The Global Aviation Market:A Boeing Perspective

Boeing International Relations

January 19, 2006

Aviation is moving from being highly regulated to a more liberalized and competitive marketplace

Passengers drive airline strategies

Air travel growth has been met by increased frequencies and nonstops

Index 1980=1.00

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1980 1985 1990 1995 2000 2005

Frequency Growth

Nonstop Markets

Average Airplane Size

Air Travel Growth

August OAG

World

Since 1995, all air travel growth has been met by frequency growth and new nonstops

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Index 1995=1.00 WorldFrequency Growth

Nonstop Markets

Average Airplane Size

Air Travel Growth

August OAG

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

1990 1993 1996 1999 2002 2005

Frequency Growth

Nonstop Markets

Average Airplane Size

Air Travel Growth

August OAG

Index 1990=1.00

Includes Hong Kong and Macau

China domestic air travel growth has been met by increased frequencies and nonstops

China domestic frequencies have increased more than twelve-fold since 1990

Total ASKTotal ASK Total FrequenciesTotal Frequencies Total Airport PairsTotal Airport Pairs Airplane Size (Seats)Airplane Size (Seats)391 million 2,095 170 15719901990

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Cities served at least daily shownCities served at least daily shown

2,084 million 12,146 605 169200020004,010 million 25,412 706 15420052005

Includes Hong Kongand Macau

August OAG

Market evolution summary

• World markets are evolving– Liberalization continues to create

a more competitive environment– Airline strategies are responding

to passengers’ desires to save time

– Airlines have accommodated air travel growth by adding more frequencies and nonstops

• Boeing expects these trends to continue

20-year forecast: strong long-term growth

Forecast growth annual rate4.8% (2005-2024)

Historical

10

8

6

4

2

01970 1980 1990 2000 2010 2020

Long-Term Growth2005 - 2024

GDP = 2.9% Passenger = 4.8%

Cargo = 6.2%

RPKs (trillions)

Future

0

10,000

20,000

30,000

40,000Units

18,500Growth

Airplanes

18,500Growth

Airplanes

7,200Replacements

7,200Replacements

9,600Retained Fleet

9,600Retained Fleet

16,77816,778

35,300

25,700

2004 2024

Long-term demand for new airplanes remains strong

45%

39%

5%11%

Airlines will need 25,700 new airplanes

22%

3%

15%

60%

25,700airplanes

2.1 trilliondelivery dollars**In year 2004 dollars

Regional jetsSingle-aisleTwin-aisle747 and larger

36%

30%

34%

Freighter fleet will double–three-quarters will be modified airplanes

2024

3,530freighters

53%

21%

26%

2004

1,760 freighters

Standard-body (<50 tons)Medium widebody (40-65 tons)Large (>65 tons)

Congestion is not driving large airplane use up

747 Share of Departures747 Share of Departures

NRT

HKG

HND

JFK

LHR

CDG

FRA

LAX

August OAG

0%

10%

20%

30%

40%

50%

60%

70%

80%

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Narita

Hong Kong

Haneda

New York City - JFKLondon Heathrow

Passengers prefermore nonstops and frequency choices

London Heathrow

Nonstop service continues to bypass mega-hubs, not consolidate

London-Heathrow

Air Canada Emirates

American Continental

London-Heathrow

New York (JFK)

London-Heathrow London-Heathrow

New York (EWR)

DelhiToronto Dubai

Manchester GenevaChicago

New nonstop flights continue to grow, not consolidate

Airbus claims the number of city pairs has stagnated since 1996

Airbus projects fewer airport pairs in 2022 than served today

5,000

6,000

7,000

8,000

9,000

10,000

11,000

1985 1990 1995 2000 2005

Airport Pairs

Data from August SchedulesNOTE: Excludes regional jets

~2,200 Airport Pairs AddedSince 1996

2005 current market outlook summary

• In a liberalized, more competitive environment, passengers’ desires will drive airline strategies and airplane selections

• Boeing and Airbus agree passenger travel will grow about 5 percent per year over the next 20 years – Boeing believes the current trend of

more frequencies and nonstop flights will continue to accommodate this growth

– Airbus is projecting a significant trend shift to larger airplanes

• Boeing forecasts airlines will need about 25,700 new airplanes valued at $2.1 trillion

Boeing Overview• Boeing Commercial Airplanes: Offers a broad portfolio of

airplanes and aviation services for its passenger and freighter airline customers worldwide

– Approximately seven out of every 10 BCA deliveries go to customers outside of the U.S.

• Boeing Capital Corp: Provides financing for our aircraft

• Connexion By Boeing: Formed in April of 2000 to develop technologies that can provide high-speed broadband data communications to air travelers

– Now branching into the maritime market

• Integrated Defense Systems: Formed in 2002 with the integration of Boeing’s defense, space, intelligence and communications capabilities into one single unit

• Phantom Works: Enterprise-wide R&D function

Boeing’s “Vision 2016”

• People working together as a global enterprise for aerospace leadership

Boeing’s Business Transformation1998-2006

• Commercial Airplane Manufacturer

• Product Focused

• Hardware & Platforms

• Exporter

• Balanced Aerospace Company

• Business Focused

• Systems & Solutions

• Global

Becoming more global is about growth and productivityBecoming more global is about growth and productivity

What is a Global Enterprise?• Functions with the world as its operating unit

– Coordinates and integrates its activities and processes on worldwide basis

– Creates value -- and competitive advantage -- by discovering, mobilizing and leveraging resources and capabilities across borders

