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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
December 31, 1998


Commission file number 1-442


THE BOEING COMPANY

7755 East Marginal Way South
Seattle, Washington 98108
Telephone: (206) 655-2121

State of incorporation: Delaware
IRS identification number: 91-0425694

Securities registered pursuant to Section 12(b) of the Act:
Class of Security: Registered on
-------------------------- -----------------------
Common Stock, $5 par value New York Stock Exchange





The registrant 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 and
has been subject to such filing requirements for the past 90 days.

A disclosure of one delinquent filer pursuant to Item 405 of Regulation S-K
will be contained in the registrant's definitive proxy statement incorporated
by reference in Part III of this Form 10-K.

As of February 1, 1999, there were 937,962,070 common shares outstanding held
by nonaffiliates of the registrant, and the aggregate market value of the common
shares (based upon the closing price of these shares on the New York Stock
Exchange) was approximately $31.9 billion.

Part I and Part II incorporate information by reference to certain portions of
the Company's 1998 Annual Report to Shareholders. Part III incorporates
information by reference to the registrant's definitive proxy statement, to be
filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year.

1 Exhibit Index on Page 27
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PART I

Item 1. Business

The Boeing Company, together with its subsidiaries (herein referred to as the
"Company"), is one of the world's major aerospace firms. The Company operates in
three principal segments: commercial airplanes, military aircraft and missiles,
and space and communications.

Commercial airplanes operations - conducted through Boeing Commercial
Airplanes Group - involve development, production and marketing of commercial
jet aircraft and providing related support services, principally to the
commercial airline industry worldwide.

In 1998 the information, space and defense systems operations of the Company
were reorganized into two groups: the Military Aircraft and Missile Systems
Group and the Space and Communications Group.

The Military Aircraft and Missiles segment is involved in the research,
development, production, modification and support of the following products and
related systems: military aircraft, including fighter, transport and attack
aircraft; helicopters; and missiles.

The Space and Communications segment is involved in the research, development,
production, modification and support of the following products and related
systems: space systems; missile defense systems; satellite launching vehicles;
rocket engines; and information and battle management systems.

Revenues, earnings from operations and other financial data of the Company's
business segments for the three years ended December 31, 1998, are set forth on
pages 50-52 of the Company's 1998 Annual Report to Shareholders and are
incorporated herein by reference.

On August 1, 1997, McDonnell Douglas Corporation merged with a subsidiary of
the Company through a stock-for-stock exchange in which 1.3 shares of Company
stock were issued for each share of McDonnell Douglas stock outstanding, and as
a result, McDonnell Douglas became a subsidiary of the Company. The Company
issued 277.3 million shares of common stock in connection with the merger. The
combined company is operating under the name of The Boeing Company. The merger
is accounted for as a pooling of interests. Accordingly, except for adjustments
to reflect conformed accounting policies, the historical results of operations
of the two companies have been combined, and no acquisition revaluation or
goodwill was recorded. The merger was subject to approval by the United States
Federal Trade Commission and the European Commission. Future requirements or
obligations associated with obtaining these approvals are not expected to have a
material impact on future operations or liquidity of the Company.

On December 6, 1996, the Company acquired Rockwell's aerospace and defense
business by issuing 9.15 million shares (18.30 million shares after the June
1997 2-for-1 stock split) of common stock valued at $875 million and assuming
debt valued at $2,180 million. This transaction has been accounted for under the
purchase method. The assets and liabilities have been recorded at fair value,
with excess purchase price recorded as goodwill.

With respect to the Commercial Airplanes segment, the Company is a leading
producer of commercial aircraft and offers a family of commercial jetliners
designed to meet a broad spectrum of passenger and cargo requirements of

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domestic and foreign airlines. This family of commercial jet aircraft currently
includes the 717, 737, MD-80, MD-90 and 757 standard-body models and the 767,
MD-11, 777 and 747 wide-body models. The MD-80 and MD-90 aircraft will not be
produced after early 2000. Final delivery of the MD-11 aircraft will be in 2001.

The worldwide market for commercial jet aircraft is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth, both in developed and
emerging countries, and political stability. Demand for the Company's commercial
aircraft is further influenced by airline industry profitability, world trade
policies, government-to-government relations, environmental constraints imposed
upon aircraft operations, technological changes, and price and other competitive
factors.

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

The Company's commercial aircraft sales are subject to intense competition,
including foreign companies that are nationally owned or subsidized. To meet
competition, the Company maintains a program directed toward continually
enhancing the performance and capability of its products and has a family of
commercial aircraft to meet varied and changing airline requirements. Since the
1970s, the Company has achieved more than a 70% share of the available
commercial jet aircraft market.

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

The major focus of commercial aircraft development activities over the past
three years has been the 777 wide-body twinjet, the 737-600/700/800/900 Next-
Generation 737 family of short-to-medium-range jetliners, and the 717-200
(formerly the MD-95) program. The first delivery of the 777 occurred in May
1995. Development of the 777-200ER extended-range version of the 777 began in
1995 and continued in 1996, with certification and first delivery in early 1997.
The increased-capacity version 777-300 began deliveries in May 1998. The
certification and initial deliveries of the 737-700, the first of four new 737
derivative models, occurred in December 1997. The 737-800, a larger version,
delivered in early 1998, and initial delivery of the smallest version, the 737-
600, occurred in late 1998. The 737-900, the longest member of the Next-
Generation 737 family, received its initial order in late 1997 with first
delivery scheduled for 2001. The Next-Generation 737 models are also being used
by Boeing Business Jets, a collaboration between the Company and General
Electric, to pursue the business travel market. Certification and first delivery
of the Boeing Business Jet occurred in late 1998. In 1996 the Company launched a
new version of the 757 twinjet. The new 757-300, with approximately 20% more

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seating, will have about 10% lower seat-mile operating cost than the -200, which
already has the lowest seat-mile operating cost in its market segment. First
delivery is scheduled for early 1999. In 1997 the Company began offering for
sale a new extended-range version of the 767. The 767-400ER, a stretched version
of the 767-300ER, will be capable of carrying over 300 passengers in a two-class
configuration and is scheduled to enter commercial service in the year 2000. The
717-200 is currently in development, with first delivery scheduled for mid-1999.

The Company has been working with some of the world's largest airlines to
explore the development of aircraft capable of carrying more than 500 passengers
over longer ranges than the current 747 family. However, sufficient market
demand has not developed to justify committing the very substantial investment
levels required to develop either an all new aircraft or significantly larger
versions of the 747. The timing of a decision to proceed with a 747 derivative
aircraft and the development schedule depend on customer demand and the
Company's ability to achieve favorable long-term financial returns on the
substantial development costs that would be required. Other new products under
consideration include larger and longer-range versions of the 777.

The Company's acquisition of the defense and space units of Rockwell and the
merger with McDonnell Douglas have created a large and diversified group of
business units in information, space and defense systems. The major trends that
shape the current environment of this business include significant but
relatively flat U.S. Government defense and space budgets; rapid expansion of
information and communication technologies; the need for low cost, assured
access to space; and a convergence of military, civil and commercial markets.

The U.S. Government, principally through the Department of Defense (DoD) and
NASA, remains the primary customer of this business. DoD procurement funding
levels are expected to remain essentially flat on an inflation-adjusted basis.
The Company's DoD programs are subject to uncertain future funding levels, which
can result in the stretch-out or termination of some programs. NASA's budget is
also expected to remain relatively flat over the next several years.

The Company's Military Aircraft and Missiles and Space and Communications
business segments are highly sensitive to changes in national priorities and
U.S. Government defense and space budgets. The principal contributors to 1998
Military Aircraft and Missiles segment revenues included the C-17, F-15, F/A-18
C/D, F/A-18 E/F, and AH-64 Apache. The principal contributors to 1998 Space and
Communications segment revenues included the International Space Station, E-3
AWACS (Airborne Warning and Control System) updates and 767 AWACS, and the Delta
II space launcher. Classified projects for the U.S. Government also continued to
contribute to both segments' revenues.

Since 1994, a significant percentage of the Military Aircraft and Missiles and
Space and Communications segments business has been in developmental programs
under cost-reimbursement-type contracts, which generally have lower profit
margins than fixed-price-type contracts. The current major developmental
programs include the International Space Station, F/A-18 E/F, F-22 Fighter,
Joint Strike Fighter, V-22 Osprey tiltrotor aircraft, and the RAH-66 Comanche
helicopter and the National Missile Defense (NMD) Lead System Integration (LSI).
The F/A-18 E/F and V-22 Osprey tiltrotor aircraft programs have entered into
low-rate initial production, and the F-22 Raptor has received long-lead funding
for low-rate initial production.

The information and communication market addressed by the Space and
Communications business segment is projected by industry analysts to grow

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sevenfold over the next ten years. The majority of the projected growth in
information and communication will be in the commercial marketplace, and the
Government's requirements are expected to be increasingly met by these
commercial systems. The Company's involvement in several ventures will provide
opportunities for significant market penetration. The segment continues to
selectively pursue commercial-type business opportunities where it can utilize
its technical and large-scale integration capabilities. Such business pursuits,
which are outside the traditional U.S. Government contracting environment, are
expected to require increased levels of company-sponsored research and
development expenditures.

The U.S. Government defense market environment is one in which continued
intense competition among defense contractors can be expected, especially in
light of U.S. Government budget constraints. The Company's ability to
successfully compete for and retain such business is highly dependent on its
technical excellence, demonstrated management proficiency, strategic alliances,
and cost-effective performance.

The acquisition and merger consolidations among U.S. aerospace companies have
resulted in three principal prime contractors for the DoD and NASA, including
the Company. As a result of the extensive consolidation in the defense and space
industry, the Company and its major competitors are also partners or major
suppliers to each other on various programs.

The Company and Lockheed Martin are 50/50 partners in United Space Alliance
(USA), which is responsible for all ground processing of the Space Shuttle fleet
and for space-related operations with the United States Air Force. USA also
performs the modification, testing and checkout operations required to ready the
Space Shuttle for launch. Although the joint venture operations are not included
in the Company's consolidated statements, the Company's proportionate share of
joint venture earnings is recognized in income.

Research and development expense amounted to $1.9 billion, $1.9 billion and
$1.6 billion in 1998, 1997 and 1996, respectively. Based on current programs and
plans, research and development expense for 1999 is expected to be in the $1.6
billion to $1.8 billion range.

The Company's backlog of firm contractual orders (in billions) at December 31
follows:

1998 1997
==== ====
Commercial Airplanes $86.1 $93.8

Military Aircraft and Missiles 17.0
Space and Communications 9.8
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Information, Space and Defense Systems 26.8 27.8
------ ------
Total contractual backlog $112.9 $121.6
====== ======

Not included in contractual backlog are purchase options and announced orders
for which definitive contracts have not been executed and orders from customers
that have filed for bankruptcy protection. Additionally, U.S. Government and
foreign military firm backlog is limited to amounts obligated to contracts.
Unobligated contract funding not included in backlog at December 31, 1998 and
1997, totaled $23.5 billion and $26.1 billion.
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In evaluating the Company's contractual backlog for commercial customers,
certain risk factors should be considered. Approximately 17% of the commercial
aircraft backlog units are scheduled for delivery beyond 2001. Changes in the
economic environment and the financial condition of airlines sometimes result in
customer requests for rescheduling or cancellation of contractual orders.

Contracts with the U.S. Government are subject to termination for default or
for convenience by the Government if deemed in its best interests. Contracts
that are terminated for convenience generally provide for payments to a
contractor for its costs and a proportionate share of profit for work
accomplished through the date of termination. Contracts that are terminated for
default generally provide that the Government pays only for the work it has
accepted, can require the contractor to pay the difference between the original
contract price and the cost to reprocure the contract items net of the value of
the work accepted from the original contractor, and can hold a contractor liable
for damages.

The Company is highly dependent on the availability of essential materials,
parts and subassemblies from its suppliers and subcontractors. The most
important raw materials required for the Company's aerospace products are
aluminum (sheet, plate, forgings and extrusions), titanium (sheet, plate,
forgings and extrusions) and composites (including carbon and boron). Although
alternative sources generally exist for these raw materials, qualification of
the sources could take a year or more. Many major components and product
equipment items are procured or subcontracted on a sole-source basis with a
number of domestic and foreign companies. The Company is dependent upon the
ability of its large number of suppliers and subcontractors to meet performance
specifications, quality standards, and delivery schedules at anticipated costs,
and their failure to do so would adversely affect production schedules and
contract profitability, while jeopardizing the ability of the Company to fulfill
commitments to its customers. The Company maintains an extensive qualification
and performance surveillance system to control risk associated with such
reliance on third parties.

Production problems on the commercial aircraft programs reached unexpected
levels late in the third quarter of 1997. During this period, the Company was in
the midst of an unprecedented production rate buildup for the 7-series
commercial aircraft programs, and experienced a number of challenges, including
raw material shortages, internal and supplier parts shortages, and productivity
inefficiencies associated with adding thousands of new employees. These factors
resulted in significant out-of-sequence work. The breadth and complexity of the
entire commercial aircraft production process, especially during this time of
substantial production rate increases, presented a situation where disrupted
process flows caused major inefficiencies throughout the entire process chain.
The 747 and 737 production lines were halted for approximately one month early
in the fourth quarter of 1997. The recovery plan continued throughout 1998.

While the Company owns numerous patents and has licenses under patents owned
by others relating to its products and their manufacture, it does not believe
that its business would be materially affected by the expiration of any patents
or termination of any patent license agreements. The Company has no trademarks,
franchises or concessions that are considered to be of material importance to
the conduct of its business.

