertical lift programs. These reductions were partially offset by increases from new programs, including E-7 early warning aircraft, VC-25B, T-7A Red Hawk, and MQ-25, as well as from satellites and weapons. The unfavorable impact of cumulative contract catch-up adjustments in 2019 was $163 million higher than the comparable period in the prior year, reflecting unfavorable adjustments on the Commercial Crew contract and less favorable performance.

BDS revenues in 2018 increased by $2,454 million compared with 2017 primarily due to non-US contract awards for fighters, higher weapons revenue, the final C-17 aircraft sale and higher satellites revenue. The unfavorable impact of cumulative contract catch-up adjustments in 2018 was $359 million higher than the comparable period in the prior year, reflecting increased unfavorable adjustments on the KC-46A Tanker recorded in 2018.

Earnings From Operations

BDS earnings from operations in 2019 increased by $951 million compared with 2018 primarily due to lower net charges on development programs. In 2019, BDS recorded charges of $143 million compared with $722 million in 2018 related to the KC-46A Tanker contract. Also during 2019, BDS recorded charges of $489 million compared with $57 million in 2018 related to the Commercial Crew contract. In 2018, we recorded charges of $691 million related to losses on the T-7A Red Hawk and MQ-25 contracts. The unfavorable impact of cumulative contract catch-up adjustments in 2019 was $62 million lower than the comparable period in the prior year, reflecting lower net unfavorable adjustments on development programs.

BDS earnings from operations in 2018 decreased by $726 million compared with 2017 as earnings growth from higher revenues was more than offset by the higher charges on development programs in 2018. In

2017, BDS recorded charges of $401 million related to the KC-46A Tanker contract. The unfavorable impact of cumulative contract catch-up adjustments in 2018 was $412 million higher than the comparable period in the prior year, driven by higher charges on development programs in 2018.

BDS earnings from operations include equity earnings of $128 million, $147 million and $183 million primarily from our ULA and non-U.S. joint ventures in 2019, 2018 and 2017, respectively.

Backlog

Total backlog of $63,908 million at December 31, 2019 increased by 4% from $61,277 million at December 31, 2018, primarily due to current year contract awards in many of our programs greater than revenue recognized. Significant orders included F/A-18 fighters, Space Launch System, 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, KC-46A Tanker, T-7A Red Hawk, 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. 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 The KC-46A Tanker is a derivative of our 767 commercial aircraft. In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver next generation aerial refueling tankers. The contract contains production options for both low rate initial production (LRIP) aircraft and full rate production aircraft. Since 2016, the USAF has authorized five LRIP lots for a total of 67 aircraft. The Engineering, Manufacturing and Development (EMD) contract and the five authorized LRIP lots are valued at approximately $15 billion. If all options under the contract are exercised, we expect to deliver 179 aircraft for a total expected contract value of approximately $30 billion. In January 2019, we delivered the first KC-46A to the USAF, and by December 2019, we had delivered a total of 28 aircraft.

During 2017, we recorded reach-forward losses of $445 million related to this program, primarily reflecting higher estimated costs associated with certification and incorporating changes into LRIP aircraft. 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. During 2019, we recorded additional reach-forward losses of $148 million reflecting higher manufacturing costs.

As with any development program, this program remains subject to additional reach-forward losses and/or delivery delays if we experience further production, technical or quality issues.

Commercial Crew NASA has contracted us to design and build the CST-100 Starliner spacecraft to transport crews to the International Space Station. On December 20, 2019 the Starliner launched and successfully landed two days later completing an abbreviated uncrewed flight test that performed many mission objectives before returning to Earth as the first orbital land touchdown of a human-rated capsule in U.S. history. The flight test was abbreviated, however, because anomalies experienced during the mission prevented docking with the International Space Station. In the fourth quarter of 2019, we recorded an increase to the reach-forward loss of $410 million, primarily to provision for another uncrewed mission. Root cause analysis is underway and NASA is evaluating the data received during the mission to determine if another uncrewed mission is required.

T-7A Red Hawk In September 2018, we were selected by the USAF 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 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 in 2018, 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. During 2019, we completed the aircraft’s critical design review. 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. In 2019, we conducted a successful first flight. 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.

