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boeingblacksmalla03.jpg
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      
Commission file number 1-442
 
 THE BOEING COMPANY
 
(Exact name of registrant as specified in its charter)
Delaware
 
91-0425694
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
100 N. Riverside Plaza,
Chicago,
IL
 
60606-1596
(Address of principal executive offices)
 
(Zip Code)
 
(312)
544-2000
 
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405/ of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company  
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $5.00 Par Value
 
BA
 
New York Stock Exchange
As of April 22, 2020, there were 564,325,344 shares of common stock, $5.00 par value, issued and outstanding.



THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended March 31, 2020
INDEX
Part I. Financial Information (Unaudited)
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II. Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


Table of Contents

Part I. Financial Information
Item 1. Financial Statements
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in millions, except per share data)
Three months ended March 31
  
2020

 
2019

Sales of products

$14,191

 

$20,225

Sales of services
2,717

 
2,692

Total revenues
16,908

 
22,917

 
 
 


Cost of products
(14,713
)
 
(16,238
)
Cost of services
(2,043
)
 
(2,389
)
Boeing Capital interest expense
(12
)
 
(18
)
Total costs and expenses
(16,768
)
 
(18,645
)
 
140

 
4,272

(Loss)/income from operating investments, net
(2
)
 
20

General and administrative expense
(873
)
 
(1,184
)
Research and development expense, net
(672
)
 
(866
)
Gain on dispositions, net
54

 
108

(Loss)/earnings from operations
(1,353
)
 
2,350

Other income, net
112

 
106

Interest and debt expense
(262
)
 
(123
)
(Loss)/earnings before income taxes
(1,503
)
 
2,333

Income tax benefit/(expense)
862

 
(184
)
Net (loss)/earnings
(641
)
 
2,149

Less: net loss attributable to noncontrolling interest
(13
)
 


Net (loss)/earnings attributable to Boeing Shareholders

($628
)
 

$2,149

 
 
 
 
Basic (loss)/earnings per share

($1.11
)
 

$3.79

 
 
 
 
Diluted (loss)/earnings per share

($1.11
)
 

$3.75

 
 
 
 
Weighted average diluted shares (millions)
565.9

 
572.4

See Notes to the Condensed Consolidated Financial Statements.

1

Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in millions)
Three months ended March 31
 
2020

 
2019

Net (loss)/earnings

($641
)
 

$2,149

Other comprehensive (loss)/income, net of tax:
 
 
 
Currency translation adjustments
(77
)
 
1

Unrealized gain on certain investments, net of tax of $0 and $0

 
1

Unrealized (loss)/gain on derivative instruments:
 
 
 
Unrealized (loss)/gain arising during period, net of tax of $77 and ($3)
(275
)
 
11

Reclassification adjustment for losses/(gains) included in net earnings, net of tax of ($1) and $1
2

 
(2
)
Total unrealized (loss)/gain on derivative instruments, net of tax
(273
)
 
9

Defined benefit pension plans and other postretirement benefits:
 
 
 
Amortization of prior service credits included in net periodic pension cost, net of tax of $6 and $6
(23
)
 
(23
)
Amortization of actuarial losses included in net periodic pension cost, net of tax of ($53) and ($32)
193

 
118

Pension and postretirement cost related to our equity method investments, net of tax of $0 and ($2)


 
8

Total defined benefit pension plans and other postretirement benefits, net of tax
170

 
103

Other comprehensive (loss)/income, net of tax
(180
)
 
114

Comprehensive (loss)/income, net of tax
(821
)
 
2,263

Less: Comprehensive loss related to noncontrolling interest
(13
)
 


Comprehensive (loss)/income attributable to Boeing Shareholders, net of tax

($808
)
 

$2,263

See Notes to the Condensed Consolidated Financial Statements.

2

Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
(Dollars in millions, except per share data)
March 31
2020

 
December 31
2019

Assets
 
 
 
Cash and cash equivalents

$15,039

 

$9,485

Short-term and other investments
488

 
545

Accounts receivable, net
3,211

 
3,266

Unbilled receivables, net
9,365

 
9,043

Current portion of customer financing, net
149

 
162

Inventories
80,020

 
76,622

Other current assets, net
2,739

 
3,106

Total current assets
111,011

 
102,229

Customer financing, net
2,116

 
2,136

Property, plant and equipment, net of accumulated depreciation of $19,591 and $19,342
12,405

 
12,502

Goodwill
8,057

 
8,060

Acquired intangible assets, net
3,256

 
3,338

Deferred income taxes
678

 
683

Investments
1,124

 
1,092

Other assets, net of accumulated amortization of $611 and $580
4,428

 
3,585

Total assets

$143,075

 

$133,625

Liabilities and equity
 
 
 
Accounts payable

$14,963

 