The Company is subject to federal, state and local laws and regulations
designed to protect the environment and to regulate the discharge of materials
into the environment. The Company believes its policies, practices and

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procedures are properly designed to prevent unreasonable risk of environmental
damage and the consequent financial liability to the Company. Compliance with
environmental laws and regulations requires continuing management effort and
expenditures by the Company. Compliance with environmental laws and regulations
has not had in the past, and, the Company believes, will not have in the future,
material effects on the capital expenditures, earnings or competitive position
of the Company. (See Item 3,"Legal Proceedings", for additional information
regarding environmental regulation.)

The Company is subject to business and cost classification regulations
associated with its U.S. Government defense and space contracts. Violations can
result in civil, criminal or administrative proceedings involving fines,
compensatory and treble damages, restitution, forfeitures, and suspension or
debarment from Government contracts.

Sales outside the United States (principally export sales from domestic
operations) by geographic area are included on page 50 of the Company's 1998
Annual Report to Shareholders and incorporated herein by reference. Less than 1%
of total sales were derived from non-U.S. operations of the Company for each of
the three years in the period ended December 31, 1998. Approximately 41% of the
Company's contractual backlog value at December 31, 1998, was with non-U.S.
customers. Sales outside the United States are influenced by U.S. Government
foreign policy, international relationships, and trade policies of governments
worldwide. Relative profitability is not significantly different from that
experienced in the domestic market.

Approximately 37% of combined accounts receivable and customer and commercial
financing consisted of amounts due from customers outside the United States.
Substantially all of these amounts are payable in U.S. dollars, and, in
management's opinion, related risks are adequately covered by allowance for
losses. The Company has not experienced materially adverse financial
consequences as a result of sales and financing activities outside the United
States.

The Company's workforce level at January 28, 1999, was approximately 227,000,
including approximately 4,000 in Canada and 2,100 in Australia. The year-end
1999 workforce level is projected to be in the range of 200,000 to 210,000.





















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Item 2. Properties

The locations and floor areas of the Company's principal operating properties
at January 1, 1999, are indicated in the following table.

Floor Area
(Thousands of square feet)

Company-
Owned Leased
======== =======
United States
Greater Seattle, Washington 45,477 4,239
Greater Southern California 20,113 2,157
Wichita, Kansas 12,124 1,359
Greater St. Louis, Missouri 9,082 2,443
Greater Philadelphia, Pennsylvania 3,388 31
Huntsville - Decatur, Alabama 2,157 177
Mesa, Arizona 1,997 39
San Antonio, Texas 1,203
Portland, Oregon 1,092 55
Greater Cape Canaveral, Florida 712
Irving - Corinth - Richardson, Texas 504 90
Oakridge, Tennessee 493
Spokane, Washington 394 48
Duluth, Georgia 380
Greater Vienna - Arlington - Reston, Virginia 358 518
Greater Houston, Texas 329 188
Moses Lake, Washington 252
Salt Lake City, Utah 227 70
Chicago, Illinois 204
Macon, Georgia 198 107
Tulsa - McAlester, Oklahoma 166 1,793
Glasgow, Montana 152
Melbourne, Arkansas 97 46
Heath, Ohio 782
Australia
Greater Melbourne, Victoria 803 191
Canada
Toronto, Ontario 1,881
Winnipeg, Manitoba 522 96
Arnprior, Ontario 162 69


With the exception of the Glasgow Industrial Airport located in Glasgow,
Montana, which is company-owned, runways and taxiways used by the Company are
located on airport properties owned by others and are used by the Company
jointly with others. The Company's rights to use such facilities are provided
for under long-term leases with municipal, county or other government
authorities. In addition, the U.S. Government furnishes the Company certain
office space, installations and equipment at Government bases for use in
connection with various contract activities. Facilities at the major locations
support all principal industry segments. Work related to a given program may be
assigned to various locations, based upon periodic review of shop loads and
production capability.


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Because of the acquisition of the aerospace and defense units of Rockwell and
the merger with McDonnell Douglas, the Company is in the process of re-
evaluating facilities to consolidate redundant activities. Properties and land
that do not meet long-term business requirements will be sold.

The Company's principal properties are well maintained and in good operating
condition. Unused or under-utilized facilities are not considered significant. A
new facility in Decatur, Alabama, is planned for completion during 1999 to meet
the needs of the Evolved Expendable Launch Vehicle program. All other existing
facilities are sufficient to meet the Company's near-term operating
requirements.


Item 3. Legal Proceedings

Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
legal proceedings are related to matters covered by insurance. Major
contingencies are discussed below.

The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations since the
1980s.

The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is to
immediately accrue and charge to current expense identified exposures related to
environmental remediation sites based on conservative estimates of
investigation, cleanup and monitoring costs to be incurred.

The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to the
Company's financial position. With respect to results of operations, related
charges have averaged less than 2% of annual net earnings exclusive of special
charges. Such accruals as of December 31, 1998, without consideration for the
related contingent recoveries from insurance carriers, are less than 2% of total
liabilities.

Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for identified
contaminated sites. However, based on all known facts and expert analyses, the
Company believes it is not reasonably likely that identified environmental
contingencies will result in additional costs that would have a material adverse
impact to the Company's financial position or operating results and cash flow
trends.






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The Company is subject to U.S. Government investigations of its practices from
which civil, criminal or administrative proceedings could result. Such
proceedings could involve claims by the Government for fines, penalties,
compensatory and treble damages, restitution and/or forfeitures. Under
government regulations, a company, or one or more of its operating divisions or
subdivisions, can also be suspended or debarred from government contracts, or
lose its export privileges, based on the results of investigations. The Company
believes, based upon all available information, that the outcome of any such
government disputes and investigations will not have a material adverse effect
on its financial position or continuing operations.

In 1991 the U.S. Navy notified the Company and General Dynamics Corporation
(the Team) that it was terminating for default the Team's contract for
development and initial production of the A-12 aircraft. The Team filed a legal
action to contest the Navy's default termination, to assert its rights to
convert the termination to one for "the convenience of the Government," and to
obtain payment for work done and costs incurred on the A-12 contract but not
paid to date. At December 31, 1998, inventories included approximately $581
million of recorded costs on the A-12 contract, against which the Company has
established a loss provision of $350 million. The amount of the provision, which
was established in 1990, was based on the Company's belief, supported by an
opinion of outside counsel, that the termination for default would be converted
to a termination for convenience, that the Team would establish a claim for
contract adjustments for a minimum of $250 million, that there was a range of
reasonably possible results on termination for convenience, and that it was
prudent to provide for what the Company then believed was the upper range of
possible loss on termination for convenience, which was $350 million.

On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the Court
issued an opinion confirming its prior no-loss adjustment and no-profit recovery
order. On December 5, 1997, the Court issued an opinion confirming its
preliminary holding that plaintiffs were entitled to certain adjustments to the
contract funding, increasing the plaintiffs' possible recovery to $1,200
million. On March 31, 1998, the Court entered a judgment, pursuant to a March
30, 1998, opinion and order, determining that plaintiffs were entitled to be
paid that amount, plus statutory interest from June 26, 1991, until paid.

Although the Government has appealed the resulting judgment, the Company
believes the judgment will be sustained. Final resolution of the A-12 litigation
will depend on such appeals and possible further litigation, or negotiations,
with the Government. If sustained, however, the expected damages judgment,
including interest, could result in pretax income that would more than offset
the loss provision established in 1990.

On October 31, 1997, a federal securities lawsuit was filed against the
Company in the U.S. District Court for the Western District of Washington in
Seattle. The lawsuit names as defendants the Company and three of its executive
officers. Additional lawsuits of a similar nature have been filed. The
plaintiffs in each lawsuit seek to represent a class of purchasers of Boeing
stock between July 21, 1997, and October 22, 1997, (the "Class Period"),
including recipients of Boeing stock in the McDonnell Douglas merger. July 21,
1997, was the date on which the Company announced its second quarter results,
and October 22, 1997, was the date on which the Company announced charges to
earnings associated with production problems being experienced on commercial
aircraft programs. The lawsuits generally allege that the defendants desired to

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keep the Company's share price as high as possible in order to ensure that the
McDonnell Douglas shareholders would approve the merger and, in the case of two
of the individual defendants, to benefit directly from the sale of Boeing stock
during the Class Period. The plaintiffs seek compensatory damages and treble
damages. The Company believes that the allegations are without merit and that
the outcome of these lawsuits will not have a material adverse effect on its
earnings, cash flow or financial position.

On June 6, 1998, sixteen African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint in
the U.S. District Court for the Western District of Washington (Washington Class
Action) alleging, on the basis of race, discrimination in promotions and
training. The plaintiffs also allege retaliation and harassment and seek, among
other things, an order certifying a class of all African American employees who
are currently working or have worked for the three companies during the past few
years. Also, on July 31, 1998, seven African American employees of the
helicopter division of the Military Aircraft and Missile Systems Group in
Philadelphia filed an action in the U.S. District Court for the Eastern District
of Pennsylvania (Philadelphia Class Action) alleging, on the basis of race,
discrimination in compensation, promotions and terminations. The complaint also
alleges retaliation at that division. Plaintiffs are seeking an order certifying
a class of all African American employees of The Boeing Company. In September
1998, the Court denied plaintiffs' motion seeking class certification, but
allowed plaintiffs to renew their motion upon completion of class discovery.

On January 25, 1999, the U.S. District Court in the Western District of
Washington entered an order preliminarily approving a proposed Consent Decree,
which settles both the Washington Class Action and the Philadelphia Class
Action, along with a multi-plaintiff racial discrimination lawsuit. The order,
"inter alia", conditionally certified a nationwide class of 20,000 current and
former African American Boeing (includes all U.S. subsidiaries and former
McDonnell Douglas Corporation and Rockwell International) employees. If approved
by the Court, the Company will pay $15 million allocated in the following
manner: 1) $3.77 million to 39 Named Plaintiffs, with an average of $30,000 and
not more than $50,000; 31 Individual Plaintiffs, with an average of $20,000 and
not more than $50,000; and 194 specifically identified settlement class members,
with an average of $10,000 and not more than $15,000; all of whom must sign a
release to obtain any money, with the individual amount reverting to the Company
if no release is signed; 2) $3.53 million to the remaining approximately 20,000
class members, who must file a sworn claim form that will be reviewed by an
independent claims arbitrator who will determine the amount each class member
receives on the basis of a points formula, and each class member must also sign
a release for any money received; 3) $3.65 million to pay for systems changes,
training, consultants, and notice to class members; and 4) $3.0 million in fees
and costs to Class Counsel in the state of Washington for pre-decree litigation
work, $750,000 for post-decree work including implementation of the Consent
Decree, $100,000 for expenses related to informing class members about the
proposed Consent Decree, and $200,000 to Philadelphia counsel. The Company will
devise systems changes that will inform hourly employee class members about the
promotion selection process, and which employee was awarded a certain promotion;
provide training and other programs to assist employees with career development;
employ a consultant to assess these system changes; implement across the system
a revised first-level management selection process and revised internal
complaint process; and implement enforcement procedures to maintain a
harassment-free workplace.


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Pursuant to the Court's order, notice to the class members shall be published
and claim forms shall be mailed to class members prior to the end of February
1999. Class members will have until April 23, 1999, to file their claim forms,
objections, and/or requests to opt out of the settlement. A hearing is set for
May 26, 1999, to determine the fairness of the proposed Consent Decree, and if
so determined, for the Court to approve the Consent Decree. The Company believes
that the proposed Consent Decree, if approved, will not have a materially
adverse effect on its earnings, cash flow or financial position.

In December 1996, The Boeing Company filed suit in the U.S. District Court for
the Western District of Washington for the refund of over $400 million in
federal income taxes and related interest. The suit challenged the IRS method of
allocating research and development costs for the purpose of determining tax
incentive benefits on export sales through the Company's Domestic International
Sales Corporation and its Foreign Sales Corporation for the years 1979 through
1987. In September 1998, the District Court granted the Company's motion for
summary judgment. The U.S. Department of Justice has appealed this decision. If
the Company were to prevail, the refund would include interest computed to the
payment date. The issue could affect tax computations for subsequent years;
however, the financial impact would depend on the final resolution of audits for
those years.

Income taxes have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and IRS examinations have been completed through 1987. In
connection with these examinations, the Company disagrees with IRS proposed
adjustments, and the years 1979 through 1987 are in litigation. The Company has
also filed refund claims for additional research and development tax credits,
primarily in relation to its fixed-price government development programs.
Successful resolutions will result in increased income to the Company.


Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1998.























12
13
PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Information required by this item is included on page 78 and the inside back
cover of the Company's 1998 Annual Report to Shareholders and is incorporated
herein by reference.

Item 6. Selected Financial Data

Information required by this item is included on page 76 of the Company's 1998
Annual Report to Shareholders and is incorporated herein by reference.

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

Information required by this item is included on pages 34-48 of the Company's
1998 Annual Report to Shareholders and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements and supplementary data,
included in the Company's 1998 Annual Report to Shareholders on the pages
indicated, are incorporated herein by reference:

Consolidated Statements of Operations - years ended December 31, 1998,
1997 and 1996: Page 53.

Consolidated Statements of Financial Position - December 31, 1998 and
1997: Page 54.

Consolidated Statements of Cash Flows - years ended December 31, 1998,
1997 and 1996: Page 55.

Consolidated Statements of Shareholders' Equity - December 31, 1998,
1997 and 1996: Pages 56-57.

Notes to Consolidated Financial Statements: Pages 58-73.

Independent Auditors' Report: Page 74.

Supplementary data regarding quarterly results of operations: Page 75.


Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

None.