United Launch Alliance See the discussion of Indemnifications to ULA and Financing Commitments in Notes 7 and 15 to our Consolidated Financial Statements.

Sea Launch See the discussion of the Sea Launch receivables in Note 12 to our Consolidated Financial Statements.

Global Services

Business Environment and Trends

The aerospace markets we serve include parts distribution, logistics, and other inventory services; maintenance, engineering, and upgrades; training and professional services; and information services. We expect the market to grow by around 3.5% annually.

As the size of the worldwide commercial airline fleet continues to grow, so does demand for aftermarket services designed to increase efficiency and extend the economic lives of airplanes. Airlines are using data analytics to plan flight operations and predictive maintenance to improve their productivity and efficiency. Airlines continue to look for opportunities to reduce the size and cost of their spare parts inventory, frequently outsourcing spares management to third parties.

Government services market segments are growing on pace with related fleets, but vary based on the utilization and age of the aircraft. The U.S. government services market is the single largest individual market, comprising over 50 percent of the government services markets served. Over the next decade, we expect U.S. growth to remain flat and non-U.S. fleets, led by Middle East and Asia Pacific customers, to add rotorcraft and commercial derivative aircraft at the fastest rates. We expect less than 20 percent of the worldwide fleet of military aircraft to be retired and replaced over the next ten years, driving increased demand for services to maintain aging aircraft and enhance aircraft capability.

BGS’ major customer, the U.S. government, remains subject to the spending limits and uncertainty described on page 30, which could restrict the execution of certain program activities and delay new programs or competitions.

Industry Competitiveness Aviation services is a competitive market with many domestic and international competitors. This market environment has resulted in intense pressures on pricing and we expect these pressures to continue or intensify in the coming years. Continued access to global markets remains vital to our ability to fully realize our sales growth potential and long-term investment returns.

Results of Operations

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Revenues		$18,468				$17,056				$14,611
% of total company revenues	24		%		17		%		16		%
Earnings from operations		$2,697				$2,536				$2,251
Operating margins	14.6		%		14.9		%		15.4		%

Revenues

BGS revenues in 2019 increased by $1,412 million compared with 2018 due to the acquisition of KLX in the fourth quarter of 2018 and government services revenue, partially offset by lower commercial services revenue. The favorable impact of cumulative contract catch-up adjustments in 2019 was $80 million higher than the comparable period in the prior year**.**

BGS revenues in 2018 increased by $2,445 million compared with 2017 due to growth across our services portfolio, primarily driven by higher parts revenue, including the acquisition of KLX. The favorable impact of cumulative contract catch-up adjustments in 2018 was $63 million lower than the comparable period in the prior year**.**

Earnings From Operations

BGS earnings from operations in 2019 increased by $161 million compared with 2018. The increase in earnings from operations reflects higher revenues, which was partially offset by less favorable performance and mix. Earnings from operations for 2019 also includes a divestiture gain of $395 million and a charge of $293 million related to our decision in the fourth quarter to retire the Aviall brand and trade name. The favorable impact of cumulative contract catch-up adjustments in 2019 was $21 million higher than the comparable period in the prior year**.**

BGS earnings from operations in 2018 increased by $285 million compared with 2017 primarily due to higher revenues, partially offset by higher period costs. The favorable impact of cumulative contract catch-up adjustments in 2018 was $25 million lower than the comparable period in the prior year**.**

Backlog

BGS total backlog of $22,902 million at December 31, 2019 increased by 9% from $21,064 million at December 31, 2018, primarily due to current year contract awards, partially offset by revenue recognized on contracts awarded in prior years.

Boeing Capital

Business Environment and Trends

BCC’s gross customer financing and investment portfolio at December 31, 2019 totaled $2,254 million. A substantial portion of BCC’s portfolio is related to customers that we believe have less than investment-grade credit. BCC’s portfolio is also concentrated by varying degrees across Boeing aircraft product types, most notably 717 and 747-8 aircraft.

BCC provided customer financing of $419 million and $601 million during 2019 and 2018. While we may be required to fund a number of new aircraft deliveries in 2020 and/or provide refinancing for existing bridge debt, we expect alternative financing will be available at reasonable prices from broad and globally diverse sources.

Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of service. Approximately 2,200 western-built commercial jet aircraft (8.5% of current world fleet) were parked at the end of 2019, including both in-production and out-of-production aircraft types. Of these parked aircraft, approximately 20% are not expected to return to service. At the end of 2018 and 2017, 6.7% and 8.3% of the western-built commercial jet aircraft were parked. Aircraft valuations could decline if significant numbers of additional aircraft, particularly types with relatively few operators, are placed out of service.

Results of Operations

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Revenues		$244				$274				$307
Earnings from operations		$28				$79				$114
Operating margins	11		%		29		%		37		%

Revenues

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 in 2019 decreased by $30 million compared with 2018 primarily due to lower gains on the sale of assets. BCC’s revenues in 2018 decreased by $33 million compared with 2017 primarily due to lower lease income driven by a smaller portfolio, partially offset by gains on asset sales.

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 in 2019 decreased by $51 million primarily due to lower revenues and higher asset impairment expenses. Earnings from operations in 2018 decreased by $35 million primarily due to lower revenues.

Financial Position

The following table presents selected financial data for BCC as of December 31:

(Dollars in millions)	2019				2018
Customer financing and investment portfolio, net		$2,251				$2,790
Other assets, primarily cash and short-term investments	535				717
Total assets		$2,786				$3,507
Other liabilities, primarily deferred income taxes		$432				$523
Debt, including intercompany loans	1,960				2,487
Equity	394				497
Total liabilities and equity		$2,786				$3,507
Debt-to-equity ratio	5.0-to-1				5.0-to-1

BCC’s customer financing and investment portfolio at December 31, 2019 decreased from December 31, 2018, primarily due to $720 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.

Leased aircraft with a carrying value of approximately $58 million are scheduled to be returned off lease during 2020. We are seeking to remarket these aircraft or have the leases extended.

Liquidity and Capital Resources

Cash Flow Summary

(Dollars in millions)
Years ended December 31,	2019				2018				2017
Net (loss)/earnings		($636	)			$10,460				$8,458
Non-cash items	2,819				2,578				2,636
Changes in working capital	(4,629		)		2,284				2,252
Net cash (used)/provided by operating activities	(2,446		)		15,322				13,346
Net cash used by investing activities	(1,530		)		(4,621		)		(2,058		)
Net cash provided/(used) by financing activities	5,739				(11,722		)		(11,350		)
Effect of exchange rate changes on cash and cash equivalents	(5		)		(53		)		80
Net increase/(decrease) in cash & cash equivalents, including restricted	1,758				(1,074		)		18
Cash & cash equivalents, including restricted, at beginning of year	7,813				8,887				8,869
Cash & cash equivalents, including restricted, at end of year		$9,571				$7,813				$8,887

Operating Activities Net cash used by operating activities was $2.4 billion during 2019, compared with net cash provided by operating activities of $15.3 billion during 2018 and $13.3 billion in 2017. The decrease in operating cash flows in 2019 primarily reflects the impacts of the 737 MAX grounding that is resulting

in lower earnings, higher inventory and lower advances and progress payments. In addition, compensation payments to 737 MAX customers of $1.2 billion for disruption to their operations also reduced 2019 cash from operating activities. Cash used to fund Inventory was $12.4 billion during 2019 as we continued to produce aircraft while deliveries were suspended. Cash provided by Advances and progress billings was $0.7 billion in 2019, as compared with $2.6 billion in 2018. In December 2019, we announced plans to temporarily suspend production of the 737 MAX beginning in January 2020. This will enable us to prioritize the delivery of stored aircraft. Net cash from operating activities in future quarters is expected to continue to be adversely impacted by the 737 MAX grounding.

Discretionary contributions to our pension plans were insignificant in 2019 and 2018. During 2017, our discretionary contributions to our pension plans included 14.4 million shares of our common stock with an aggregate value of $3.5 billion and $0.5 billion in cash.

Investing Activities Cash used by investing activities during 2019, 2018 and 2017 was $1.5 billion, $4.6 billion and $2.1 billion. The reduction in 2019 compared with 2018 is primarily due to acquisitions completed in the second half of 2018 and the timing of investments. Acquisitions net of cash acquired were $0.5 billion in 2019, compared with $3.2 billion in 2018, primarily related to the acquisition of KLX. Proceeds from dispositions was $0.5 billion in 2019 as a result of the divestiture of two businesses. Capital expenditures totaled $1.8 billion in 2019, relatively consistent with $1.7 billion in 2018 and 2017. We expect capital expenditures in 2020 to be relatively consistent with 2019. Net proceeds from investments was $0.1 billion in 2019, $0.3 billion in 2018, and was insignificant in 2017.