$15,553

Accrued liabilities
21,483

 
22,868

Advances and progress billings
52,883

 
51,551

Short-term debt and current portion of long-term debt
5,173

 
7,340

Total current liabilities
94,502

 
97,312

Deferred income taxes
336

 
413

Accrued retiree health care
4,483

 
4,540

Accrued pension plan liability, net
15,962

 
16,276

Other long-term liabilities
3,398

 
3,422

Long-term debt
33,754

 
19,962

Total liabilities
152,435

 
141,925

Shareholders’ equity:
 
 
 
Common stock, par value $5.00 – 1,200,000,000 shares authorized; 1,012,261,159 shares issued
5,061

 
5,061

Additional paid-in capital
6,595

 
6,745

Treasury stock, at cost - 447,947,807 and 449,352,405 shares
(54,842
)
 
(54,914
)
Retained earnings
49,854

 
50,644

Accumulated other comprehensive loss
(16,333
)
 
(16,153
)
Total shareholders’ equity
(9,665
)
 
(8,617
)
Noncontrolling interests
305

 
317

Total equity
(9,360
)
 
(8,300
)
Total liabilities and equity

$143,075

 

$133,625

See Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions)
Three months ended March 31
  
2020


2019

Cash flows – operating activities:
 

 
Net (loss)/earnings

($641
)


$2,149

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
Non-cash items – 
 

 
Share-based plans expense
55


47

Depreciation and amortization
556


521

Investment/asset impairment charges, net
26


34

Customer financing valuation adjustments



249

Gain on dispositions, net
(54
)
 
(108
)
Other charges and credits, net
97


74

Changes in assets and liabilities – 
 

 
Accounts receivable
(54
)

206

Unbilled receivables
(402
)
 
(183
)
Advances and progress billings
1,337

 
1,857

Inventories
(2,973
)

(2,725
)
Other current assets
328

 
164

Accounts payable
(1,030
)

1,624

Accrued liabilities
(583
)

(919
)
Income taxes receivable, payable and deferred
(892
)

116

Other long-term liabilities
(69
)

(281
)
Pension and other postretirement plans
(179
)

(188
)
Customer financing, net
23


152

Other
153


(1
)
Net cash (used)/provided by operating activities
(4,302
)

2,788

Cash flows – investing activities:
 
 
 
Property, plant and equipment additions
(428
)
 
(501
)
Property, plant and equipment reductions
58

 
110

Acquisitions, net of cash acquired


 
(276
)
Contributions to investments
(244
)
 
(457
)
Proceeds from investments
227

 
366

Other
8

 
(9
)
Net cash used by investing activities
(379
)
 
(767
)
Cash flows – financing activities:
 
 
 
New borrowings
17,433

 
5,237

Debt repayments
(5,854
)
 
(4,374
)
Contributions from noncontrolling interests


 
7

Stock options exercised
21

 
42

Employee taxes on certain share-based payment arrangements
(162
)
 
(233
)
Common shares repurchased


 
(2,341
)
Dividends paid
(1,158
)
 
(1,161
)
Net cash provided/(used) by financing activities
10,280

 
(2,823
)
Effect of exchange rate changes on cash and cash equivalents, including restricted
(47
)
 
1

Net increase/(decrease) in cash & cash equivalents, including restricted
5,552

 
(801
)
Cash & cash equivalents, including restricted, at beginning of year
9,571

 
7,813

Cash & cash equivalents, including restricted, at end of period
15,123

 
7,012

Less restricted cash & cash equivalents, included in Investments
84

 
176

Cash and cash equivalents at end of period

$15,039

 

$6,836

See Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
For the three months ended March 31, 2020 and 2019
(Unaudited)
 
Boeing shareholders
 
 
(Dollars in millions, except per share data)
Common
Stock

Additional
Paid-In
Capital

Treasury Stock

Retained
Earnings

Accumulated Other Comprehensive Loss

Non-
controlling
Interests

Total

Balance at January 1, 2019

$5,061


$6,768


($52,348
)

$55,941


($15,083
)

$71


$410

Net earnings
 
 
 
2,149

 


2,149

Other comprehensive income, net of tax of ($30)
 
 
 
 
114

 
114

Share-based compensation and related dividend equivalents
 
47

 


 
 
47

Treasury shares issued for stock options exercised, net
 
(36
)
77

 
 
 
41

Treasury shares issued for other share-based plans, net
 
(206
)
(18
)
 
 
 
(224
)
Common shares repurchased
 
 
(2,341
)
 
 
 
(2,341
)
Changes in noncontrolling interests
 
 
 
 
 
36

36

Balance at March 31, 2019

$5,061


$6,573


($54,630
)

$58,090


($14,969
)

$107


$232

 
 
 
 
 
 
 
 
Balance at December 31, 2019

$5,061


$6,745


($54,914
)

$50,644


($16,153
)

$317


($8,300
)
Impact of ASU 2016-13
 
 
 
(162
)
 