13
14
PART III
Item 10. Directors and Executive Officers of the Registrant

Executive Officers
No family relationships exist among any of the executive officers, directors
or director nominees. The executive officers of the Company as of February 15,
1999, are as follows:
Positions and offices held and business
Name Age experience
================================================================================
Philip M. Condit 57 Chairman of the Board since February 1997.
Chief Executive Officer since April 1996.
Director since August 1992. President from
August 1992 through January 1997.

Harry C. Stonecipher 62 President and Chief Operating Officer of
the Company and Director since August 1997.
Prior thereto, President and Chief
Executive Officer of McDonnell Douglas
Corporation from 1994. Prior thereto,
Chairman of the Board, President, and Chief
Executive Officer of Sundstrand Corporation
from 1991.

James F. Albaugh 48 Senior Vice President of the Company and
President of Space and Communications Group
from September 1998. Prior thereto,
President of Boeing Space Transportation
from April 1998. Prior thereto, President
of Rocketdyne Propulsion and Power, now a
business of Space and Communications Group
from March 1997. Prior thereto, Vice
President - Operations, Rocketdyne
Propulsion and Power since 1994.

Theodore J. Collins 62 Senior Vice President and General Counsel
of the Company since February 1997. Prior
thereto, Vice President and General Counsel
from 1986. Corporate Secretary from
December 1997 through April 1998.

James B. Dagnon 59 Senior Vice President - People since May
1997. Prior thereto, Senior Vice President
- Employee Relations, Burlington Northern
Santa Fe from 1995. Prior thereto,
Executive Vice President, Burlington
Northern from 1992.

Christopher W. Hansen 50 Senior Vice President for Washington, D.C.,
Operations since December 31, 1998. Prior
thereto, Vice President - Government
Affairs from August 1997 and Vice President
- U.S. Government Affairs from March 1997.
Prior thereto, Staff Vice President of the
Washington, D.C., office from September
1994 and Staff Vice President of
Congressional Affairs from January 1994.

14
15
Positions and offices held and business
Name Age experience
================================================================================
Deborah C. Hopkins 44 Senior Vice President and Chief Financial
Officer since December 1998. Prior thereto,
Vice President of Finance and Chief
Financial Officer for General Motors Europe
from October 1997. Prior thereto, General
Auditor for General Motors from November
1995. Prior thereto, Vice President and
General Manager Worldwide Information
Systems from August 1995. Prior thereto,
Vice President and Corporate Controller
and Chief Accounting Officer for Unisys
Corporation from January 1993.

Alan R. Mulally 53 Senior Vice President of the Company since
February 1997 and President of Boeing
Commercial Airplanes Group since September
1998. Prior thereto, President of Boeing
Information, Space & Defense Systems from
August 1997 through August 1998. Prior
thereto, President of Boeing Defense &
Space Group from January 1997. Prior
thereto, Senior Vice President of Airplane
Development and Definition, Boeing
Commercial Airplane Group from 1994.

James F. Palmer 49 Senior Vice President of the Company and
President of Boeing Shared Services Group
since August 1997. Prior thereto, Senior
Vice President and Chief Financial Officer
of McDonnell Douglas Corporation from July
1995. Prior thereto, Vice President and
Treasurer of McDonnell Douglas Corporation
from 1993.

Michael M. Sears 51 Senior Vice President of the Company and
President of Military Aircraft and Missiles
Systems Group since September 1998. Prior
thereto, Executive Vice President of
Boeing Information, Space & Defense
Systems, and President of McDonnell
Aircraft and Missile Systems from August
1997. Prior thereto, President of
McDonnell Douglas Aerospace from February
1997. Prior thereto, President of Douglas
Aircraft Company from April 1996. Prior
thereto, Vice President and General
Manager of the F/A-18 program, McDonnell
Douglas Aerospace from 1991.







15
16

Positions and offices held and business
Name Age experience
================================================================================
John D. Warner 59 Senior Vice President and Chief
Administrative Officer of the Company since
August 1997. Prior thereto, Senior Vice
President from February 1997. Prior
thereto, President of Boeing Information
and Support Services from April 1995. Prior
thereto, President Boeing Services from
July 1993.


Other information required by Item 10 involving the identification and
election of directors is incorporated herein by reference to the registrant's
definitive proxy statement, which will be filed with the Commission within 120
days after the close of the fiscal year.

Item 11. Executive Compensation *

Item 12. Security Ownership of Certain Beneficial Owners and Management *

Item 13. Certain Relationships and Related Transactions *

* Information required by Items 11, 12, and 13 is incorporated herein by
reference to the registrant's definitive proxy statement, which will be
filed with the Commission within 120 days after the close of the fiscal
year.


PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) List of documents filed as part of this report:

1. Financial Statements

All consolidated financial statements of the Company as set forth under
Item 8 of this report on Form l0-K.

2. Financial Statement Schedules

Schedule Description Page
-------- ----------- ----
II Valuation and Qualifying Accounts 25

The auditors' report with respect to the above-listed financial statement
schedule appears on pages 21-24 of this report. All other financial
statements and schedules not listed are omitted either because they are
not applicable, not required, or the required information is included in
the consolidated financial statements.





16
17
3. Exhibits

(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
(i) Agreement and Plan of Merger dated as of July 31, 1996, among
Rockwell International Corporation, The Boeing Company and
Boeing NA, Inc. (Exhibit 2.1 to the Company's Registration
Statement on Form S-4 (File No. 333-15001) filed October 29,
1996 (herein referred to as "Form S-4").)
(ii) Agreement and Plan of Merger, dated as of December 14,
1996, among The Boeing Company, West Acquisition Corp.
and McDonnell Douglas Corporation. (Exhibit (2)(ii) to
the Company's Annual Report on Form 10-K (File No. 1-442)
for the year ended December 31, 1996, herein referred to
as "1996 Form 10-K").)
(3) Articles of Incorporation and By-Laws.
(i) Restated Certificate of Incorporation, filed with the
Secretary of State of Delaware on August 14, 1997. (Exhibit
(3)(iii) to the Company's Form 10-Q for the quarter ended
June 30, 1997.)
(ii) By-Laws, as amended and restated on August 26, 1996. (Exhibit
(3)(i) to the Form S-4.)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
(i) Indenture, dated as of August 15, 1991, between the Company
and The Chase Manhattan Bank (National Association), Trustee.
(Exhibit (4) to the Company's Current Report on Form 8-K
(File No. 1-442) dated August 27, 1991.)
(10) Material Contracts.
The Boeing Company Bank Credit Agreements.
(i) U.S. $ One Billion Five Hundred Million 7-Year Bank Credit
Agreement among The Boeing Company, as Borrower, the Banks
party thereto, Citibank, N.A., as Administrative Agent, and
The Chase Manhattan Bank, as Syndication Agent, dated as of
December 8, 1997. (Exhibit (10)(i) to the Company's Annual
Report on Form 10-K (File No. 1-442) for the year ended
December 31, 1997 (herein referred to as "1997 Form 10-K").)
(ii) U.S. $ One Billion Five Hundred Million 364-Day Bank Credit
Agreement among The Boeing Company, as Borrower, the Banks
party thereto, Citibank, N.A., as Administrative Agent, and
The Chase Manhattan Bank, as Syndication Agent, as amended on
September 30, 1998. (Exhibit (10)(i) of the Company's Form 10-Q
for the quarter ended September 30, 1998 (herein referred to
as "3rd Quarter 1998 Form 10-Q").)
Management Contracts and Compensatory Plans.
(iii) 1984 Stock Option Plan.
(a) Plan, as amended February 23, 1987, and August 28, 1989.
(Exhibit (10)(iii)(a) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (herein
referred to as "1995 Form 10-K").)








17
18
(b) Forms of stock option agreements. (Exhibit (10)(vi)(b)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (herein referred to as
"1992 Form 10-K").)
(iv) 1988 Stock Option Plan.
(a) Plan, as amended on December 14, 1992. (Exhibit
(10)(vii) (a) of the 1992 Form 10-K.)
(b) Form of Notice of Terms of Stock Option Grant.
(Exhibit (10)(vii)(b) of the 1992 Form 10-K.)
(v) 1992 Stock Option Plan for Nonemployee Directors.
(a) Plan. (Exhibit (19) of the Company's Form 10-Q for the
quarter ended March 31, 1992.)
(b) Form of Stock Option Agreement. (Exhibit (10)(viii)(b)
of the 1992 Form 10-K.)
(vi) Supplemental Benefit Plan for Employees of The Boeing Company,
as amended on February 22, 1998. (Exhibit (10)(i) of the
Company's Form 10-Q for the quarter ended March 31, 1998
(herein referred to as "1st Quarter 1998 Form 10-Q").)
(vii) Supplemental Retirement Plan for Executives of The Boeing
Company. (Exhibit (10)(ii) of the Company's Form 10-Q for the
quarter ended September 30, 1997.)
(viii) Deferred Compensation Plan for Employees of The Boeing
Company, as amended on February 23, 1998. (Exhibit (10)(ii)
to the 1st Quarter 1998 Form 10-Q.)
(ix) Deferred Compensation Plan for Directors of The Boeing
Company, as amended on October 28, 1996. (Exhibit 10.1 to
the Form S-4.)
(x) 1993 Incentive Stock Plan for Employees.
(a) Plan, as amended on December 13, 1993. (Exhibit
(10)(ix)(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (herein referred to
as "1993 Form 10-K").)
(b) Form of Notice of Stock Option Grant.
(i) Regular Annual Grant. (Exhibit (10)(ix)(b)(i)
to the 1993 Form 10-K.)
(ii) Supplemental Grant. (Exhibit (10)(ix)(b)(ii)
to the 1993 Form 10-K.)
(xi) Incentive Compensation Plan for Officers and Employees of the
Company and Subsidiaries, as amended on April 28, 1997.
(Exhibit (10)(i) to the Company's Form 10-Q for the quarter
ended March 31, 1997.)
(xii) 1997 Incentive Stock Plan, as amended on June 29, 1998.
(Exhibit (10) of the Company's Form 10-Q for the quarter
ended June 30, 1998.)
(xiii) SAR Deferral Arrangements of the Company.
(a) Form of SAR Deferral Agreement. (Exhibit (10)(xii)(a)
to the 1995 Form 10-K.)
(b) Plan for Employees, as amended. (Exhibit (10)(xii)(b)
to the 1995 Form 10-K.)
(c) Form of SAR deferral election notice. (Exhibit
(10)(xiv)(c) to the 1992 Form 10-K.)
(xiv) Employment Agreement with Harry C. Stonecipher dated August
1, 1997. (Exhibit (10)(i) to the Company's Form 10-Q for the
quarter ended June 30, 1997.)
(xv) Boeing Company Executive Layoff Benefits Plan, as amended on
October 26, 1998. Filed herewith.


18
19
(xvi) The McDonnell Douglas 1994 Performance and Equity Incentive
Plan. (Exhibit 99.1 of Registration Statement No. 333-32567
on Form S-8 filed on July 31, 1997.)
(xvii) The McDonnell Douglas Incentive Award Plan as amended and
restated July 20, 1990. (Exhibit 99.2 of Registration
Statement No. 333-32567 on Form S-8 filed on July 31, 1997.)
(xviii) The Boeing Company ShareValue Program, as amended on December
20, 1996. (Exhibit (10)(xiii) to the 1996 Form 10-K.)
(xix) Stock Purchase and Restriction Agreement dated as of July 1,
1996, between The Boeing Company and Wachovia Bank of North
Carolina, N.A. as Trustee, under the ShareValue Trust
Agreement dated as of July 1, 1996. (Exhibit 10.20 to the
Form S-4.)
(xx) Consultant Services Agreement between the Company and Boyd E.
Givan, dated August 26, 1998, with an amendment in the form of
a letter from the Company dated September 14, 1998.
(Exhibit (10)(ii) to the 3rd quarter 1998 Form 10-Q).
(xxi) Settlement and Release Agreement with Ronald B. Woodard, dated
October 31, 1998. Filed herewith.
(xxii) Terms of Employment Agreement with Deborah C. Hopkins, dated
November 10, 1998. Filed herewith.

(12) Computation of Ratio of Earnings to Fixed Charges. Page 26.

(13) Portions of the 1998 Annual Report to Shareholders incorporated by
reference herein. Filed herewith.

(21) List of Company Subsidiaries. Pages 105-109.

(24) Independent Auditors' Consent and Report on Financial Statement
Schedule for use in connection with filings of Form S-8 under the
Securities Act of 1933. Page 21.

(99) Additional Exhibits
(i) Commercial Program Method of Accounting. (Exhibit (99)(i) to
the 1997 Form 10-K.)
(ii) Post-Merger Combined Statements of Operations and Financial
Position. (Exhibit (99)(i) to the Company's Form 10-Q for the
quarter ended June 30, 1997.)

(b) Reports on Form 8-K filed during quarter ended December 31, 1998:

None.















19
20
Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the date indicated.