Financing Activities Cash provided by financing activities was $5.7 billion during 2019, compared with cash used by financing activities of $11.7 billion in 2018. The increase of $17.5 billion compared with 2018 primarily reflects higher net borrowings and lower share repurchases, partially offset by higher dividend payments in 2019. Cash used by financing activities was $11.7 billion during 2018, an increase of $0.4 billion compared with 2017, primarily due to higher dividend payments partially offset by higher net borrowings. Net borrowings were $13.2 billion in 2019, $1.4 billion in 2018 and $1.1 billion in 2017.

At December 31, 2019 and 2018 the recorded balance of debt was $27.3 billion and $13.8 billion of which $7.3 billion and $3.2 billion was classified as short-term. At December 31, 2019 and 2018 this included $2.0 billion and $2.5 billion of debt attributable to BCC, of which $0.5 billion and $0.5 billion were classified as short-term.

During 2019 and 2018 we repurchased 6.9 million and 26.1 million shares totaling $2.7 billion and $9.0 billion through our open market share repurchase program. In 2019 and 2018, we had 0.6 million shares transferred to us from employees for tax withholdings. At December 31, 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. We increased our quarterly dividend from $1.71 to $2.055 in December 2018, which resulted in $684 million of higher dividend payments in 2019 compared with 2018.

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 December 31, 2019, 2018, and 2017, commercial paper borrowings totaling $6,109 million, $1,895 million and $600 million, respectively, which were supported by unused commitments under the revolving credit agreement. At December 31, 2019, we had $9.6 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.

Customer financing commitments totaled $13.4 billion and $19.5 billion at December 31, 2019 and 2018. The decrease primarily relates to financing commitment expirations and terminations. 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.

As previously announced, we plan to acquire an 80% ownership stake in a joint venture comprised of the commercial aircraft and services operations of Embraer for $4.2 billion. We expect the transaction to close in the first half of 2020.

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 under our commercial paper program or in the debt markets.

As of January 31, 2020, we have received commitments from a syndicate of banks sufficient for us to enter into a $12 billion delayed draw two-year term loan credit facility. This facility may be increased at the Company’s option if the facility is oversubscribed. The facility will enhance our liquidity and is expected to close in February 2020.

At December 31, 2019 and 2018, our pension plans were $15.9 billion and $15.3 billion underfunded as measured under GAAP. On an Employee Retirement Income Security Act (ERISA) basis our plans are more than 100% funded at December 31, 2019. We do not expect to make significant contributions to our pension plans in 2020. We may be required to make higher contributions to our pension plans in future years.

At December 31, 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.

Contractual Obligations

The following table summarizes our known obligations to make future payments pursuant to certain contracts as of December 31, 2019, and the estimated timing thereof.

(Dollars in millions)	Total				Less than 1 year				1-3 years				3-5 years				After 5 years
Long-term debt (including current portion)		$27,476				$7,306				$2,698				$1,780				$15,692
Interest on debt	12,408				803				1,479				1,341				8,785
Pension and other postretirement cash requirements	9,717				621				1,307				3,719				4,070
Finance lease obligations	238				71				98				26				43
Operating lease obligations	1,574				287				429				249				609
Purchase obligations not recorded on the Consolidated Statements of Financial Position	115,411				52,685				33,550				19,246				9,930
Purchase obligations recorded on the Consolidated Statements of Financial Position	22,315				20,867				1,423				3				22
Acquisition not recorded on the Consolidated Statements of Financial Position (2)	4,200				4,200
Total contractual obligations (1)		$193,339				$86,840				$40,984				$26,364				$39,151

(1)

Excludes income tax matters. As of December 31, 2019, our net liability for income taxes payable, including uncertain tax positions of $1,409 million, was $1,262 million. Aside from $670 million of income taxes payable expected to be paid in 2020, we are not able to reasonably estimate the timing of future cash flows related to the remaining net liability for income taxes payable. For further discussion of income taxes, see Note 5 to our Consolidated Financial Statements.