 
(162
)
Balance at January 1, 2020

$5,061


$6,745


($54,914
)

$50,482


($16,153
)

$317


($8,462
)
Net loss
 
 
 
(628
)
 
(13
)
(641
)
Other comprehensive income, net of tax of $29
 
 
 
 
(180
)
 
(180
)
Share-based compensation and related dividend equivalents
 
55

 


 
 
55

Treasury shares issued for stock options exercised, net
 
(16
)
36

 
 
 
20

Treasury shares issued for other share-based plans, net
 
(189
)
36

 
 
 
(153
)
Changes in noncontrolling interests
 
 
 
 
 
1

1

Balance at March 31, 2020

$5,061


$6,595


($54,842
)

$49,854


($16,333
)

$305


($9,360
)
See Notes to the Condensed Consolidated Financial Statements.



5

Table of Contents

The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
(Dollars in millions)
Three months ended March 31

2020

 
2019

Revenues:
 
 
 
Commercial Airplanes

$6,205

 

$11,822

Defense, Space & Security
6,042

 
6,587

Global Services
4,628

 
4,619

Boeing Capital
65

 
66

Unallocated items, eliminations and other
(32
)
 
(177
)
Total revenues

$16,908

 

$22,917

(Loss)/earnings from operations:
 
 
 
Commercial Airplanes

($2,068
)
 

$1,173

Defense, Space & Security
(191
)
 
852

Global Services
708

 
653

Boeing Capital
24

 
20

Segment operating (loss)/profit
(1,527
)
 
2,698

Unallocated items, eliminations and other
(173
)
 
(712
)
FAS/CAS service cost adjustment
347

 
364

(Loss)/earnings from operations
(1,353
)
 
2,350

Other income, net
112

 
106

Interest and debt expense
(262
)
 
(123
)
(Loss)/earnings before income taxes
(1,503
)
 
2,333

Income tax benefit/(expense)
862

 
(184
)
Net (loss)/earnings
(641
)
 
2,149

Less: Net loss attributable to noncontrolling interest
(13
)
 


Net (loss)/earnings attributable to Boeing Shareholders

($628
)
 

$2,149


This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 20 for further segment results.

6

Table of Contents

The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except otherwise stated)
(Unaudited)
Note 1Basis of Presentation
The condensed consolidated interim financial statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing”, the “Company”, “we”, “us”, or “our”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended March 31, 2020 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2019 Annual Report on Form 10-K. Certain amounts in prior periods have been adjusted to conform with the current year presentation.
Liquidity Matters
The global outbreak of COVID-19 coupled with the ongoing grounding of the 737 MAX airplane is having a significant adverse impact on our business and is expected to significantly reduce revenue, earnings and operating cash flow in future quarters. The aerospace industry is facing an unprecedented shock to demand for air travel which creates a tremendous challenge for our customers, our business and the entire aerospace manufacturing and services sector. We currently expect it will take 2-3 years for travel to return to 2019 levels and a few years beyond that for the industry to return to long-term trend growth. There is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.
During the first quarter of 2020, net cash used by operating activities was $4.3 billion and we expect negative operating cash flows in future quarters until deliveries resume and ramp up. At March 31, 2020, cash and short-term investments totaled $15.5 billion. Our debt balance totaled $38.9 billion at March 31, 2020 up from $27.3 billion at December 31, 2019. The major credit rating agencies downgraded our short term and long term credit ratings during the first quarter of 2020 and there is risk for further downgrades. At March 31, 2020, debt includes $4.7 billion of commercial paper down from $6.1 billion at December 31, 2019. Commercial paper at March 31, 2020 includes $2.3 billion, $0.5 billion and $1.9 billion maturing in the second, third and fourth quarter of 2020, respectively. In the current environment, we may have limited future access to the commercial paper market. In addition, we have term notes of $350 million maturing in the fourth quarter of 2020. At March 31, 2020, trade payables included $4.5 billion payable to suppliers who have elected to participate in supply chain financing programs compared with $5.2 billion at December 31, 2019. In future quarters, access to supply chain financing could be curtailed if our credit ratings are further downgraded. At March 31, 2020 and December 31, 2019 we had $9.6 billion of unused borrowing capacity on revolving credit agreements. We anticipate that these credit lines will primarily serve as back-up liquidity to support our general corporate borrowing needs. We plan to negotiate extending it in the fourth quarter of 2020 when $3.2 billion of the $9.6 billion comes up for renewal.
We are taking a number of actions to improve liquidity. We had paused our open market share repurchase program since last year, and in March 2020 our Board of Directors terminated its prior authorization to repurchase shares of the Company’s outstanding common stock. In March 2020, we also suspended the declaration and/or payment of dividends until further notice. We have also taken actions to reduce production rates in our commercial business to reflect the COVID-19 impact on the industry. We have furloughed certain employees and recently announced a voluntary employee layoff program which we plan to implement in the second quarter of 2020. We are also planning to further reduce our workforce by the end of this year through a combination of attrition and involuntary layoffs, as necessary. We are reducing discretionary spending as well as reducing or deferring research and development and capital expenditures. We are also working with our customers and supply chain to accelerate receipts and conserve cash. For example, the United States Department of Defense has taken steps to work with its industry partners to increase liquidity in the form of increased progress payment rates and reductions in withholds among other initiatives. We are also deferring certain tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