THE BOEING COMPANY
(Registrant)


By: /s/ Philip M. Condit By: /s/ Harry C. Stonecipher
---------------------------------- ---------------------------------
Philip M. Condit - Chairman of the Harry C. Stonecipher - President,
Board, Chief Executive Officer Chief Operating Officer and
and Director Director



By: /s/ Deborah C. Hopkins By: /s/ Gary W. Beil
---------------------------------- ---------------------------------
Deborah C. Hopkins - Senior Vice Gary W. Beil - Vice President
President and Chief Financial and Controller
Officer


Date: February 22, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

/s/ John H. Biggs /s/ John F. McDonnell
- -------------------------------- ---------------------------------
John H. Biggs - Director John F. McDonnell - Director

/s/ John E. Bryson /s/ William J. Perry
- -------------------------------- ---------------------------------
John E. Bryson - Director William J. Perry - Director

/s/ Kenneth M. Duberstein /s/ Donald E. Petersen
- -------------------------------- ---------------------------------
Kenneth M. Duberstein - Director Donald E. Petersen - Director

/s/ John B. Fery /s/ Charles M. Pigott
- -------------------------------- ---------------------------------
John B. Fery - Director Charles M. Pigott - Director

/s/ Paul E. Gray /s/ Rozanne L. Ridgway
- -------------------------------- ---------------------------------
Paul E. Gray - Director Rozanne L. Ridgway - Director

/s/ George H. Weyerhaeuser
---------------------------------
George H. Weyerhaeuser - Director
Date: February 22, 1999



20
21



INDEPENDENT AUDITORS' CONSENT
AND REPORT ON FINANCIAL STATEMENT SCHEDULE





To the Board of Directors and Shareholders
The Boeing Company
Seattle, Washington


We consent to the incorporation by reference in Registration Statement Nos. 2-
48576, 33-25332, 33-31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867,
333-32461, 333-32491, 333-32499, and 333-32567 of The Boeing Company on Form
S-8 of our reports dated January 26, 1999, appearing in and incorporated by
reference in the Annual Report on Form 10-K of The Boeing Company for the year
ended December 31, 1998.

Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of The Boeing Company listed in
Item 14(a)2 in this Annual Report on Form 10-K for the year ended December 31,
1998. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.


/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington


March 1, 1999




















21
22
Consent of Independent Auditors






We consent to the use of our report dated January 22, 1997, with respect to the
consolidated statements of operations, shareholders' equity, and cash flows of
McDonnell Douglas Corporation and consolidated subsidiaries (MDC) for the year
ended December 31, 1996 (not separately presented herein), in the Form 10-K
for the year ended December 31, 1998, of The Boeing Company, which is
incorporated by reference in Registration Statement Nos. 2-48576, 33-25332,
33-31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867, 333-32461,
333-32499, 333-32491, and 333-32567 of The Boeing Company on Form S-8.

We also consent to the inclusion herein of our report dated January 22, 1997,
with respect to the financial statement schedule (Schedule II) of MDC for the
year ended December 31, 1996 (not separately presented herein), in the Form
10-K for the year ended December 31, 1998 of The Boeing Company filed with
the Securities and Exchange Commission.


/s/ Ernst & Young LLP
St. Louis, Missouri
March 1, 1999
































22
23
Report of Ernst & Young LLP, Independent Auditors





Shareholders and Board of Directors
McDonnell Douglas Corporation

We have audited the consolidated statements of operations, shareholders' equity,
and cash flows of McDonnell Douglas Corporation and consolidated subsidiaries
(MDC) for the year ended December 31, 1996 (not separately presented herein).
These financial statements are the responsibility of MDC's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of MDC's operations and MDC's
cash flow for the year ended December 31, 1996 (not separately presented
herein) in conformity with generally accepted accounting principles.



/s/ Ernst & Young LLP
St. Louis, Missouri
January 22, 1997























23
24




Report of Ernst & Young LLP, Independent Auditors



Shareholders and Board of Directors
McDonnell Douglas Corporation


We have audited the consolidated statements of operations, shareholders'
equity, and cash flows of McDonnell Douglas Corporation and consolidated
subsidiaries (MDC) for the year ended December 31, 1996 (not separately
presented herein). Our audit also included the financial statement schedule
(Schedule II) of MDC for the year ended December 31, 1996 (not presented
separately herein), which is included in the related schedules of The Boeing
Company in this Form 10-K. This schedule is the responsibility of
MDC's management. Our responsibility is to express an opinion on our
audit.

In our opinion, the financial statement schedule of MDC referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.


/s/ Ernst & Young LLP
St. Louis, Missouri
January 22, 1997



























24
25

SCHEDULE II - Valuation and Qualifying Accounts
The Boeing Company and Subsidiaries

Allowance for Doubtful Accounts and Customer Financing
(Deducted from assets to which they apply)


(Dollars in millions)


1998 1997 1996
==============================================================================

Balance at January 1 $233 $184 $172

Increase due to acquisition of Rockwell
aerospace and defense business 6

Charged to costs and expenses 60 53 19

Deductions from reserves
(accounts charged off) (4) (4) (13)
----- ----- -----

Balance at December 31 $289 $233 $184
===== ===== =====































25
26
EXHIBIT (12) - Computation of Ratio of Earnings to Fixed Charges

The Boeing Company and Subsidiaries

(Dollars in millions)



Year ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
==== ==== ==== ==== ====
Earnings before
federal taxes on income $1,397 $(341) $2,480 $(412) $2,110

Fixed charges excluding
capitalized interest 507 552 463 427 437

Amortization of previously
capitalized interest 75 97 80 59 52

Net adjustment for
earnings of affiliates (18) 4 (1) (5) (3)
------ ------ ------ ------ ------
Earnings available for
fixed charges $1,961 $ 312 $3,022 $ 69 $2,596
====== ====== ====== ====== ======



Fixed charges:

Interest expense $ 453 $ 513 $ 393 $ 376 $ 379

Interest capitalized during
the period 65 61 58 65 87

Rentals deemed representative
of an interest factor 54 39 70 51 59
------ ------ ------ ------ ------
Total fixed charges $ 572 $ 613 $ 521 $ 492 $ 525
====== ====== ====== ====== ======


Ratio of earnings to fixed charges 3.4 .5 5.8 .1 5.0
====== ====== ====== ====== ======












26
27
EXHIBITS FILED WITH THIS REPORT ON FORM 10-K
Commission File Number 1-442

THE BOEING COMPANY
Exhibit Index

Annual
Report
to
Share- Form
holders 10-K
Exhibit Description Page Page
- ------------------------------------------------------------------------------
(10) (xv) Boeing Company Executive Layoff Benefits
Plan, as amended on October 26, 1998 95

(10) (xxii) Settlement and Release Agreement with
Ronald B. Woodard, dated October 31, 1998 104

(10) (xxiii) Terms of Employment Agreement with
Deborah C. Hopkins, dated November 10, 1998 107

(12) Computation of Ratio of Earnings to Fixed
Charges 26

(13) Portions of the 1998 Annual Report to
Shareholders incorporated by reference
in Part I and Part II 28

Market for registrant's Common Equity and
related Stockholder Matters * 93
Management's Discussion and Analysis of
Financial Position and Results of Operations 34 28
Consolidated Statements of Operations 53 57
Consolidated Statements of Financial Position 54 58
Consolidated Statements of Cash Flows 55 59
Consolidated Statements of Shareholders' Equity 56 60
Notes to Consolidated Financial Statements 58 66
Independent Auditor's Report 74 117
Supplementary Data Regarding Quarterly
Financial Data 75 90
Selected Financial Data
Five-Year Summary 76 91

(21) List of Subsidiaries 110

(24) Independent Auditors; Consent and Report on
Financial Statement Schedule for use in
connection with filings of Form S-8 under
the Securities Act of 1933. 21, 22

Appendix of graphic and image material
pursuant to Rule 304(a) of regulation S-T 115

* Listed on inside back cover of annual report



27
28
Exhibit (13)
Portions of the 1998 Annual Report to Shareholders
Incorporated by Reference in Part I and Part II

MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS, FINANCIAL CONDITION AND BUSINESS ENVIRONMENT

MERGER WITH MCDONNELL DOUGLAS CORPORATION

On August 1, 1997, McDonnell Douglas Corporation merged with the Company
through a stock-for-stock exchange in which 1.3 shares of Company stock were
issued for each share of McDonnell Douglas stock outstanding. The merger has
been accounted for as a pooling of interests, and the discussion and analysis
that follows reflects the combined results of operations and financial
condition of the merged companies.

INFORMATION, SPACE AND DEFENSE SYSTEMS SEGMENT REPORTING

In 1998 the Information, Space and Defense Systems Group of the Company was
reorganized into two groups: the Military Aircraft and Missile Systems Group
and the Space and Communications Group, which will be reported as separate
business segments for 1998 and on.

RESULTS OF OPERATIONS
- ---------------------

REVENUES

Operating revenues for 1998 were $56.2 billion, compared with $45.8 billion in
1997 and $35.5 billion in 1996. The higher revenues for both 1998 and 1997
reflect the increased deliveries in both the Commercial Airplanes and the
Information, Space and Defense Systems segments. The 1998 and 1997 revenues
include the operations of the aerospace and defense units acquired from
Rockwell International Corporation in December 1996.

Revenues by industry segment:
[Graphic and image material item Number 1
See appendix on page 115 for description.]

|-----------------------------------------------------------------------------|
| |
| FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY |
| |
| Certain statements in this release contain "forward-looking" information |
| that involves risk and uncertainty, including projections for year 2000 |
| date conversion, production rates, deliveries, customer financing, sales, |
| revenues, margins, earnings, cash, scheduled launches of products, research |
| and development expense, inventory turn rates, employment, asset |
| utilization, and other trend projections. This forward-looking information |
| is based upon a number of assumptions, including assumptions regarding |
| demand, internal performance, customer financing, customer, supplier and |
| subcontractor performance, customer model and feature selections, |
| government policies and actions, and price escalation. Actual future |
| results and trends may differ materially depending on a variety of factors, |
| including the Company's successful execution of internal performance plans, |
| including research and development, production recovery, production rate |
| increases and decreases, production system initiatives and other |
| cost-reduction efforts; the cyclical nature of the Company's business; |
28
29
| volatility of the market for certain products; continued integration of |
| McDonnell Douglas Corporation; product performance risks associated with |
| regulatory certifications of the Company's commercial aircraft by the U.S. |
| Government and foreign governments; other regulatory uncertainties; |
| collective bargaining labor disputes; performance issues with key |
| suppliers, subcontractors and customers; customer model and feature |
| selections, governmental export and import policies; factors that result |
| in significant and prolonged disruption to air travel worldwide; global |
| trade policies; worldwide political stability and economic conditions, |
| particularly in Asia; price escalation trends; changing priorities or |
| reductions in the U.S. Government defense and space budgets; termination |
| of government contracts due to unilateral government action or failure to |
| perform; and legal proceedings. |
| |
|-----------------------------------------------------------------------------|


Commercial Airplanes
Commercial Airplanes products and services accounted for 63%, 59% and 56% of
total operating revenues for the years 1998, 1997 and 1996, respectively.

Total commercial jet aircraft deliveries by model, including deliveries under
operating lease, which are identified by the number in parentheses, were as
follows:

1998 1997 1996
- --------------------------------------------
737 Classic 116(6) 132 76
737 NG 165 3 -
747 53(3) 39 26
757 50 46 42
767 47 41 42
777 74 59 32
MD-80 8(4) 16(7) 12(1)
MD-90 34 26(5) 24(2)
MD-11 12(2) 12(1) 15(2)
- --------------------------------------------
Total 559 374 269
============================================

The MD-80 and MD-90 aircraft will not be produced after early 2000. Final
delivery of the MD-11 aircraft will be in 2001. First delivery of the 717
aircraft (formerly the MD-95) is scheduled for mid-1999.

Total commercial aircraft deliveries for 1999 are currently projected to be in
the range of 620 aircraft, including approximately 360 777s and Next-Generation
737s. Based on current plans, Commercial Airplanes revenues for 1999 are
expected to be in the $38 billion range. Total commercial aircraft deliveries
for 2000 are currently projected to be in the range of 480 aircraft. Commercial
aircraft transportation trends are discussed in the Commercial Airplanes
Business Environment and Trends section on pages 44 - 46.

Commercial Airplanes sales by geographic region:
[Graphic and image material item Number 2
See appendix on page 115 for description.]



29
30

Information, Space and Defense Systems
Information, Space and Defense Systems segment revenues were $19.9 billion in
1998, compared with $18.1 billion in 1997 and $14.9 billion in 1996. The 1998
revenues of $19.9 billion are composed of $13.0 billion for Military Aircraft
and Missiles and $6.9 billion for Space and Communications. Revenues for 1998
and 1997 include the aerospace and defense operations acquired from Rockwell in
1996. A 14-week labor strike at the St. Louis, Missouri, facilities delayed
certain deliveries in 1996, principally involving military aircraft.

The Company's Information, Space and Defense Systems business is broadly
diversified, and no program accounted for more than 15% of total 1996-1998
segment revenues.

The principal contributors to 1998 Information, Space and Defense Systems
revenues included the Military Aircraft and Missiles programs of C-17, F-15,
F/A-18 C/D, F/A-18 E/F, and AH-64 Apache; and the Space and Communications
programs of the International Space Station, E-3 AWACS (Airborne Warning and
Control System) updates and 767 AWACS, and the Delta II space launcher.
Classified projects for the U.S. Government also continued to contribute to
revenues.

Deliveries of selected production units were as follows:

1998 1997 1996
- --------------------------------------------
C-17 10 7 6
F-15 39 19 11
F/A-18 C/D 29 46 32
F/A-18 C/D Kits - 20 9
T-45TS 16 11 9
CH-47 18 1 -
757/C-32A 4 - -
767 AWACS 2 - -
Delta II 13 12 11
Delta III 1 - -

Military Aircraft and Missiles segment revenues for 1999 are projected to be in
the $12 billion range, and 1999 revenues for Space and Communications are
projected to be in the $7 billion range.

Segment business trends are discussed in the Information, Space and Defense
Systems Business Environment and Trends section on pages 46 and 47.

Customer and Commercial Financing/Other
Operating revenues in the Customer and Commercial Financing/Other segment were
$730 million in 1998, compared with $746 million in 1997 and $603 million in
1996. The major revenue components include commercial aircraft financing and
commercial equipment leasing.

Additional information about revenues and earnings contributions by business
segment is presented on pages 52 - 56.

. . . . . . . .

Based on current schedules and plans, the Company projects total 1999 revenues
to be approximately $58 billion.