(2)	We plan to acquire an 80% ownership stake in a joint venture comprised of the commercial aircraft and services operations of Embraer. For additional information, see Note 2 to our Consolidated Financial Statements.

Pension and Other Postretirement Benefits Pension cash requirements are based on an estimate of our minimum funding requirements, pursuant to ERISA regulations, although we may make additional discretionary contributions. Estimates of other postretirement benefits are based on both our estimated future benefit payments and the estimated contributions to plans that are funded through trusts.

Purchase Obligations Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and specify approximate timing of the transaction. Purchase obligations include amounts recorded as well as amounts that are not recorded on the Consolidated Statements of Financial Position.

Purchase Obligations Not Recorded on the Consolidated Statements of Financial Position Purchase obligations not recorded on the Consolidated Statements of Financial Position include agreements for inventory procurement, tooling costs, electricity and natural gas contracts, property, plant and equipment, customer financing equipment, and other miscellaneous production related obligations. The most significant obligation relates to inventory procurement contracts. We have entered into certain significant inventory procurement contracts that specify determinable prices and quantities, and long-term delivery timeframes. In addition, we purchase raw materials on behalf of our suppliers. These agreements require suppliers and vendors to be prepared to build and deliver items in sufficient time to meet our production schedules. The need for such arrangements with suppliers and vendors arises from the extended production planning horizon for many of our products. A significant portion of these inventory commitments is supported by firm contracts and/or has historically resulted in settlement through reimbursement from customers for penalty payments to the supplier should the customer not take delivery. These amounts are also included in our forecasts of costs for program and contract accounting. Some inventory procurement contracts may include escalation adjustments. In these limited cases, we have included our best estimate of the effect of the escalation adjustment in the amounts disclosed in the table above.

Purchase Obligations Recorded on the Consolidated Statements of Financial Position Purchase obligations recorded on the Consolidated Statements of Financial Position primarily include accounts payable and certain other current and long-term liabilities including accrued compensation.

Industrial Participation Agreements We have entered into various industrial participation agreements with certain customers outside of the U.S. to facilitate economic flow back and/or technology or skills transfer to their businesses or government agencies as the result of their procurement of goods and/or services from us. These commitments may be satisfied by our local operations there, placement of direct work or vendor orders for supplies, opportunities to bid on supply contracts, transfer of technology or other forms of assistance. However, in certain cases, our commitments may be satisfied through other parties (such as our vendors) who purchase supplies from our non-U.S. customers. In certain cases, penalties could be imposed if we do not meet our industrial participation commitments. During 2019, we incurred no such penalties. As of December 31, 2019, we have outstanding industrial participation agreements totaling $24.8 billion that extend through 2034. Purchase order commitments associated with industrial participation agreements are included in purchase obligations in the table above. To be eligible for such a purchase order commitment from us, a non-U.S. supplier must have sufficient capability to meet our requirements and must be competitive in cost, quality and schedule.

Commercial Commitments

The following table summarizes our commercial commitments outstanding as of December 31, 2019.

(Dollars in millions)	Total Amounts Committed/Maximum Amount of Loss				Less than 1 year				1-3 years				4-5 years				After 5 years
Standby letters of credit and surety bonds		$3,769				$1,657				$1,224				$180				$708
Commercial aircraft financing commitments	13,377				3,506				4,324				3,570				1,977
Total commercial commitments		$17,146				$5,163				$5,548				$3,750				$2,685

Commercial aircraft financing commitments include commitments to provide financing related to aircraft on order, under option for deliveries or proposed as part of sales campaigns or refinancing with respect to delivered aircraft, based on estimated earliest potential funding dates. Based on historical experience, we anticipate that we will not be required to fund a significant portion of our financing commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required. See Note 14 to our 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 22 to our Consolidated Financial Statements.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $570 million at December 31, 2019. For additional information, see Note 14 to our Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 15 to our Consolidated Financial Statements.

Non-GAAP Measures

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Our Consolidated 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, 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 (loss)/earnings from operations during 2019 was a benefit of $1,071 million, largely consistent with a benefit of $1,005 million in 2018 and $1,127 million in 2017. The non-operating pension expense included in Other income, net was a benefit of $374 million in 2019, $143 million in 2018 and $117 million in 2017. The benefits in 2019, 2018, and 2017 reflect expected returns in excess of interest cost and amortization of actuarial losses.