7

Table of Contents

Notwithstanding the actions described above to improve liquidity, we expect negative operating cash flows in 2020 and will need to obtain additional financing to fund our operations and obligations. The COVID-19 crisis is constraining the credit and capital markets and our ability to access credit markets may be reduced. We believe, based on an assessment of current market conditions, that there are sufficient sources of liquidity available to us that will enable us to fund our ongoing operations. Sources we are evaluating include funding options from the public and private markets, as well as from the U.S. government via the U.S. Treasury and various Federal Reserve programs. We currently plan to raise additional liquidity in the second quarter, which, together with other actions we are taking to improve liquidity, we expect will provide us with sufficient liquidity to fund our operations and obligations.
Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, our ability to successfully implement actions to improve liquidity as well our ability to access additional liquidity, we believe it is probable that we will be able to fund our operations for the foreseeable future.
Standards Issued and Implemented
In the first quarter of 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), using a modified retrospective method, which resulted in the recognition of allowances for credit losses on our Condensed Consolidated Statement of Financial Position as of January 1, 2020 and a $162 cumulative-effect adjustment to retained earnings to align our credit loss methodology with the new standard. The standard replaces the incurred loss impairment methodology under Topic 310 with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and certain other financial assets. See Note 6 and 9 for additional disclosures.
In the first quarter of 2020, we also adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). See Note 3 for additional disclosures.
Significant Accounting Policies - Update
Our significant accounting policies are described in "Note 1: Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2019. Our updated significant accounting policies described below reflect the impact of adopting Topic 326.
Allowances for losses on certain financial assets
We establish allowances for credit losses on accounts receivable, unbilled receivables, customer financing receivables, and certain other financial assets. The adequacy of these allowances are assessed quarterly through consideration of factors including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of the receivable, expected loss rates and collateral exposures. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by major credit rating agencies.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the accounting estimates and assumptions made by management are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ materially from those estimates.
Changes in estimated revenues, cost of sales and the related effect on operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a long-term contract’s percentage-of-completion. When the

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current estimates of total sales and costs for a long-term contract indicate a loss, a provision for the entire reach-forward loss on the long-term contract is recognized.
Net cumulative catch-up adjustments to prior years' revenue and earnings, including certain reach-forward losses, across all long-term contracts were as follows:
(In millions - except per share amounts)
Three months ended March 31
 
2020

 
2019

(Decrease)/increase to Revenue

($434
)
 

$160

(Decrease)/increase to (Loss)/earnings from operations

($839
)
 

$147

(Decrease)/increase to Diluted EPS

($0.63
)
 

$0.24


Note 2 Acquisitions and Joint Ventures
Strategic Partnership with Embraer
During the first quarter of 2019, we entered into definitive transaction documents with respect to a strategic partnership with Embraer S.A. (Embraer). The partnership contemplated the establishment of joint ventures that included the commercial aircraft and services operations of Embraer, of which we were expected to acquire an 80 percent ownership stake for $4,200, as well as a joint venture to promote and develop new markets for the C-390 Millennium.
The transaction documents permitted either party to terminate the proposed partnership beginning on April 24, 2020, provided that certain closing conditions were not met. Based on Embraer’s failure to satisfy required closing conditions, Boeing has exercised its contractual termination right. We would have been required to pay a termination fee of $100 had the transaction been terminated due to a failure to obtain antitrust approvals. Because the transaction was terminated due to a failure by Embraer to meet other closing conditions, we do not expect to be required to pay a termination fee in connection with the termination of the transaction. Boeing and Embraer will arbitrate their dispute over Boeing’s termination of the agreement.
Note 3Goodwill and Acquired Intangibles
In the first quarter of 2020, we also adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the quantitative impairment test from a two-step process to a one-step process. The quantitative test is performed by comparing the carrying value of net assets to the estimated fair value of the related operations. If the fair value is determined to be less than carrying value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment. The standard continues to permit a company to test goodwill for impairment by performing a qualitative assessment or using the quantitative test.
The COVID-19 pandemic was a triggering event for testing whether goodwill recorded by our Commercial Airplanes and Commercial Services reporting units is impaired. At March 31, 2020, Commercial Airplanes has $1,313 of goodwill and Commercial Services has $3,052. We performed a qualitative assessment and determined it is not more likely than not that the fair values of our Commercial Airplane and Commercial Services reporting units were less than their carrying values as of March 31, 2020. We will continue to monitor the impacts of the COVID-19 pandemic in future quarters. Changes in our forecasts or further decreases in the value of our common stock could cause book values to exceed fair values which may result in goodwill impairment charges in future periods.
Note 4Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings