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EARNINGS

Net earnings for the three years include a significant special charge in
addition to earnings fluctuations associated with the Company's share-based
plans as summarized below (net of income tax):

(Dollars in millions) 1998 1997 1996
- ----------------------------------------------------
Comparative net earnings
before special charges
and share-based plans $1,216 $ 632 $1,905
Special charges
principally associated
with Douglas products
(MD-series aircraft) (876)
Share-based plans (96) 66 (87)
- ----------------------------------------------------
Net earnings (loss) $1,120 $(178) $1,818
====================================================

In the fourth quarter of 1997, the Company completed an assessment of the
financial impact of its post-merger strategy decisions related to its
McDonnell Douglas Corporation commercial aircraft product lines, and recorded
a special pretax charge of $1,400 million, or $876 million after tax, relative
to these decisions. The charge principally represented an inventory valuation
adjustment based on post-merger assessments of the market conditions and
related program decisions. Also included in the charge were valuation
adjustments in connection with customer financing assets and commitments.

The share-based plans are discussed Note 16 to the consolidated financial
statements on pages 81 - 84.

Comparative net earnings (exclusive of special charges and share-based plans):
[Graphic and image material item Number 3
See appendix on page 115 for description.]

Comparative earnings of $1,216 million for 1998 were $584 million higher than
for 1997 primarily due to higher commercial aircraft deliveries in 1998, a
higher loss recognized in 1997 for the Next-Generation 737 ($218 million after
tax), merger-related expenses of $120 million in 1997, and prior years'
defense-related partnership research and development tax credits amounting to
$57 million recognized in 1998. Additionally, interest income was lower in
1998.

Comparative net earnings for 1997 were $1,273 million lower than for
1996 primarily due to commercial aircraft production inefficiencies associated
with significant production rate increases. Additionally, 1997 results
included increased research and development spending ($182 million after tax),
merger-related expenses, and increased interest and debt expense ($75 million
after tax). Partially offsetting these factors were the earnings associated
with the higher sales levels in 1997 and increased interest income of $25
million after tax. The 1996 results included $199 million of after-tax income
related to the settlement of certain Information, Space and Defense Systems
segment contract issues and recognition of prior years' tax benefits.



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Based on current plans and schedules, total Company net earnings for 1999,
including share-based plans, are expected to be in the range of $1.5 billion
to $1.8 billion, excluding potential favorable tax claim settlements.

Operating results trends are not significantly influenced by the effect of
changing prices since most of the Company's business is performed under
contract.

OPERATING PROFIT

Commercial Airplanes
The 1998 Commercial Airplanes segment earnings from operations margin,
exclusive of research and development expense, forward losses, and valuation
adjustments, was 4% for 1998, compared with approximately 5% for 1997
(excluding special charges) and more than 10% for 1996. Segment revenues and
earnings are presented on page 55. The low overall Commercial Airplanes
operating profit margins for 1998 and 1997 were due to production problems,
the model mix of aircraft deliveries, lower price-escalation trends and
continued pricing pressures.

Production problems experienced on the commercial aircraft programs reached
unexpected levels late in the third quarter of 1997. During this period, the
Company was in the midst of an unprecedented production rate build-up for the
7-series commercial aircraft programs, and experienced a number of
challenges, including raw material shortages, internal and supplier parts
shortages, and productivity inefficiencies associated with adding thousands of
new employees. These factors resulted in significant out-of-sequence work.
The breadth and complexity of the entire commercial aircraft production
process, especially during this time of substantial production rate increases,
presented a situation where disrupted process flows caused major
inefficiencies throughout the entire process chain. The 747 and 737 production
lines were halted for approximately one month early in the fourth quarter of
1997. The recovery plan continued throughout 1998.

The Company delivered 74 777 aircraft in 1998, compared with 59 in 1997, and
165 Next-Generation 737 models (737-600/700/800) in 1998, compared with 3 in
1997. New commercial jet aircraft programs normally have lower gross profit
margins due to initial tooling amortization and higher unit production costs
in the early years of a program averaged over the initial production quantity.
A pretax forward loss of $350 million was recognized in the first quarter of
1998 in addition to the $700 million recognized in the third quarter of 1997
for the Next-Generation 737 program. Consequently, there was no gross profit
for the Next-Generation 737 program in 1998. Deliveries of the 777 and the
Next-Generation 737 will constitute a much larger proportion of Commercial
Airplanes sales in 1999 than they did in 1998.

With respect to the 717 program, for which deliveries begin in 1999, no gross
profit will be initially recognized. The Company has significant exposures
related to the 717 program, principally related to supplier commitments beyond
firm backlog.







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The commercial jet aircraft market and the airline industry remain extremely
competitive. Competitive pressures and increased lower-fare personal travel
have combined to cause a long-term downward trend in passenger revenue yields
worldwide (measured in real terms). Over the past five years, airplane capacity
increases in the United States have lagged air travel growth, resulting in
stable or increasing passenger yields. In Asia, slowing economies, reduced
business travel, and currency devaluations are contributing to sharply lower
yields. These factors result in continued price pressure on the Company's
products. Major productivity gains are essential to ensure a favorable market
position at acceptable profit margins.

The overall Commercial Airplanes segment operating profit margin for 1998 was
0.2% and is currently projected to be in the 2% to 3% range for 1999.

Information, Space and Defense Systems
Information, Space and Defense Systems segment operating profits for 1998, 1997
and 1996 are presented on page 55. The operating profits include the impact of
joint venture losses which were driven by development costs expensed as
incurred, amounting to $127 million, $102 million and $53 million,
respectively. The costs were primarily associated with the Sea Launch program,
(a commercial satellite launch venture with Norwegian, Russian and Ukrainian
partners) and the Civil Tiltrotor program (a collaboration with Bell
Helicopter Textron, Inc., to build a commercial variant of the V-22).

In 1998 the Company announced that it would exit the market for commercial
helicopters. As part of that strategic decision, the Company transferred its
interest in the Civil Tiltrotor program to Bell Helicopter Textron in early
1998. Also, in the first quarter of 1999, the Company sold the MD 500, MD 600
and MD Explorer light commercial helicopter product lines to RDM Holding, Inc.,
a European-based industrial group.

Segment operating profits for 1996 included $114 million of pretax earnings
related to the settlement of various contract issues.

Excluding joint venture losses and settlement of contract issues, the
Information, Space and Defense Systems segment operating margin before research
and development was approximately 12.7% in 1998 and 12% for each of the years
1997 and 1996.

A significant percentage of Information, Space and Defense Systems segment
business has been in developmental programs under cost-reimbursement-type
contracts, which generally have lower profit margins than fixed-price-type
contracts. Current major developmental programs include the International Space
Station, F/A-18 E/F, F-22 Fighter, Joint Strike Fighter, V-22 Osprey tiltrotor
aircraft, the RAH-66 Comanche helicopter, and the National Missile Defense
(NMD) Lead System Integration (LSI). The F/A-18 E/F and V-22 Osprey tiltrotor
aircraft programs are currently transitioning to low-rate initial production,
and the F-22 Raptor has received long-lead funding for low-rate initial
production.

Although program expenditures are normally committed based on
orders under contract, the Company currently has significant exposure related
to long-lead requirements for the F-15 program for deliveries beyond 2000.

Joint venture losses will continue in 1999, principally from development and
administrative costs on the Sea Launch program.


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The Sea Launch assembly and command ship and the launch platform were completed
in June 1998. Boeing is a 40% partner in Sea Launch with RSC Energia (25%) from
Russia, Kvaerner Maritime (20%) from Norway, and KB Yuzhnoye/PO Yuzhmach (15%)
from Ukraine.

The first launch from this sea-based platform will be a demonstration payload.
Hughes Space & Communications International, Inc., and Space Systems/Loral are
the first Sea Launch customers, with announced orders for 18 launches plus
options. Technical failure on the initial launch could substantially impair
the prospect for additional customers' acceptance and could consequently
result in significant reduction to the value of the Sea Launch program assets.
Ongoing viability of the Sea Launch program will depend on consistent launch
reliability.

The Company and Lockheed Martin are 50/50 partners in United Space Alliance,
which is responsible for all ground processing of the Space Shuttle fleet and
for space-related operations with the U.S. Air Force. United Space Alliance
also performs the modification, testing and checkout operations required to
ready the Space Shuttle for launch. Although the joint venture operations are
not included in the Company's consolidated statements, the Company's
proportionate share of joint venture earnings is recognized in income.

The Military Aircraft and Missiles segment operating profit margin for 1998
was 9.9% and is currently projected to be in the 9.5% to 10.5% range in 1999.
The Space and Communications segment operating profit margin for 1998 was
3.6%, and is projected to be in the 4% to 5% range for 1999.


RESEARCH AND DEVELOPMENT

Research and development expenditures charged directly to earnings include
design, developmental and related test activities for new and derivative
commercial jet aircraft, other company-sponsored product development, and
basic research and development, including amounts allocable as overhead costs
on U.S. Government contracts.

Research and development expense:
[Graphic and image material item Number 4
See appendix on page 116 for description.]

In 1998 total research and development expense was $1.9 billion, about the
same as in 1997. A decline in the Commercial Airplanes segment research and
development expense was largely offset by an increase in the Space and
Communications segment.

Research and development expense had increased in 1997 by $291 million
relative to 1996, primarily due to the inclusion of the aerospace and defense
units acquired from Rockwell in 1996, and spending in commercial space and
communications activities. Commercial Airplanes research and development
expense for 1997 was approximately the same as in 1996. Research and
development expense by segment is included on page 55.







34
35
Commercial Airplanes
The principal commercial aircraft developmental programs during the 1996-1998
period were the 777 wide-body twinjet, the Next-Generation 737 family, and the
717 program. The first delivery of the 777 occurred in May 1995. Development
of the 777-200ER extended-range version of the 777 began in 1995 and continued
in 1996, with certification and first delivery in early 1997. First delivery
of the increased-capacity 777-300 derivative occurred in May 1998.
Certification and first deliveries of the 737-700, the first of four new 737
derivative models, occurred in December 1997. Certification and first delivery
of the 737-800 and 737-600 occurred in 1998. The 737-900, the longest member
of the Next-Generation 737 family, received its first order in late 1997, with
first delivery scheduled for 2001. The 757-300, a stretched derivative of the
757-200, is scheduled for first delivery in early 1999; and the 767-400ER, a
stretched version of the 767-300ER, is scheduled for first delivery in 2000.
The 717-200 is currently in development, with first delivery scheduled for
mid-1999.

The following chart summarizes the time horizon between go-ahead
and certification/first delivery for major Commercial Airplanes derivatives
and programs.

[Graphic and image material item Number 5
See appendix on page 116 for description.]


Information, Space and Defense Systems
The Information, Space and Defense Systems segment continues to selectively
pursue commercial business opportunities where it can use its technical and
large-scale integration capabilities. Such business pursuits, which are
outside the traditional U.S. Government contracting environment, are expected
to require significant levels of research and development expenditures over
the next few years. The segment's commercial developmental programs include
the Delta family of launch vehicles.

. . . . . . .

Total Company research and development expenditures for 1999 will be
influenced by the timing of commercial aircraft derivative programs and
commercial space and communication activities. Based on current programs and
plans, research and development expense for 1999 is expected to be in the $1.6
billion to $1.8 billion range, with about half related to the Commercial
Airplanes segment. Research and development activities are further discussed
in the Strategic Investments for Long-Term Value section on pages 49 and 51.


INCOME TAXES

The 1998 effective income tax rate of 19.8% reflects the settlement of prior
years' defense-related partnership research and development tax credits of $57
million, as well as Foreign Sales Corporation tax benefits of $130 million.

The income tax provision for 1997 is a tax credit resulting from application
of the tax rate to a pretax loss. The relatively high effective 1997 income
tax rate of 47.8% reflects additional benefits, principally Foreign Sales
Corporation tax benefits of $79 million. These benefits were partially offset
by the nondeductibility of goodwill and merger costs.


35
36
The 1996 effective income tax rate of 26.7% reflects tax benefits of $125
million related to prior years, as well as Foreign Sales Corporation tax
benefits of $110 million.

Over the past three years, excluding tax benefits related to prior periods and
the impact of special charges, the effective income tax rate has been about
30%. The Company expects the comparable 1999 rate to continue to be in that
range.

Additional information relating to income taxes is found in Note 11 to the
consolidated financial statements on pages 74 and 75.


LABOR NEGOTIATIONS AND WORKFORCE LEVELS

As of December 31, 1998, the Company's principal collective bargaining
agreements were with the International Association of Machinists and Aerospace
Workers (IAM) representing 30% of employees (current agreements expiring
September 1999, October 1999, and May 2001), Seattle Professional Engineering
Employees Association (SPEEA) representing 12% of employees (current
agreements expiring December 1999), the United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW) representing 6% of employees
(current agreements expiring June 1999, September 1999, and April 2000), and
Southern California Professional Engineering Association (SCPEA) representing
2% of employees (current agreement expiring March 2001).

The Company believes that bargaining agreements in the best interest of both
the represented employees and the Company are attainable, and the Company's
stated objective is to reach a settlement without disruption. The effects of a
strike on the results of operations and financial position are uncertain, but
could be material depending on the strike duration.

The Company's workforce level at December 31, 1998, was 231,000. The year-end
1999 workforce level is projected to be in the range of 200,000 to 210,000.


DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In 1998, Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued. The Company plans
to adopt this statement beginning in the year 2000. Adoption of this standard
is not expected to have a significant impact on the financial results of the
Company.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

The primary factors that affect the Company's investment requirements and
liquidity position, other than operating results associated with current sales
activity, include the timing of new and derivative programs requiring both
high developmental expenditures and initial inventory buildup; cyclical growth
and expansion requirements; customer financing assistance; the timing of
federal income tax payments; and the Company's stock repurchase plan.