For further discussion of pension and other postretirement costs see the Management’s Discussion and Analysis on page 22 of this Form 10-K and see Note 23 to our Consolidated Financial Statements. 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.

Reconciliation of GAAP Measures to Non-GAAP Measures

The table below reconciles the non-GAAP financial measures of core operating earnings, core operating margin and core earnings per share with the most directly comparable GAAP financial measures of earnings from operations, operating margins and diluted earnings per share.

(Dollars in millions, except per share data)
Years ended December 31,	2019				2018				2017
Revenues		$76,559				$101,127				$94,005
(Loss)/earnings from operations, as reported		($1,975	)			$11,987				$10,344
Operating margins	(2.6		)%		11.9		%		11.0		%
Pension FAS/CAS service cost adjustment(1)		($1,071	)			($1,005	)			($1,127	)
Postretirement FAS/CAS service cost adjustment(1)		($344	)			($322	)			($311	)
FAS/CAS service cost adjustment(1)		($1,415	)			($1,327	)			($1,438	)
Core operating (loss)/earnings (non-GAAP)		($3,390	)			$10,660				$8,906
Core operating margins (non-GAAP)	(4.4		)%		10.5		%		9.5		%
Diluted (loss)/earnings per share, as reported		($1.12	)			$17.85				$13.85
Pension FAS/CAS service cost adjustment(1)		($1.89	)			($1.71	)			($1.84	)
Postretirement FAS/CAS service cost adjustment(1)		($0.61	)			($0.55	)			($0.51	)
Non-operating pension expense(2)		($0.66	)			($0.24	)			($0.19	)
Non-operating postretirement expense(2)		$0.19				$0.17				$0.20
Provision for deferred income taxes on adjustments (3)		$0.62				$0.49				$0.82
Core (loss)/earnings per share (non-GAAP)		($3.47	)			$16.01				$12.33
Weighted average diluted shares (in millions)	566.0				586.2				610.7

(1)	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. This adjustment is excluded from Core operating (loss)/earnings (non-GAAP).

(2)	Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. These expenses are included in Other income, net and are excluded from Core (loss)/earnings per share (non-GAAP).

(3)	The income tax impact is calculated using the U.S. corporate statutory tax rate.

Critical Accounting Policies & Estimates

Accounting for long-term contracts

Substantially all contracts at BDS and certain contracts at BGS are long-term contracts. Our long-term contracts typically represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods and/or services and the significant service of integration that we provide.

Accounting for long-term contracts involves a judgmental process of estimating the total sales, costs, and profit for each performance obligation. Cost of sales is recognized as incurred and revenue is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales.

Due to the size, duration and nature of many of our long-term contracts, the estimation of total sales and costs through completion is complicated and subject to many variables. Total sales estimates are based on negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, incentive and award provisions associated with technical performance, and price adjustment clauses (such as inflation or index-based clauses). The majority of these long-term contracts are with the U.S. government where the price is generally based on estimated cost to produce the product or service plus profit. Federal Acquisition Regulations provide guidance on the types of cost that will be reimbursed in establishing contract price. Total cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.

Revenue and cost estimates for all significant long-term contract performance obligations are reviewed and reassessed quarterly. Changes in these estimates could result in recognition of cumulative catch-up adjustments to the performance obligation’s inception to date revenues, cost of sales and profit, in the period in which such changes are made. Changes in revenue and cost estimates could also result in a reach-forward loss or an adjustment to a reach-forward loss, which would be recorded immediately in earnings. For the years ended December 31, 2019 and 2018 net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all long-term contracts decreased Earnings from operations by $111 million and $190 million. For the year ended December 31, 2017, net favorable cumulative catch-up adjustments, including reach-forward losses, across all long-term contracts increased Earnings from operations by $250 million.

Due to the significance of judgment in the estimation process described above, it is likely that materially different earnings could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, supplier performance, or circumstances may adversely or positively affect financial performance in future periods. If the combined gross margin for all long-term contract performance obligations for all of 2019 had been estimated to be higher or lower by 1%, it would have increased or decreased pre-tax income for the year by approximately $330 million. In addition, a number of our fixed price development contracts are in a reach-forward loss position. Changes to estimated losses are recorded immediately in earnings.