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had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.
The elements used in the computation of basic and diluted earnings per share were as follows:
(In millions - except per share amounts)
Three months ended March 31

2020


2019

Net (loss)/earnings attributable to Boeing Shareholders

($628
)
 

$2,149

Less: earnings available to participating securities


 
2

Net (loss)/earnings available to common shareholders

($628
)
 

$2,147

Basic
 
 
 
Basic weighted average shares outstanding
565.9

 
567.7

Less: participating securities
0.5

 
0.6

Basic weighted average common shares outstanding
565.4

 
567.1

Diluted
 
 
 
Basic weighted average shares outstanding
565.9

 
567.7

Dilutive potential common shares(1)

 
4.7

Diluted weighted average shares outstanding
565.9

 
572.4

Less: participating securities
0.5

 
0.6

Diluted weighted average common shares outstanding
565.4

 
571.8

Net (loss)/earnings per share:
 
 
 
Basic

($1.11
)
 

$3.79

Diluted
(1.11
)
 
3.75

(1) 
Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
As a result of incurring a net loss for the three months ended March 31, 2020, potential common shares of 2.3 million were excluded from diluted loss per share because the effect would have been antidilutive. In addition, the following table includes the number of shares that may be dilutive potential common shares in the future. These shares were not included in the computation of diluted (loss)/earnings per share because the effect was either antidilutive or the performance condition was not met.
(Shares in millions)
Three months ended March 31
 
2020

 
2019

Performance awards
6.7

 
2.6

Performance-based restricted stock units
1.4

 
0.5



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Note 5Income Taxes
Our effective income tax rates were 57.4% and 7.9% for the three months ended March 31, 2020 and 2019. The 2020 tax rate includes tax benefits from the CARES Act enacted on March 27, 2020 due to the Act's five year net operating loss carry back provision while the 2019 tax rate reflects tax benefits associated with intangible income derived from serving non-U.S. markets. The carry back provisions enable us to benefit from certain losses and re-measure certain deferred tax assets and liabilities at the former federal tax rate of 35%. The tax rates in 2020 and 2019 also reflect research and development tax credits and excess tax benefits related to share-based payments.
Federal income tax audits have been settled for all years prior to 2015. The Internal Revenue Service (IRS) began the 2015-2017 federal tax audit in the first quarter of 2019. We are also subject to examination in major state and international jurisdictions for the 2007-2018 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next 12 months unrecognized tax benefits related to federal matters under audit may decrease by up to $705 based on current estimates.
Note 6 - Allowances for Losses on Financial Assets

Upon adoption of ASU 2016-13, we recorded a $162 cumulative-effect adjustment to retained earnings to increase our allowances for credit losses, resulting in a balance of $337 as of January 1, 2020. The change in allowances for expected credit losses for the three months ended March 31, 2020 consisted of the following:
 
Accounts receivable, net

Unbilled receivables, net

Other Current Assets, net

Customer financing, net

Other Assets, net

Total
Balance at January 1, 2020

($138
)

($81
)

($38
)

($5
)

($75
)

($337
)
Changes in estimates
(29
)
1

(10
)




(38
)
Write-offs
1









1

Balance at March 31, 2020

($166
)

($80
)

($48
)

($5
)

($75
)

($374
)


Note 7Inventories
Inventories consisted of the following:
 
March 31
2020

 
December 31
2019

Long-term contracts in progress

$990

 

$1,187

Commercial aircraft programs
68,719

 
66,016

Commercial spare parts, used aircraft, general stock materials and other
10,311

 
9,419

Total

$80,020



$76,622


Long-Term Contracts in Progress
Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to United Launch Alliance (ULA) under an inventory supply agreement that terminates on March 31, 2021. The inventory balance was $176 at March 31, 2020 and December 31, 2019. See indemnifications to ULA in Note 12.
Included in inventories are capitalized precontract costs of $751 at March 31, 2020 and $711 at December 31, 2019 primarily related to the KC-46A Tanker and Commercial Crew. See Note 11.