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CASH FLOW SUMMARY

Following is a summary of Company cash flows based on changes in cash and
short-term investments. This cash flow summary is not intended to replace the
Consolidated Statements of Cash Flows on page 59 that are prepared in
accordance with generally accepted accounting principles, but is intended to
highlight and facilitate understanding of the principal cash flow elements.

(Dollars in billions) 1998 1997 1996
- ------------------------------------------------------------
Net earnings (loss) $ 1.1 $(0.2) $ 1.8
Non-cash charges to earnings (a) 1.8 2.8 1.5
- ------------------------------------------------------------
Net earnings adjusted for
certain non-cash items 2.9 2.6 3.3
Change in gross inventory (b) 1.5 (4.9) (1.9)
Change in customer advances (c) (0.9) 3.9 2.2
Net changes in receivables,
liabilities and deferred
income taxes (d) (1.2) 0.7 1.1
Facilities and
equipment expenditures (1.6) (1.4) (1.0)
Change in customer and
commercial financing (e) (1.2) (0.9) 0.3
Pension income (expense)
variance to funding (0.3) (0.3) (0.2)
- ------------------------------------------------------------
Cash flows from operating
and investing activities (0.8) (0.3) 3.8
Change in debt (f) 0.1 (0.6) (0.1)
Net shares issued (acquired) (g) (1.3) 0.3 (0.5)
ShareValue Trust shares acquired (h) (0.9)
Cash dividends (0.6) (0.6) (0.5)
- ------------------------------------------------------------
Increase (decrease) in cash
and short-term investments $(2.6) $(1.2) $ 1.8
============================================================
Cash and short-term
investments at end of year $ 2.5 $ 5.1 $ 6.3
============================================================

(a) Non-cash charges to earnings as presented here consist of depreciation,
amortization, retiree health care accruals, share-based plans, and the
special charges in 1997 for Douglas products programs. The Company has
not funded retiree health care accruals and, at this time, has no plan
to fund these accruals in the future. The share-based plans do not
impact current or future cash flow, except for the associated positive
cash flow tax implications. The special charges associated with the
Douglas products programs principally involved inventory balance
valuation adjustments.

(b) Inventory associated with the 777 program increased substantially in
1996 and 1997, and declined in 1998 due to amortization of initial
tooling and deferred production costs. Inventory balances on the 747,
757 and 767 commercial jet programs increased in 1997 and 1998 due to
increased production rates. Additionally, production and tooling
inventory increased on the new 737-600/700/800/900 program in 1996,
1997 and 1998.
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(c) The increases and decreases in commercial customer advances during
1996, 1997 and 1998 were broadly distributed among the commercial jet
programs, and generally correspond to orders and production rate
levels. With regard to Information, Space and Defense Systems segment
activity, the ratio of progress billings to gross inventory did not
significantly change during this period.

(d) Over the three-year period 1996-1998, changes in accounts receivable,
accounts payable, other liabilities and deferred taxes resulted in a
net increase in cash of $0.6 billion. This was largely attributable to
increases in accounts payable and other liabilities of $1.2 billion,
mostly as a result of increased business activity, partially offset by
income taxes payable and deferred of $0.4 billion. Excluding potential
tax claim settlements discussed in Note 11 to the financial statements,
federal income tax payments over the next three years are projected to
substantially exceed income tax expense due to anticipated completion
of contracts executed under prior tax regulations.

(e) The changes in customer financing balances have been largely driven by
commercial aircraft market conditions and the ability of the Company to
sell customer financing assets. Over the three-year period 1996-1998,
the Company generated $3.9 billion of cash from principal repayments
and by selling customer financing receivables and operating lease
assets. Over the same period, additions to customer financing
amounted to $5.8 billion. As of December 31, 1998, the Company had
outstanding commitments of approximately $6.2 billion to arrange or
provide financing related to aircraft on order or under option for
deliveries scheduled through the year 2004. Not all these commitments
are likely to be used; however, a significant portion of these
commitments is with parties with relatively low credit ratings. See
Note 19 to the financial statements concerning concentration of credit
risk. The Company will continue to sell financing assets from time to
time when capital markets are favorable in order to maintain maximum
capital resource flexibility. Outstanding loans and commitments are
primarily secured by the underlying aircraft.

(f) Debt amounting to $301 million matured in 1998, and $300 million was
added with maturity in 2038. In 1997, debt amounting to $637 million
matured, and the Company also retired $230 million of debt through a
tender offer for the 9.25% notes due April 1, 2002. Additionally,
Boeing Capital Corporation, a corporation wholly owned by the Company,
issued $511 million of debt in 1998 and $225 million in 1997.

(g) In the third quarter of 1998, the Company announced a share repurchase
program to buy up to 15% of the Company's outstanding shares of common
stock. In 1998 the Company repurchased 35.2 million shares of stock
(approximately 3.5% of outstanding stock) for $1.3 billion.

(h) Total funding of the ShareValue Trust was $1.7 billion; however, a
portion of the funding was accomplished through the transfer of treasury
shares and the issuance of new shares.







38
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CAPITAL RESOURCES
The Company has unsecured long-term debt obligations of $6.1 billion.
Approximately $650 million matures in 1999, and the balance has an average
maturity of 16 years. Total long-term debt as of year-end 1998 amounted to
33% of total capital (shareholders' equity plus borrowings). The Company has
substantial additional long-term borrowing capability. Revolving credit line
agreements with a group of major banks, totaling $2.64 billion, remain
available but unused.

The Company believes its internally generated liquidity, together with access
to external capital resources, will be sufficient to satisfy existing
commitments and plans, and also to provide adequate financial flexibility to
take advantage of potential strategic business opportunities should they
arise, and to continue to repurchase Company stock per the share repurchase
program.


CONTINGENT ITEMS
The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations since the
1980s.

The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation
of contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures
related to environmental remediation sites based on conservative estimates of
investigation, cleanup and monitoring costs to be incurred.

The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to
the Company's financial position. With respect to results of operations,
related charges have averaged less than 2% of annual net earnings exclusive of
special charges. Such accruals as of December 31, 1998, without consideration
for the related contingent recoveries from insurance carriers, are less than
2% of total liabilities.

Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for
identified contaminated sites. However, based on all known facts and expert
analyses, the Company believes it is not reasonably likely that identified
environmental contingencies will result in additional costs that would have a
material adverse impact to the Company's financial position or operating
results and cash flow trends.








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The Company is subject to U.S. Government investigations of its practices
from which civil, criminal or administrative proceedings could result. Such
proceedings could involve claims by the Government for fines, penalties,
compensatory and treble damages, restitution and/or forfeitures. Under
government regulations, a company, or one or more of its operating divisions
or subdivisions, can also be suspended or debarred from government contracts,
or lose its export privileges, based on the results of investigations. The
Company believes, based upon all available information, that the outcome of
any such government disputes and investigations will not have a material
adverse effect on its financial position or continuing operations.

In 1991 the U.S. Navy notified the Company and General Dynamics Corporation
(the Team) that it was terminating for default the Team's contract for
development and initial production of the A-12 aircraft. The Team filed a
legal action to contest the Navy's default termination, to assert its rights
to convert the termination to one for "the convenience of the Government," and
to obtain payment for work done and costs incurred on the A-12 contract but
not paid to date. At December 31, 1998, inventories included approximately
$581 million of recorded costs on the A-12 contract, against which the Company
has established a loss provision of $350 million. The amount of the provision,
which was established in 1990, was based on the Company's belief, supported by
an opinion of outside counsel, that the termination for default would be
converted to a termination for convenience, that the Team would establish a
claim for contract adjustments for a minimum of $250 million, that there was a
range of reasonably possible results on termination for convenience, and that
it was prudent to provide for what the Company then believed was the upper
range of possible loss on termination for convenience, which was $350 million.

On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the
court issued an opinion confirming its prior no-loss adjustment and no-profit
recovery order. On December 5, 1997, the Court issued an opinion confirming
its preliminary holding that plaintiffs were entitled to certain adjustments
to the contract funding, increasing the plaintiffs' possible recovery to
$1,200 million. On March 31, 1998, the Court entered a judgment, pursuant to a
March 30, 1998, opinion and order, determining that plaintiffs were entitled
to be paid that amount, plus statutory interest from June 26, 1991, until
paid.

Although the Government has appealed the resulting judgment, the Company
believes the judgment will be sustained. Final resolution of the A-12
litigation will depend on such appeals and possible further litigation, or
negotiations, with the Government. If sustained, however, the expected damages
judgment, including interest, could result in pretax income that would more
than offset the $350 million loss provision established in 1990.

On October 31, 1997, a federal securities lawsuit was filed against the
Company in the U.S. District Court for the Western District of Washington in
Seattle. The lawsuit names as defendants the Company and three of its
executive officers. Additional lawsuits of a similar nature have been filed.
The plaintiffs in each lawsuit seek to represent a class of purchasers of
Boeing stock between July 21, 1997, and October 22, 1997, (the "Class
Period"), including recipients of Boeing stock in the McDonnell Douglas
merger. July 21, 1997, was the date on which the Company announced its second
quarter results, and October 22, 1997, was the date on which the Company
announced charges to earnings associated with production problems being

40
41
experienced on commercial aircraft programs. The lawsuits generally allege
that the defendants desired to keep the Company's share price as high as
possible in order to ensure that the McDonnell Douglas shareholders would
approve the merger and, in the case of two of the individual defendants, to
benefit directly from the sale of Boeing stock during the Class Period. The
plaintiffs seek compensatory damages and treble damages. The Company believes
that the allegations are without merit and that the outcome of these lawsuits
will not have a material adverse effect on its earnings, cash flow or
financial position.

On June 6, 1998, sixteen African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint
in the U.S. District Court for the Western District of Washington (Washington
Class Action) alleging, on the basis of race, discrimination in promotions and
training. The plaintiffs also allege retaliation and harassment and seek,
among other things, an order certifying a class of all African American
employees who are currently working or have worked for the three companies
during the past few years. Also, on July 31, 1998, seven African American
employees of the helicopter division of the Military Aircraft and Missile
Systems Group in Philadelphia filed an action in the U.S. District Court for
the Eastern District of Pennsylvania (Philadelphia Class Action) alleging, on
the basis of race, discrimination in compensation, promotions and
terminations. The complaint also alleges retaliation at that division.
Plaintiffs are seeking an order certifying a class of all African American
employees of The Boeing Company. In September 1998, the Court denied
plaintiffs' motion seeking class certification, but allowed plaintiffs to
renew their motion upon completion of class discovery.

On January 25, 1999, the U.S. District Court in the Western District of
Washington entered an order preliminarily approving a proposed Consent Decree,
which settles both the Washington Class Action and the Philadelphia Class
Action, along with a multi-plaintiff racial discrimination lawsuit. The order,
inter alia, conditionally certified a nationwide class of 20,000 current and
former African American Boeing (including all U.S. subsidiaries and former
McDonnell Douglas Corporation and Rockwell International) employees. If
approved by the Court, the Company will pay $15 million allocated in a manner
described in the proposed Consent Decree. The Company will devise systems
changes that will inform hourly employee class members about the promotion
selection process, and which employee was awarded a certain promotion; provide
training and other programs to assist employees with career development;
employ a consultant to assess these system changes; implement across the
system a revised first-level management selection process and revised internal
complaint process; and implement enforcement procedures to maintain a
harassment-free workplace.

A hearing is set for May 26, 1999, to determine the fairness of the proposed
Consent Decree and, if so determined, for the Court to approve the Consent
Decree. The Company believes that the proposed Consent Decree, if approved,
will not have a materially adverse effect on its earnings, cash flow or
financial position.

In December 1996, The Boeing Company filed suit in the U.S. District Court for
the Western District of Washington for the refund of over $400 million in
federal income taxes and related interest. The suit challenged the IRS method
of allocating research and development costs for the purpose of determining
tax incentive benefits on export sales through the Company's Domestic
International Sales Corporation and its Foreign Sales Corporation for the
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42
years 1979 through 1987. In September 1998, the District Court granted the
Company's motion for summary judgment. The U.S. Department of Justice has
appealed this decision. If the Company were to prevail, the refund would
include interest computed to the payment date. The issue could affect tax
computations for subsequent years; however, the financial impact would depend
on the final resolution of audits for those years.

Income taxes have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and IRS examinations have been completed through 1987. In
connection with these examinations, the Company disagrees with IRS proposed
adjustments, and the years 1979 through 1987 are in litigation. The Company
has also filed refund claims for additional research and development tax
credits, primarily in relation to its fixed-price government development
programs. Successful resolutions will result in increased income to the
Company.


YEAR 2000 (Y2K) DATE CONVERSION

The Y2K issue exists because many computer systems, applications and assets
use two-digit date fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as the year 1900,
or not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process financial and operations information incorrectly.

State of readiness: The Company recognized this challenge early, and major
operating units started work in 1993. The Company's Y2K strategy to make
systems "Y2K-ready" includes a common companywide focus on policies, methods
and correction tools, and coordination with customers and suppliers. This
focus has been on all systems potentially impacted by the Y2K issue, including
information technology ("IT") systems and non-IT systems, such as embedded
systems, facilities and factory floor systems. Each operating unit has
responsibility for its own conversion, in line with overall guidance and
oversight provided by a corporate-level steering committee.

The Company has largely completed remediation of systems to meet safety and
business continuity concerns and has a plan in place that targets deployment
of Y2K-ready systems companywide by July 31, 1999. The Company is continuing
to emphasize the safety and quality of Boeing products and to clarify that Y2K
is a business challenge and not limited to computers. The Company is
capitalizing on its history of integrating complex systems, has an experienced
Y2K team in place headed by the Company's chief information officer, and is
working to ensure supplier and customer readiness as appropriate.