Program Accounting

Program accounting requires the demonstrated ability to reliably estimate the relationship of sales to costs for the defined program accounting quantity. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates of the revenue and cost of existing and anticipated contracts. For each program, the amount reported as cost of sales is determined by applying the estimated cost of sales percentage for the total remaining program to the amount of sales recognized for airplanes delivered and accepted by the customer.

Factors that must be estimated include program accounting quantity, sales price, labor and employee benefit costs, material costs, procured part costs, major component costs, overhead costs, program tooling and other non-recurring costs, and warranty costs. Estimation of the accounting quantity for each program takes into account several factors that are indicative of the demand for the particular program, such as firm orders, letters of intent from prospective customers, and market studies. Total estimated program sales are determined by estimating the model mix and sales price for all unsold units within the accounting quantity, added together with the sales prices for all undelivered units under contract. The sales prices for all undelivered units within the accounting quantity include an escalation adjustment for inflation that is updated quarterly. Cost estimates are based largely on negotiated and anticipated contracts with suppliers, historical performance trends, and business base and other economic projections. Factors that influence these estimates include production rates, internal and subcontractor performance trends, customer and/or supplier claims or assertions, asset utilization, anticipated labor agreements, and inflationary or deflationary trends.

To ensure reliability in our estimates, we employ a rigorous estimating process that is reviewed and updated on a quarterly basis. Changes in estimates are normally recognized on a prospective basis; however, when estimated costs to complete a program exceed estimated revenues from undelivered units in the accounting quantity, a loss provision is recorded in the current period for the estimated loss on all undelivered units in the accounting quantity.

The program method of accounting allocates tooling and other non-recurring and production costs over the accounting quantity for each program. Because of the higher unit production costs experienced at the beginning of a new program and substantial investment required for initial tooling and other non-recurring costs, new commercial aircraft programs, such as the 777X program, typically have lower initial margins than established programs. In addition, actual costs incurred for earlier units in excess of the estimated average cost of all units in the program accounting quantity are included within program inventory as deferred production costs. Deferred production, unamortized tooling and other non-recurring costs are expected to be fully recovered when all units in the accounting quantity are delivered as the expected unit cost for later deliveries is below the estimated average cost as learning curve and other improvements are realized.

Due to the significance of judgment in the estimation process described above, it is reasonably possible that changes in underlying circumstances or assumptions could have a material effect on program gross margins. If the combined gross margin percentages for our commercial airplane programs had been estimated to be 1% higher or lower it would have an approximately $400 million impact on operating earnings for the year ended December 31, 2019.

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, including investigations by the U.S. Department of Justice and the Securities and Exchange Commission. 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 and suppliers in connection with the grounding. As a result of the grounding, we reduced the 737 production rate from 52 per month to 42 per month in 2019 and in December 2019, we announced plans to temporarily suspend 737 production beginning in January 2020. We have concluded that the suspension of production and the gradual resumption of production at low production rates will result in abnormal production costs which will be expensed when incurred rather than inventoried. Prior to the grounding, we had planned to increase the production rate to 57 per month in 2019.

In the preparation of our financial statements, we have made assumptions regarding outcomes of accident investigations and other government inquiries, timing and conditions of return to service, the duration of the 737 MAX production suspension and 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. We have also made significant assumptions regarding estimated costs expected to be incurred in 2020 and 2021 that should be included in program inventory and those costs that should be expensed when incurred as abnormal production costs. 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 FAA and other non-U.S. civil aviation authorities will determine the timing and conditions of the 737 MAX return to service in each relevant jurisdiction. We have assumed that regulatory approval of the 737 MAX will enable deliveries to resume during mid-2020. We have also assumed that, as a condition of return to service, regulators will require 737 MAX pilots to undergo computer and simulator training. We have assumed that we will resume 737 MAX aircraft production at low rates in 2020 as timing and conditions of return to service are better understood, and then we expect to gradually increase to previously planned production rates over the next few years. We are also assuming that 737 MAX airplanes produced during the grounding and included within inventory will be delivered over several quarters with the majority of them delivering during the first year after the resumption of deliveries. The cumulative impacts of changes to assumptions regarding timing of return to service and timing of planned production rates have increased the estimated costs to produce aircraft included in the current accounting quantity by approximately $6.3 billion, which will be recorded in program inventory. In addition, the suspension of 737 MAX production and lower production rates is expected to result in approximately $4.0 billion of abnormal production costs in 2020 and 2021 that will be expensed as incurred. The increases in the estimated costs accounted for as program inventory will reduce 737 program and overall BCA segment operating margins in future periods after deliveries resume. Production costs incurred while production is suspended and a portion of production costs incurred while we gradually increase production rates to a normal level will be expensed as incurred as abnormal costs and will not be included in program inventory. We may face additional costs, delays in regulatory approval of the 737 MAX and/or the resumption of deliveries, and/or further delays in planned production rate increases which may result in further increases in program costs and/or abnormal production costs.