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Commercial Aircraft Programs
At March 31, 2020 and December 31, 2019, commercial aircraft programs inventory included $809 and $1,313 of deferred production costs and $556 and $521 of unamortized tooling and other non-recurring costs related to the 737 program. At March 31, 2020, $1,359 of 737 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $6 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At March 31, 2020 and December 31, 2019, commercial aircraft programs inventory included the following amounts related to the 777X program: $6,292 and $5,628 of work in process and $3,053 and $2,914 of unamortized tooling and other non-recurring costs.
At March 31, 2020 and December 31, 2019, commercial aircraft programs inventory included the following amounts related to the 787 program: $25,326 and $24,772 of work in process (including deferred production costs of $16,841 and $18,716), $2,067 and $2,202 of supplier advances, and $1,949 and $2,092 of unamortized tooling and other non-recurring costs. At March 31, 2020, $16,000 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $2,790 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $2,993 and $2,863 at March 31, 2020 and December 31, 2019.
Note 8Contracts with Customers
Unbilled receivables increased from $9,043 at December 31, 2019 to $9,365 at March 31, 2020, primarily driven by revenue recognized at Defense, Space & Security (BDS) and Global Services (BGS) in excess of billings.
Advances and progress billings increased from $51,551 at December 31, 2019 to $52,883 at March 31, 2020, primarily driven by advances on orders received in excess of revenue recognized at Commercial Airplanes (BCA), BDS and BGS.
Revenues recognized during the three months ended March 31, 2020 and 2019 from amounts recorded as Advances and progress billings at the beginning of each year were $3,790 and $5,897.
Certain commercial airplane customers are experiencing liquidity issues and seeking additional capital given the negative effect of COVID-19 on the commercial airline industry. Should these customers fail to address their liquidity issues, accounts receivable, unbilled receivables and certain inventory could become impaired. In addition, we would have to remove contracts related to these customers from backlog and remarket any undelivered aircraft.

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Note 9Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following:
 
March 31
2020

 
December 31
2019

Financing receivables:
 
 
 
Investment in sales-type/finance leases

$1,002

 

$1,029

Notes
452

 
443

Total financing receivables
1,454

 
1,472

Operating lease equipment, at cost, less accumulated depreciation of $231 and $235
816

 
834

Gross customer financing
2,270

 
2,306

Less allowance for losses on receivables
(5
)
 
(8
)
Total

$2,265

 

$2,298


We acquire aircraft to be leased to customers through trades, lease returns, purchases in the secondary market, and new aircraft transferred from our Commercial Airplanes segment. Leasing arrangements typically range in terms from 1 to 12 years and may include options to extend or terminate the lease. Certain leases include provisions to allow the lessee to purchase the underlying aircraft at a specified price. A minority of leases contain variable lease payments based on actual aircraft usage and are paid in arrears.
We determine a receivable is impaired when, based on current information and events, it is probable that we will be unable to collect amounts due according to the original contractual terms. At March 31, 2020 and December 31, 2019, we individually evaluated for impairment customer financing receivables of $412 and $400, of which $399 and $388 were determined to be impaired. We recorded no allowance for losses on these impaired receivables as the collateral values exceeded the carrying values of the receivables.
We determine a receivable is past due when cash has not been received upon the due date specified in the contract. Customer financing receivables past due as of March 31, 2020 is $18.
We evaluate the collectability of customer financing receivables at commencement and on a recurring basis. If a customer financing receivable is deemed uncollectable, the customer is categorized as non-accrual status. When a customer is in non-accrual status at commencement, revenue is deferred until substantially all cash has been received or the customer is removed from non-accrual status. If a customer status changes to non-accrual after commencement and sufficient collateral is available, we recognize contractual interest income as payments are received to the extent payments exceed past due principal payments. If there is not sufficient collateral, then revenue is not recognized until payments exceed the principal balance. Receivables in non-accrual status as of March 31, 2020 and December 31, 2019 were $399 and $388. Interest income received as of March 31, 2020 was insignificant.
The adequacy of the allowance for losses is assessed quarterly. Four primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates, expected loss rate and collateral values, which may be adversely affected by impacts that COVID-19 has on our customers. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by the major credit rating agencies.

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Our financing receivable balances at March 31, 2020 by internal credit rating category and year of origination consisted of the following:
Rating categories
Current
2019
2018
2017
2016
Prior
Total
BBB











$449


$449

BB

$33


$53


$17





156

259

B


38




$106



188

332

CCC


1



205


$194

14

414

Total carrying value of financing receivables

$33


$92


$17


$311


$194


$807


$1,454


At March 31, 2020, our allowance related to receivables with ratings of B, BB, and BBB. We applied default rates that averaged 13.9%, 3.2%, and 0.3%, respectively, to the exposure associated with those receivables.
Customer Financing Exposure
Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and overall market conditions and may be subject to reduced valuation with market decline. Collateral values may be adversely impacted by COVID-19. Declines in collateral values could result in asset impairments, reduced finance lease income, and an increase in the allowance for losses. Our customer financing collateral is concentrated in out-of-production aircraft and 747-8 aircraft. Generally, out-of-production aircraft have experienced greater collateral value declines than in-production aircraft.
The majority of customer financing carrying values are concentrated in the following aircraft models:
 
March 31
2020

 
December 31
2019

717 Aircraft ($118 and $124 accounted for as operating leases)

$708

 

$736

747-8 Aircraft ($130 and $130 accounted for as operating leases)
489

 
475

737 Aircraft ($236 and $240 accounted for as operating leases)
258

 
263

777 Aircraft ($233 and $236 accounted for as operating leases)
235

 
240

MD-80 Aircraft (accounted for as sales-type finance leases)
188

 
186

757 Aircraft ($21 and $22 accounted for as operating leases)
177

 
182

747-400 Aircraft ($29 and $31 accounted for as operating leases)
84

 
90


Lease income recorded in Revenue on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 included $15 and $16 from sales-type/finance leases, and $31 and $36 from operating leases, of which $1 and $3 related to variable operating lease payments.