• Being global also means being strong locally– Local presence allows greater responsiveness to local market

conditions and customers – as well as other stakeholders

• How we operate just as important as where

Balance Between Global Coordination and Local ResponsivenessBalance Between Global Coordination and Local Responsiveness

Boeing as a Global Enterprise Today• R&D/Engineering (Define)

– Moscow and Madrid – R&T Centers, Design Center– International university and research agency partnerships

• Suppliers/Sourcing (Buy)– Nearly 5,250 suppliers in close to 100 countries (including the US)– Global partners for new products (787)

• Production – manufacturing & services (Build)– Subsidiaries in Canada, Australia, Germany via acquisitions– Joint Ventures; e.g. China, Malaysia, Morocco

• Sales (Acquire):– 2004 sales were $52.5B from customers in 145 countries – International sales were nearly 30% – International industry alliances to access new markets and customers

• After Market (Support)– Field service reps, parts & distribution centers around world

Boeing Research and Technology EuropeEurope

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GBD

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Collaborate with over 70 European Universities, Companies and Research Institutes

Universidades de Leuven, Brussels, Bristol, Exeter, Naples, Torino y Nottingham. FraunhoferInst. Cranfield, VZLU, Inst. de Acústica CSIC, Masquito Aircraft, DAKEL, GIP ULTRASONS, ASCO Ind., NDT, Celsius Saab

ANOTEC, DEBAKOM, CSTB, DELTA, DLR, EEC, EMPA, ENEA, TNO

NLR, AENA, ECC, INECO, NATS

Employees from 8 European Countries

Programs Won include:

• IMAGINEaircraft noise source modeling

• AERONEWSaircraft health monitoring

• CAATScoordination on ATM projects from FP6

Leveraging the Best of EuropeLeveraging the Best of Europe

Legend:• Top 20 partners,

Global partners and IP suppliers• Boeing Internal

• Top CAS suppliers• Major Boeing Spares Centers

• Boeing Field Offices

Lean Global Enterprise

Aligning Global OperationsAligning Global Operations

787 International Team at Work

Structures Partners Working Together

Spirit Aerosystems –Forward Fuselage

MHI –Wing Box

GE –Engines

Rolls-Royce –Engines

Goodrich –NacellesAlenia/Vought –

Horizontal Stabilizer, Center Fuselage, Aft Fuselage

Boeing Fredrickson –Vertical Tail

Hawker de Havilland –Moveable Trailing Edges

Boeing Winnipeg –Wing-to-Body Fairing

FHI –Center Wing Box

Spirit Aerosystems –Leading Edges

Spirit Aerosystems –Engine Pylons

KHI –Fuselage, Wheel WellKHI –

Fixed Trailing Edge

Messier-Dowty –Landing Gear

Latecoere –Passenger Doors

KAL-ASD –Wingtips

Saab –Cargo Doors, Access Doors

We Deal with a Diverse Set of Globalization Policy & Regulatory Issues

• Trade policies – towards an open and level playing field– Subsidies– Free Trade Agreements– WTO

• Export licensing/technology transfer rules

• Regulatory issues that impact aviation/aerospace– Open Skies– Cape Town Convention– Environmental rules

• Offshoring concerns

• Geopolitical: China, India, Middle East, Russia, EU, etc.

• Potential system shocks – e.g. avian flu

Our Key Enabling Elements for Globalization

• People: The most important resource– Develop, value and mobilize global intellect within Boeing

• Presence: Requires the right structure in the right markets– Create local responsiveness via Country VPs and teams

who know the local scene and can provide “one company” face to local stakeholders

• Processes: Linking People, Presence and Boeing business units through coordinated global processes – Strategy, Communications, Business Management, and

Community Relations processes that are globally scaled and coordinated -- yet locally responsive

TurkeyItaly

Russia/CIS

Australia

Japan

KoreaChina

SE Asia

Spain

EU-NATO C. EuropeFrance

M. East

Germany

Africa

IsraelIndia

Canada

N. Europe

UK

S. Arabia

Current International Relations Presence

Leveraging Boeing’s current international operations and supporting development of new opportunities

Leveraging Boeing’s current international operations and supporting development of new opportunities

USA

Boeing Globalization RoadmapOur Global Strengths Today

Globalization 1.0

• Sales

• Product Sourcing– Airplane parts/

structures

• Product Support– Airplanes

• Country VPs/Teams

Our Next Global Strengths3-5 yrs: Globalization 2.0

• Market Shaping

• Intellectual Sourcing– R&D– Engineering– IT/Software

• Aviation Services Solutions

• Business Unit leaders managing Global Businesses

Boeing Globalization Roadmap:Where Can We Go?

• Networked Global Operations– Several business operations with “nodes” around the world,

leveraging the core competencies of different countries• Example: 747-400 Special Freighter program

– Engineering in Long Beach, Puget Sound and Moscow– Digitization work in India (via Moscow BDC)– Modification work in China at our TAECO joint venture

• International alliances that create business growth– Access/development of new markets, products & services,

technologies. Examples: Finmeccanica, MHI alliances

• International expansion into new types of markets – Examples: New applications for network centric capabilities;

aviation services (e.g. India, China)

In Closing…• We’re launched on our way to becoming

truly global

• Capabilities and processes are rapidly being put in place

• Leveraging those capabilities and processes and executing on strategy will make Boeing’s Vision 2016 a reality

Questions?