We recorded an earnings charge and corresponding liability of $6.1 billion, in the second quarter of 2019, 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. The second quarter estimate of $6.1 billion was updated in the third and fourth quarters of 2019. The remaining liability of $7.4 billion at December 31, 2019 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 our ability to resume deliveries, prolonged production suspension, 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.

Goodwill and Indefinite-Lived Intangible Impairments

We test goodwill for impairment by performing a qualitative assessment or using a two-step impairment process. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors as an initial step in assessing the fair value of operations. If we determine it is more likely than not that the carrying value of the net assets is more than the fair value of the related operations, the two-step impairment process is then performed; otherwise, no further testing is required. For operations where the two-step impairment process is used, we first compare the book value of net assets to the fair value of the related operations. If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations, and is compared to its carrying value. The shortfall of the fair value below carrying value represents the amount of goodwill impairment.

We estimate the fair values of the related operations using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future sales and operating costs, based primarily on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. Changes in these forecasts could significantly change the amount of impairment recorded, if any.

The cash flow forecasts are adjusted by an appropriate discount rate derived from our market capitalization plus a suitable control premium at the date of evaluation. Therefore, changes in the stock price may also affect the amount of impairment recorded, if any.

We completed our assessment of goodwill as of April 1, 2019 and determined that there is no impairment of goodwill. As of December 31, 2019, we estimated that the fair value of each reporting unit significantly exceeded its corresponding carrying value. Changes in our forecasts, or decreases in the value of our common stock could cause book values of certain operations to exceed their fair values which may result in goodwill impairment charges in future periods.

As of December 31, 2018, we had $490 million of indefinite-lived intangible assets related to the Jeppesen and Aviall brand and trade names acquired in business combinations. During 2019, we changed the name of the Aviall business to Boeing Distribution Inc. and, in the fourth quarter, decided to retire the Aviall brand and trade name. As a result we recorded an earnings charge of $293 million to write-off the Aviall indefinite-lived intangible asset. Accordingly, as of December 31, 2019, we had an indefinite-lived intangible asset with a carrying value of $197 million related to the Jeppesen brand and trade name.

We test these intangibles for impairment by comparing their carrying value to current projections of discounted cash flows attributable to the brand and trade names. Any excess carrying value over the amount of discounted cash flows represents the amount of the impairment. A 10% decrease in the discounted cash flows would not impact the carrying value of the Jeppesen indefinite-lived intangible asset.

Pension Plans

The majority of our employees have earned benefits under defined benefit pension plans. Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016. Additional union employees transitioned to company-funded defined contribution retirement savings plans effective January 1, 2019. Accounting rules require an annual measurement of our projected obligation and plan assets. These measurements are based upon several assumptions, including the discount rate and the expected long-term rate of asset return. Future changes in assumptions or differences between actual and expected outcomes can significantly affect our future annual expense, projected benefit obligation and Shareholders’ equity.

The following table shows the sensitivity of our pension plan liability and net periodic cost to a 25 basis point change in the discount rate as of December 31, 2019.

(Dollars in millions)	Change in discount rate Increase 25 bps				Change in discount rate Decrease 25 bps
Pension plans
Projected benefit obligation		($2,231	)			$2,778
Net periodic pension cost	(10		)		20

Pension cost is also sensitive to changes in the expected long-term rate of asset return. A decrease or increase of 25 basis points in the expected long-term rate of asset return would have increased or decreased 2019 net periodic pension cost by $149 million.