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Note 10Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
 
March 31
2020

 
December 31
2019

Equity method investments (1)

$1,062

 

$1,031

Time deposits
173

 
50

Available for sale debt instruments
226

 
405

Equity and other investments
67

 
65

Restricted cash & cash equivalents(2)
84

 
86

Total

$1,612

 

$1,637


(1) 
Dividends received were $33 and $63 for the three months ended March 31, 2020 and 2019.
(2) 
Reflects amounts restricted in support of our workers’ compensation programs, employee benefit programs, and insurance premiums.
Allowance for losses on available for sale debt instruments are assessed quarterly. All instruments are considered investment grade and, as such, we have not recognized an allowance for credit losses as of March 31, 2020.
Note 11Commitments and Contingencies
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. Deliveries of the 737 MAX have been suspended until clearance is granted by the appropriate regulatory authorities. In addition, multiple legal actions have been filed against us as a result of the accidents. We also are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including investigations by the U.S. Department of Justice and the Securities and Exchange Commission, the outcome of which may be material. We cannot reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations and inquiries related to the 737 MAX.
We have developed software and pilot training updates for the 737 MAX and continue to work with the FAA and non-U.S. civil aviation authorities to complete remaining steps toward certification and readiness for return to service including addressing their questions on the software updates and how pilots will interact with the airplane controls and displays in different flight scenarios. As we complete rigorous software reviews and thorough testing procedures, we have identified and are now implementing additional updates to further improve overall system safety. We have assumed that computer and simulator training will be required and as a result, we have provisioned for certain training costs.
Prior to the grounding, the 737 production rate was 52 per month, and we had planned to increase the rate to 57 per month during 2019. Beginning in the second quarter of 2019, we reduced the production rate to 42 per month. We continued to produce at a rate of 42 per month through December 2019. We temporarily suspended 737 MAX production beginning in January 2020. During the first quarter of 2020, we completed airplanes that were already in process at the end of the fourth quarter of 2019 and have approximately 450 airplanes in inventory as of March 31, 2020.
In March 2020, we announced a temporary suspension of production operations in the Puget Sound area as a result of the COVID-19 crisis. Production operations resumed during the week of April 20, 2020 and the 737 team resumed working toward restarting production. We expect COVID-19 to reduce demand and have lowered production and delivery rate assumptions as described below.

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We have assumed that we will resume 737 MAX aircraft production during the second quarter of 2020 as timing and conditions of return to service and COVID-19 impacts are better understood. We expect to gradually increase the production rate to 31 during 2021 and expect further gradual increases to correspond with market demand. We have assumed that the timing of regulatory approvals will enable 737 MAX deliveries to resume during the third quarter of 2020. We have also assumed that the majority of 737 MAX airplanes produced during the grounding and included within inventory will be delivered during the first year after the resumption of deliveries, although at a slower pace than our previous assumptions due to COVID-19. The slower production and delivery rate ramp-ups reflect commercial airline industry uncertainty due to the impact of COVID-19.
During 2019, the cumulative impacts of changes to assumptions regarding timing of return to service and timing of planned production rates and deliveries increased the estimated costs to produce and deliver the 3,100 undelivered aircraft then included in the accounting quantity by approximately $6.3 billion. These costs will result in lower 737 margins in future periods after deliveries resume. There were no significant changes to these estimates related to MAX regulatory approvals assumptions in 2020.
During the first quarter of 2020, we reduced the number of aircraft included in the accounting quantity by 400 units as a result of reductions to planned production rates due to COVID-19 driven market uncertainties. The COVID-19 related reductions to planned production rates will result in additional costs to produce and deliver undelivered aircraft and will further reduce margins after deliveries resume. In addition, abnormally low production rates will extend for a longer period once production resumes due to COVID-19 impacts and is expected to result in approximately $1 billion of additional abnormal production costs that will be expensed as incurred. During the first quarter of 2020, we expensed $797 of the approximately $5 billion of abnormal production costs we now expect to incur over approximately two years.
We have also recorded additional expenses of $61 as a result of the 737 MAX grounding in the first quarter of 2020. These expenses include costs related to storage, pilot training and software updates.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during 2020.
 
