Market Update The statements contained herein are based on good faith assumptions are to be used for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Randy Tinseth Vice President, Marketing Boeing Commercial Airplanes March 2016
Certain statements we make during this conference are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as may, should, expects, intends, projects, plans, believes, estimates, targets, anticipates, and similar expressions are used to identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) the overall health of our aircraft production system, planned production rate increases across multiple commercial airline programs, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards; (4) changing budget and appropriation levels and acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials, (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-u.s. operations, including sales to non-u.s. customers; (13) potential adverse developments in new or pending litigation and/or government investigations; (14) customer and aircraft concentration in Boeing Capital s customer financing portfolio; (15) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates in order to fund our operations and contractual commitments; (16) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (17) the adequacy of our insurance coverage to cover significant risk exposures; (18) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, sanctions or natural disasters; (19) work stoppages or other labor disruptions; (20) significant changes in discount rates and actual investment return on pension assets; (21) potential environmental liabilities; and (22) threats to the security of our or our customers information. Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Global economic growth rate below average Passenger market resilient, growing Cargo market weak, challenging Airlines managing better than ever before NOTE: Annual growth rates (%) and cumulative profit ($B)
Backlog and deliveries growing near same rate over the last 10 years 7000 6000 CAGR 2005 2015 Backlog 10.1% Deliveries 12.5% 2000 5000 1500 Backlog 4000 3000 1000 Deliveries 2000 500 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Backlog Deliveries Source: Flightglobal Ascend Year-end 2015 0
Backlog movement at a historical low 7000 6000 # of airplanes 5000 4000 3000 2000 1000 0 30% 9% 9% 20% 6% 3% 0% 1% 2% 7% 4% 2% 1% 2% 1% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Backlog Net Deferals/Accelerations Debookings/Cancelations (Total change as a % of backlog)
Traffic growth continues at above-average levels Healthy consumer economy supports travel Emerging markets middle class growth 10% Annual Growth (RPKs) above trend growth New airline business models 5% Demographics support leisure travel Air travel relative affordability Business travel revenue focus, travel intensive sectors outperforming 0% 2010 2011 2012 2013 2014 2015 2016 Source: ICAO, BCA
Airline traffic growth exceeding airline capacity growth Traffic growth > long-term average Load factors at/near record highs Parked fleet - typical seasonal trends Utilization at historic peaks 7% 6% 5% 4% 3% 2% 1% 0% Year-over-year growth 12 month rolling avg Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Available Seat Kilometers (capacity) Revenue Passenger Kilometers (traffic) Sources: IATA Carrier Tracker (industry international scheduled freight) and A4A US domestic cargo traffic.
Airplane load factors indicate that assets are fully utilized. no overcapacity 85% Average Annual Passenger Load Factor 80% 75% 70% 65% 60% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: ICAO
Airline Productivity Rising Assets are being efficiently utilized World Load Factors Airplane Utilization 82% 9.5 Hours/Day 80% 9.0 78% 8.5 76% 74% 8.0 72% 7.5 70% 7.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: Utilization BCA RMT; Load Factors ICAO
Airlines adjust fleet to market conditions Flexibility adds to industry stability high oil low oil ~50% growth ~50% replacement (2003) ~20% growth ~80% replacement (2008) ~70% growth ~30% replacement (2004-07) ~60% growth ~40% replacement (2011) low growth high growth
Growth vs replacement fluctuates over time Replacement of 2.5-3% annually, plus Growth of 3.5-4% makes up delivery mix 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Growth Replacement Source: Ascend 11
Deliveries tracking with historical ratios Replacement of 2.5-3% plus Growth of 3.5-4% Annual deliveries 2000 Deliveries as % of fleet 10.0% 1800 9.0% 1600 8.0% 1400 7.0% 1200 6.0% 1000 5.0% 800 4.0% 600 3.0% 400 2.0% 200 1.0% 0 0.0% Source: Ascend 12
Single Aisle replacement demand increasing Some replacements delayed, others accelerated 800 700 Airplanes turning 25 yrs old 600 500 400 300 200 100 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Excludes over 700 airplanes that are older than 25 years SOURCE: Flightglobal Ascend Online database & BCA Analysis
Widebody replacement demand increasing Some replacements delayed, others accelerated 250 200 Airplanes turning 25 yrs old 150 100 50 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Excludes over 300 airplanes that are older than 25 years SOURCE: Flightglobal Ascend Online database & BCA Analysis
Service driven economy emerging Heavy industry growth slowdown Service sector continuing growth Air passenger travel strong Cargo impact from weak industry Risks: Weakness spills into consumption Large exchange rate devaluation Financial market / debt crisis Geopolitical (South China Sea) Share of GDP in % Year-over-year growth rate 55 50 45 40 35 30 16 14 12 10 8 6 4 forecast services industry 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2011 RPKs 2012 GDP China s economic transition supports air travel 2013 2014 2015
$45 Market Value of 3-year old 737-800 $0.45 New 737-800 lease rates $40 $0.40 Then year dollars (millions) $35 $30 $25 $20 $15 $10 Average lease rates (millions) $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $5 $0.05 $0 2011 2012 2013 2014 Market Value Source: Average bluebook values from Ascend AVITAS IBA 2015 $0.00 2011 2012 2013 2014 2015 Lease Rate Source:, IBA, ASG, AVAC, CV, MBA, ASCEND Data through 12/7/15 Lease Rate data tends to lag by a few months Lease Rates exclude Maintenance Reserves
Then year dollars (millions) $160 $140 $120 $100 Market Value 3 year old 777-300ER $80 $60 $40 $20 Average lease rates (millions) $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 New 777-300ER lease rates $0 2011 2012 2013 2014 2015 Market Value Source: Average bluebook values from Ascend AVITAS IBA $0.0 2011 2012 2013 2014 2015 Lease Rate Source:, IBA, ASG, AVAC, CV, MBA, ASCEND Data through 12/7/15 Lease Rate data tends to lag by a few months Lease Rates exclude Maintenance Reserves
Stronger passenger traffic demand 4000 6.0% Fuel efficient airplanes operating hedge against price volatility (near-term deliveries) 3500 3000 4.0% Airlines planning for higher fuel prices (longer-term orders) Deferred retirements provide only marginal, short-term capacity Incremental capacity from low utilization airplanes, for peak demand periods Heavy check capex limits longer-term prospects Airline orders more closely track airline profitability Net Orders 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2.0% 0.0% -2.0% -4.0% -6.0% Airline Net Margin Improving airline profitability is the primary driver of aircraft order peaks Source: FG Ascend, ICAO, World Bank, St. Louis Fed, Boeing analysis