The Company has identified approximately 14,000 computing systems and assessed
them for Y2K readiness. More than 90% of the systems were made Y2K-ready by
December 31, 1998. The status of each of the remaining systems will be
specifically tracked and monitored. The schedule is for IT and non-IT systems
to complete conversion, testing and deployment by July 31, 1999.

A companywide, coordinated process to assess supplier readiness began in the
second quarter of 1998. The Company is unable to definitively determine that
all major suppliers will reach a Y2K-ready status that will ensure no
production disruption from suppliers.

Costs to address Y2K issues: The Company's Y2K conversion efforts have not
been budgeted and tracked as separate projects, but have occurred in

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conjunction with normal sustaining activities. Total application-sustaining IT
costs have averaged approximately $350 million per year over the last three
years. Y2K conversion efforts have averaged approximately 10% of total
sustaining IT costs for these years, and are expected to represent a lower
percentage in 1999. In addition to these sustaining costs, discretely
identifiable costs associated with Y2K conversion activities are expected to
total $16 million. The costs of non-IT conversion efforts have also been
incurred in conjunction with normal sustaining activities. The Company does
not expect a reduction in the costs of these sustaining activities when Y2K
conversion activities are completed because normal sustaining activities will
be ongoing. Reprioritizing sustaining activities to support Y2K conversion
activities has not had, and is not expected to have, an adverse impact on
operations.

Risks associated with Y2K issues: The Company believes there is low risk of
any internal critical system, embedded system, or other critical asset not
being Y2K-ready by the end of 1999. The Company continues to assess its risk
exposure attributable to external factors and suppliers, including suppliers
outside the United States. Although the Company has no reason to conclude that
any specific supplier represents a risk, the most reasonably likely worst-case
Y2K scenario would entail production disruption due to inability of suppliers,
some of whom represent the sole source for certain items, to deliver critical
parts. The Company is unable to quantify such a scenario, but it could
potentially result in a material adverse impact on results of operations,
liquidity or financial position of the Company. Contingency plans for
suppliers and mission critical systems impacted by Y2K issues are currently
being developed. Where appropriate, these plans will include leveraging the
existing communications and transportation infrastructure created by the
Company's Disaster Preparedness Program, which is designed to respond to
disaster scenarios caused by natural, technological and manmade factors.

Boeing continues to work closely with local, state and federal emergency
management organizations to ensure that coordinated plans are in place in case
infrastructure problems occur in the year 2000.


MARKET RISK EXPOSURE

The Company has financial instruments that are subject to interest rate risk,
principally short-term investments, fixed-rate notes receivable attributable
to customer financing, and debt obligations issued at a fixed rate.
Historically, the Company has not experienced material gains or losses due to
interest rate changes when selling short-term investments or fixed-rate notes
receivable. Additionally, the Company uses interest rate swaps to manage
exposure to interest rate changes. Based on the current holdings of short-term
investments and fixed-rate notes, as well as underlying swaps, the exposure to
interest rate risk is not material. Fixed-rate debt obligations issued by the
Company are generally not callable until maturity.

The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies. As a
general policy, the Company substantially hedges foreign currency commitments
of future payments and receipts by purchasing foreign currency-forward
contracts. As of December 31, 1998, the notional value of such derivatives
was $395 million, with a net unrealized gain of $2 million. Less than 1% of
receipts and expenditures are contracted in foreign currencies, and the
Company does not consider the market risk exposure relating to currency
exchange to be material.
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COMMERCIAL AIRPLANES BUSINESS ENVIRONMENT AND TRENDS
- ----------------------------------------------------

The worldwide market for commercial jet aircraft is predominantly driven by
long-term trends in airline passenger traffic. The principal factors
underlying long-term traffic growth are sustained economic growth, both in
developed and emerging countries, and political stability. Demand for the
Company's commercial aircraft is further influenced by airline industry
profitability, world trade policies, government-to-government relations,
environmental constraints imposed upon aircraft operations, technological
changes, and price and other competitive factors.


GLOBAL ECONOMIC AND PASSENGER TRAFFIC TRENDS

As the world economy improved in this decade, airline passenger traffic
increased. For the five-year period 1994-1998, the average annual growth rate
for worldwide passenger traffic was approximately 6.0%. The Company's 20-year
forecast of the average long-term growth rate in passenger traffic is
approximately 4.7% annually, based on projected average worldwide annual
economic real growth of 2.9% over the 20-year period.

Based on global economic growth projections over the long term, and taking
into consideration increasing utilization levels of the worldwide aircraft
fleet and requirements to replace older aircraft, the Company projects the
total commercial jet aircraft market over the next 20 years at more than
$1,000 billion in 1998 dollars.


ASIA-PACIFIC ECONOMIES

Results in 1998 for Asia-Pacific airlines were mixed. Recessions are now under
way throughout Asia, impacting the economies of Japan, Malaysia, the
Philippines, Hong Kong, Singapore, Indonesia, Thailand and South Korea. Air
travel declined in a number of regional markets. Passenger load factors
declined and some airlines reported net losses. With growth in the region
lower than past forecasts, airlines, including those in China, are reassessing
the number and timing of aircraft contracted to deliver during the next
several years.


AIRLINE PROFITABILITY

Through a combination of passenger traffic growth, improved revenue, lower
fuel costs and aggressive cost control measures, the airline industry as a
whole significantly improved operating profitability and net earnings over the
past few years. The industry realized a substantial positive level of earnings
over the four-year period 1995-1998. The outlook for passenger traffic growth
in 1999 is generally positive, especially in the United States, Europe, Latin
America and for trans-Atlantic flights. Continued profitability levels depend
on sustained economic growth, limited wage increases, and capacity additions
in line with traffic increases.





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AIRLINE DEREGULATION

Worldwide, the airline industry has experienced progressive deregulation of
domestic markets and increasing liberalization of international markets.
Twenty years ago virtually all air travel took place within a framework of
domestic and international regulatory oversight. Since then, several
countries, most notably the United States, Australia, Japan and the countries
in Western Europe, have eliminated restrictive regulations for domestic
airline markets and promoted a more open-market climate for international
services. Currently, more than half of all air travel takes place within an
open-market environment. These trends are expected to continue, but at varying
rates in different parts of the world.

Liberalization of government regulations, together with increased aircraft
range capabilities, gives airlines greater freedom to pursue optimal fleet-mix
strategies. This increased flexibility allows the airlines to accommodate
traffic growth by selecting the best mix of flight frequencies and aircraft
size and capabilities for their route systems. In intercontinental markets,
more liberal bilateral air service agreements provide an important stimulus to
opening new city-pair markets, which favor increased flight frequency over
capacity growth. In parallel with regulatory liberalization, developments in
improving aircraft range performance will continue to allow airlines to expand
the number of direct city-to-city routes, thus reducing the reliance on
indirect routes through central hubs that require larger capacity aircraft.


INDUSTRY COMPETITIVENESS AND WORLD TRADE POLICIES

Over the past ten years, the Company (including McDonnell Douglas) has
maintained, on average, approximately a two-thirds share of the available
commercial jet aircraft market. Airbus Industrie is an aggressive competitor
seeking to increase market share. This market environment has resulted in
intense pressures on pricing and other competitive factors. The Company's focus
on improving processes and other cost reduction efforts is intended to enhance
its ability to pursue pricing strategies that enable the Company to maintain
leadership at satisfactory margins.

The Company's extensive customer support services network for airlines
throughout the world plays a key role in maintaining high customer
satisfaction. On-line access is available to all airline customers for
engineering drawings, parts lists, service bulletins and maintenance manuals.

Over the past five years, sales outside the United States have accounted for
approximately 62% of the Company's total Commercial Airplanes sales;
approximately 45% of the Commercial Airplanes contractual backlog at year-end
1998 was with customers based outside the United States. Continued access to
global markets is extremely important to the Company's future ability to fully
realize its sales potential and projected long-term investment returns.

In 1992 the U.S. Government and the European Community announced agreement on
interpreting the commercial aircraft code of the General Agreement on Tariffs
and Trade (GATT). The 1992 agreement bans government production subsidies and
limits development support in the form of loans to 33% of development costs. The
Company prefers a ban on all government subsidies for commercial airplane
programs, and views the controls embodied in the 1992 agreement as an important
step in limiting future government subsidies to Airbus Industrie. The announced


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46
intention by the four Airbus partners to transform the Airbus consortium into a
commercial company may remove Airbus operations from government control and
increase financial transparency.

The World Trade Organization (WTO), based in Geneva, promotes open and non-
discriminatory trade among its members. It administers an improved subsidies
code, applicable to all members, that provides important protections against
injurious subsidies by governments. It also uses improved dispute settlement
procedures to resolve disagreements among nations. The 1992 bilateral United
States-European Union agreement and the WTO subsidies code constitute the
basic limits on government supports of development costs.

Governments and companies in Asia and the former Soviet Union are seeking to
develop or expand aircraft design and manufacturing capabilities through
teaming arrangements with each other or current manufacturers. The Company
continues to explore ways to expand its global presence in this environment.

In spite of the current Asian economic difficulties, Company forecasts
indicate that the airlines in China represent a significant potential market
for commercial jet aircraft over the next 20 years. However, if government
and trade relations between the United States and China deteriorate
significantly, the Company's ability to sell commercial aircraft to airlines
in China could be severely constrained. The Company continues to support the
Asia Pacific Economic Cooperation (APEC) forum to promote open trade and
investment in the region. For other countries in Asia, economic growth must
return if the potential of the region is to be realized.

Airlines in Russia and other states in the former Soviet Union operate a
limited but increasing number of western-built aircraft. Because of slow
economic growth, high customs duties, a shortage of foreign exchange, and
legal and financing constraints, new aircraft orders have not been
significant. The Company expects that the airlines and the aircraft
manufacturing industry in this region will eventually be integrated into the
international economy.


SUMMARY

Although near-term market uncertainties remain, particularly with respect to
the economic situation in certain Asian countries and open market access, the
long-term market outlook appears favorable. The Company is well positioned in
all segments of the commercial jet aircraft market, and intends to remain the
airline industry's preferred supplier through emphasis on product offerings
and customer service that provide the best overall value in the industry.


INFORMATION, SPACE AND DEFENSE SYSTEMS BUSINESS ENVIRONMENT AND TRENDS
- ----------------------------------------------------------------------

The Company's acquisition of the defense and space units of Rockwell and the
merger with McDonnell Douglas have created a large and diversified business
segment in Information, Space and Defense Systems. Boeing is the world's
largest producer of military aircraft, the principal contractor for NASA, and
the second largest U.S. Department of Defense (DoD) supplier. The Company's
programs are well balanced between current production and upgrade activities
and major development programs with large potential production quantities.


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GENERAL ENVIRONMENT

The major trends that continue to shape the current Information, Space and
Defense Systems segment business environment include significant but
relatively flat DoD and NASA budgets; rapid expansion of information and
communication technologies and market demand; and a convergence among
military, civil and commercial markets.

The DoD remains the principal customer of this business segment, and DoD
procurement funding levels are expected to remain essentially flat on an
inflation-adjusted basis. The Company's DoD programs are subject to uncertain
future funding levels, which can result in the stretch-out or termination of
some programs. Congressional adoption of proposed DoD procurement reforms is
believed to be important to the future funding levels available for the
Company's defense products.

Domestically, continuing demands for peacekeeping operations are driving high
usage of equipment, and the aging of equipment is creating operating cost
affordability pressures. However, there is insufficient DoD budget to
adequately modernize equipment and maintain a high level of readiness. These
factors contribute to awareness in Congress that the DoD budget may need to be
increased.

NASA's budget is also expected to remain relatively flat over the next several
years. To generate additional procurement funds, NASA is likely to continue to
outsource many of its operational functions.

A modest decline is forecast for the defense and space budgets of other
countries. Current economic problems in certain Asian countries have resulted
in the deferral of some modernization investments in defense. Sales of defense
systems to allies in the Persian Gulf region will continue to be paced by
regional tensions and oil revenues. In Europe, defense budgets are projected
to gradually decline.

Overall the Company faces strong competition in all market segments. The
acquisition and merger consolidations among U.S. aerospace companies have
resulted in three principal prime contractors for the DoD and NASA, including
the Company. While there may be some further niche acquisitions at the prime
contractor level, the major area for further consolidation is likely to be
among subcontractors to the primes. Lockheed Martin and Raytheon are the
Company's primary U.S. competitors for this business segment, although in
certain commercial markets Loral and Hughes are also principal competitors. As
a result of the extensive consolidation in the defense and space industry, the
Company and its major competitors are also partners with or major suppliers to
each other on various programs.

The consolidation and rationalization of the European defense and space
companies has been proceeding for several years, mainly within individual
nations. Cross-border mergers in the form of joint ventures have been largely
confined to individual market segments, such as satellites or missiles.
Encouragement by the governments of France, Germany and the United Kingdom may
result in broader mergers to create larger European companies.
Internationally, the largest European aerospace companies compete in many of
the same market segments with the Company's products and services. At the
same time, these companies are also potential teaming partners.



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BUSINESS SEGMENT PRODUCT LINES

The newly formed Military Aircraft and Missiles segment produces tactical
fighters, trainers, helicopters, military transports, tankers, strike
missiles, and special purpose airplanes for the U.S. and foreign governments.
The basic strategy is to provide a competitive product in every selected
market segment. This business segment has several programs that are now in
production for the DoD, such as the C-17 Transport, F/A-18 E/F, T-45 Trainer
and V-22 Tiltrotor. Other programs include those that are still in
development, such as the F-22 fighter and RAH-66, or in competitive
development, such as the Joint Strike Fighter. Despite expected modest
declines in global defense budgets, there continues to be strong international
demand for military aircraft and missiles. Foreign sales approved by the U.S.
Government are extending some product lines, such as the F-15 fighter, the
Harpoon missile and the AH-64 and CH-47 helicopters. Based on these trends,
moderate growth in this business segment is expected.