2020

Beginning balance – January 1

$7,389

Reductions for payments made
(671
)
Reductions for concessions and other in-kind considerations
(2
)
Changes in estimates
(30
)
Ending balance – March 31

$6,686


We are working with our customers to minimize the impact to their operations from grounded and undelivered aircraft. We continue to reassess the liability for estimated potential concessions and other considerations to customers on a quarterly basis. This reassessment includes updating estimates to reflect revisions to return to service, delivery and production rate assumptions driven by timing of regulatory approvals, as well as latest information based on engagements with 737 MAX customers. The liability represents our current best estimate of future concessions and other considerations to customers, and is necessarily based on a series of assumptions.
The FAA and other non-U.S. civil aviation authorities will determine the timing and conditions of return to service. Our assumptions reflect our current best estimate, but actual timing and conditions of return to service and resumption of deliveries could differ from this estimate, the effect of which could be material. We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the timing and conditions of return to service, uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to the production rate, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows. For example, we expect that, in the event that we are unable to resume aircraft deliveries consistent with our assumptions, the continued absence of revenue,

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earnings, and cash flows associated with 737 MAX deliveries would continue to have a material impact on our operating results. In the event that future production rate increases occur at a slower rate or take longer than we are currently assuming, we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged production suspension or delays in planned production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce 737 program margins and/or increase abnormal production costs in the future.
Environmental
The following table summarizes environmental remediation activity during the three months ended March 31, 2020 and 2019.
 
2020

 
2019

Beginning balance – January 1

$570

 

$555

Reductions for payments made
(9
)
 
(11
)
Changes in estimates
7

 
4

Ending balance – March 31

$568

 

$548


The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios that includes the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At March 31, 2020 and December 31, 2019, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,077.
Product Warranties
The following table summarizes product warranty activity recorded during the three months ended March 31, 2020 and 2019.
 
2020

 
2019

Beginning balance – January 1

$1,267

 

$1,127

Additions for current year deliveries
23

 
50

Reductions for payments made
(82
)
 
(8
)
Changes in estimates
341

 
(60
)
Ending balance – March 31

$1,549

 

$1,109


The increase in the product warranty reserve during the three months ended March 31, 2020 is primarily driven by charges related to “pickle forks”. During 2019, we detected cracks in the "pickle forks", a frame fitting component of the structure connecting the wings to the fuselages of 737NG aircraft. We notified the FAA, which issued a directive requiring that certain 737NG airplanes be inspected. We have estimated the number of aircraft that will have to be repaired in the future and provisioned for the estimated costs of completing the repairs. We recognized charges of $135 in 2019 for current and projected future aircraft repairs. During the first quarter of 2020, we recognized additional charges of $336 based on revised engineering and fleet utilization estimates as well as updated repair cost estimates. We cannot estimate a range of reasonably possible losses, if any, in excess of amounts recognized due to the ongoing nature of the inspections and repairs and pending the completion of investigations into the cause of the condition.

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Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.
Trade-in commitment agreements at March 31, 2020 have expiration dates from 2020 through 2026. At March 31, 2020 and December 31, 2019 total contractual trade-in commitments were $1,230 and $1,407. As of March 31, 2020 and December 31, 2019, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $673 and $711 and the fair value of the related trade-in aircraft was $639 and $678.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $13,176 and $13,377 as of March 31, 2020 and December 31, 2019. The estimated earliest potential funding dates for these commitments as of March 31, 2020 are as follows:
  
Total

April through December 2020

$3,366

2021
2,737

2022
852

2023
1,951

2024
1,174

Thereafter
3,096

 

$13,176


As of March 31, 2020, all of these financing commitments relate to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.
Funding Commitments
We have commitments to make additional capital contributions of $243 to joint ventures over the next seven years.
Standby Letters of Credit and Surety Bonds
We have entered into standby letters of credit and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately $4,092 and $3,769 as of March 31, 2020 and December 31, 2019.
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

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Defense (U.S. DoD), the National Aeronautics and Space Administration (NASA) and the FAA. In February 2020, the U.S. administration submitted its request for $740.5 billion in base national defense spending for FY21, congruent with the amended spending limit.
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.

BDS Fixed-Price Development Contracts
Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Commercial Crew, KC-46A Tanker, T-7A Red Hawk, VC-25B, MQ-25, and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, we have recorded a reach-forward loss of $827 on KC-46A Tanker in the first quarter of 2020. The KC-46A Tanker reach-forward loss reflects $551 of costs associated with the agreement signed in April 2020 with the U.S. Air Force to develop and integrate a new Remote Vision System, and the remaining costs reflect productivity inefficiencies and COVID-19 related factory disruption. Moreover, our fixed-price development programs remain subject to additional reach-forward losses if we experience further production, technical or quality issues, schedule delays, or increased costs.
KC-46A Tanker
In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. This Engineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract and involves highly complex designs and systems integration. Since 2016, the USAF has authorized five low rate initial production (LRIP) lots for a total of 67 aircraft. The EMD contract and authorized LRIP lots are valued at approximately $15 billion.