The newly formed Space and Communications segment participates in both
government and commercial markets, including launch services, orbital systems
and exploration, information and battle management systems, and missile
defense systems.

The most significant market force affecting the launch services business is
the projected growth in the commercial market for launches of communication
satellites to low-earth orbit. The basic strategy is to provide a full family
of space launch vehicles. The Space and Communications segment is well
positioned with the Delta family and Sea Launch commercial launch vehicles,
and is the prime contractor for NASA's Space Shuttle program.

The orbital systems and exploration market will be flat to slightly declining.
Currently the major focus in this area is the International Space Station. The
Company is the prime contractor for the program's development phase, and is
positioned to continue as prime contractor throughout its lifetime in orbit.
Investments are being made as well to assist NASA in its space exploration
initiatives.

The addressable market components of the global information and communications
industry are valued at approximately $20 billion in 1998 dollars and are
forecast to grow sevenfold over the next decade. An element of the Space and
Communications segment's long-term growth is tied to the growth in this global
market. The Company's involvement in several ventures will provide
opportunities for significant market penetration. Company programs that
provide leverage in this market include the Global Positioning System (GPS)
and the Airborne Warning and Control System (AWACS). This large-scale systems
integration experience, coupled with alliances and company-funded initiatives,
well positions the Company for the future in the information and
communications marketplace.

The missile defense market offers Boeing the potential to become the leading
U.S. systems contractor for ballistic and cruise missile defense, and also to
make significant inroads in providing similar systems to Europe, Japan and
other governments.






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STRATEGIC INVESTMENTS FOR LONG-TERM VALUE
- -----------------------------------------

Over the past several years, the Company has made significant internal
investments to meet future airline product requirements, to achieve production
efficiencies, and to aggressively pursue new Space and Communications business
opportunities. Although constraining earnings and requiring substantial
resources in the near term, these investments are building long-term value by
streamlining operations and positioning the Company to maintain its aerospace
industry leadership.


NEW PRODUCT DEVELOPMENT

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

New business opportunities being pursued or studied include both military and
commercial applications. On the military side, the Company continues to assess
potential applications using the Company's commercial aircraft, particularly
the 767 and 737. In the commercial space arena, the Company is leading the Sea
Launch team to offer highly automated commercial satellite launching from a
seagoing launch platform. First launch is currently scheduled for March 1999.

The Company is investing in the development of the Delta IV family of
expendable launch vehicles. These product offerings provide access to
significant portions of the space launch market not previously available with
the Delta II rocket. This investment, coupled with the U.S. Air Force Evolved
Expendable Launch Vehicle program, positions the Company for potential market
share gains.

In information and communications-related activities, the Company is
evaluating several ventures with potential for hardware development. Satellite
technology investments leverage ongoing government space programs.
Company-sponsored research products are also available for use in commercial
communication systems with a variety of customers.














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MAJOR PROCESS IMPROVEMENTS

The Company remains strongly committed to becoming a world-class leader in all
aspects of its business and to maintaining a strong focus on customer needs,
including product capabilities, technology, in-service economics and product
support. Major long-term productivity gains are being aggressively pursued,
with substantial resources invested in education and training, restructuring
of processes, new technology, and organizational realignment.

The 777, the Next-Generation 737, the Joint Strike Fighter, and other recent
commercial and government developmental programs included early commitment of
resources for integrated product teams, design interface with customer
representatives, use of advanced three-dimensional digital product definition
and digital pre-assembly computer applications, and increased use of automated
manufacturing processes. Although these measures have required significant
current investments, substantial long-term benefits are anticipated from
reductions in design changes and rework, and improved quality of internally
manufactured and supplier parts.

A major initiative to simplify and streamline our commercial aircraft
configuration controls and production systems continues to be implemented.
Nineteen parts fabrication factories are now running on the new manufacturing
resource management systems, and sales teams and customers are now using a new
tool that allows them to more efficiently configure aircraft to customer
specifications. Based on current plans, Commercial Airplanes segment
engineering and assembly factories will be fully implemented over the next two
years.

The Military Aircraft and Missiles segment and the Space and Communications
segment continue to aggressively pursue important process improvements through
integrated product teams that provide cost-effective solutions and maintain
technological superiority. Phantom Works, the advanced research and
development organization of Boeing, focuses on improving the Company's
competitive position through innovative technologies, improved processes and
creation of new products.

The Company continues to assess potential opportunities for improved use and
consolidation of facilities across all parts of the Company and to focus on
those capabilities and processes that contribute to our core competencies
resulting in a competitive advantage. Future decisions regarding facilities
conversions or consolidations will be based on long-term business objectives.
Within the Military Aircraft and Missiles and Space and Communications
segments, major restructuring activities will be contingent on demonstration
of cost savings for U.S. Government programs and the Company.

The Company is pursuing the means to significantly reduce new product
development cost and flow time. Initiatives that have come out of this effort
include the formation of the Creation Center, which is tied closely with
Phantom Works, and other comparable efforts. Another initiative is the
migration to platforms and platform teams modeled, to some degree, after
Chrysler and other benchmarked companies. Other initiatives include design
tool automation integrated with manufacturing, improved loads models, and
decision support methodologies.



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During 1998 the structure for realization of synergies across the Company was
developed in the form of companywide Process Councils. These Councils consist
of the leaders of key processes from each of the operating groups, as well as
Phantom Works, and rapidly share best practices and combine efforts to meet
needs across the Company. Process Councils have been established for Define,
Manufacturing, Quality and Procurement processes.




















































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SEGMENT INFORMATION

The Company is organized based on the products and services that it offers.
Under this organizational structure, the Company operates in three principal
areas: Commercial Airplanes, Military Aircraft and Missiles, and Space and
Communications. Commercial Airplanes operations principally involve
development, production and marketing of commercial jet aircraft and providing
related support services, principally to the commercial airline industry
worldwide. Military Aircraft and Missiles operations principally involve
research, development, production, modification and support of the following
products and related systems: military aircraft, both land-based and
aircraft-carrier-based, including fighter, transport and attack aircraft with
wide mission capability, and vertical/short takeoff and landing capability;
helicopters and missiles. Space and Communications operations principally
involve research, development, production, modification and support of the
following products and related systems: space systems; missile defense
systems; satellite launching vehicles; rocket engines;
and information and battle management systems. Although some Military Aircraft
and Missiles and Space and Communications products are contracted in the
commercial environment, the primary customer is the U.S. Government. The
Customer and Commercial Financing/Other segment is primarily engaged in the
financing of commercial and private aircraft, commercial equipment, and real
estate.

The Commercial Airplanes segment is subject to both operational and external
business-environment risks. Operational risks that can seriously disrupt the
Company's ability to make timely delivery of its commercial jet aircraft and
meet its contractual commitments include execution of internal performance
plans, product performance risks associated with regulatory certifications of
the Company's commercial aircraft by the U.S. Government and foreign
governments, other regulatory uncertainties, collective bargaining labor
disputes, and performance issues with key suppliers and subcontractors. While
the Company's principal operations are in the United States, Canada, and
Australia, some key suppliers and subcontractors are located in Europe and
Japan. External business-environment risks include adverse governmental export
and import policies, factors that result in significant and prolonged
disruption to air travel worldwide, and other factors that affect the economic
viability of the commercial airline industry. Examples of factors relating to
external business-environment risks include the volatility of aircraft fuel
prices, global trade policies, worldwide political stability and economic
growth, escalation trends inherent in pricing the Company's aircraft, and a
competitive industry structure which results in market pressure to reduce
product prices.

In addition to the foregoing risks associated with the Commercial Airplanes
segment, the Military Aircraft and Missiles segment and the Space and
Communications segment are subject to changing priorities or reductions in the
U.S. Government defense and space budget, and termination of government
contracts due to unilateral government action (termination for convenience) or
failure to perform (termination for default). Civil, criminal or administrative
proceedings involving fines, compensatory and treble damages, restitution,
forfeiture and suspension or debarment from government contracts may result
from violations of business and cost classification regulations on U.S.
Government contracts.




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As of December 31, 1998, the Company's principal collective bargaining
agreements were with the International Association of Machinists and Aerospace
Workers (IAM) representing 30% of employees (current agreements expiring
September 1999, October 1999, and May 2001), Seattle Professional Engineering
Employees Association (SPEEA) representing 12% of employees
(current agreements expiring December 1999), the United Automobile, Aerospace
and Agricultural Implement Workers of America (UAW) representing 6% of
employees (current agreements expiring June 1999, September 1999, and April
2000), and Southern California Professional Engineering Association (SCPEA)
representing 2% of employees (current agreement expiring March 2001).

Sales by geographic area consisted of the following:

(Dollars in millions)
Year ended December 31, 1998 1997 1996
===========================================================
Asia, other than China $14,065 $11,437 $ 8,470
China 1,572 1,265 951
Europe 8,646 7,237 4,198
Oceania 844 1,078 821
Africa 702 192 156
Western Hemisphere, other
than the United States 701 228 466
- -----------------------------------------------------------
26,530 21,437 15,062
United States 29,624 24,363 20,391
- -----------------------------------------------------------
Total sales $56,154 $45,800 $35,453
===========================================================

Military Aircraft and Missiles segment and Space and Communications segment
combined sales were approximately 16%, 19% and 29% of total sales in Europe for
1998, 1997 and 1996, respectively. Defense sales were approximately 19%, 19%
and 22% of total sales in Asia, excluding China, for the same respective
years. Exclusive of these amounts, Military Aircraft and Missiles segment and
Space and Communications segment sales were principally to the U.S.
Government.

The information in the following tables is derived directly from the segments'
internal financial reporting used for corporate management purposes. The
expenses, assets and liabilities attributable to corporate activity are not
allocated to the operating segments. Less than 2% of operating assets are
located outside of the United States.

Customer and Commercial Financing/Other segment revenues consist principally of
interest from financing receivables and lease income from operating lease
equipment, and segment earnings additionally reflect depreciation on leased
equipment and expenses recorded against the valuation allowance presented in
Note 8. No interest expense on debt is included in Customer and Commercial
Financing/Other segment earnings.

Accounting differences principally result from differences in cost measurements
under generally accepted accounting principals. Accounting differences include
the following: the difference between pension costs recognized under SFAS No.
87, Employers' Accounting for Pensions, and under federal cost accounting
standards, principally on a funding basis; the difference between retiree
health care costs recognized under SFAS No. 106, Employers' Accounting for

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Postretirement Benefits Other Than Pensions, and under federal cost accounting
standards, principally on a cash basis; and amortization of costs capitalized
in accordance with SFAS No. 34, Capitalization of Interest Costs.

The costs attributable to share-based plans are not allocated. Other
unallocated costs include corporate costs not allocated to the operating
segments, including goodwill amortization. Unallocated assets primarily
consist of cash and short-term investments, prepaid pension expense,
goodwill, deferred tax assets, and capitalized interest. Unallocated
liabilities include various accrued employee compensation and benefit
liabilities, including accrued retiree health care, taxes payable, and
debentures and notes payable. Unallocated capital expenditures and
depreciation relate primarily to shared services assets. Sales are not
recorded for inter-segment transactions.

Losses from operations for 1997 include the impact of the valuation adjustment
described in Note 3 on page 69.

In 1998 the Information, Space and Defense Systems Group of the Company was
reorganized into two groups: the Military Aircraft and Missile Systems Group
and the Space and Communications Group, which will be reported as separate
business segments for 1998 and on. It is not practicable to determine the
Military Aircraft and Missiles and Space and Communications breakout of the
Information, Space and Defense Systems segment information for 1997 and 1996
presented below.

































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(Dollars in millions) Net earnings (loss) Revenues
---------------------- ----------------------
Year ended December 31, 1998 1997 1996 1998 1997 1996
==============================================================================
Commercial Airplanes $ 63 $(1,837) $ 956 $35,545 $26,929 $19,916
Military Aircraft
and Missiles 1,283 12,990
Space and Communications 248 6,889
----- ------
Information, Space
and Defense Systems 1,531 1,317 1,387 19,879 18,125 14,934
Customer and Commercial
Financing/Other 367 381 329 730 746 603
Accounting differences 43 71 68
Share-based plans (153) 99 (133)
Other unallocated costs (284) (287) (122)
- ------------------------------------------------------------------------------
Earnings (loss)
from operations 1,567 (256) 2,485
Other income,
principally interest 283 428 388
Interest and debt expense (453) (513) (393)
- ------------------------------------------------------------------------------
Earnings (loss)
before taxes 1,397 (341) 2,480
Income taxes (benefit) 277 (163) 662
- ------------------------------------------------------------------------------
$1,120 $(178) $1,818 $56,154 $45,800 $35,453
==============================================================================

Segment information (continued)
(Dollars in millions) Depreciation and
Research and Development Amortization
------------------------ ----------------------
Year ended December 31, 1998 1997 1996 1998 1997 1996
==============================================================================
Commercial Airplanes $1,021 $1,208 $1,156 $ 628 $ 570 $ 605
Military Aircraft
and Missiles 304 208
Space and Communications 570 142
---- ----
Information, Space
and Defense Systems 874 716 477 350 365 299
Customer and Commercial
Financing/Other 135 91 110
Unallocated 509 432 252
- ------------------------------------------------------------------------------
$1,895 $1,924 $1,633 $ 1,622 $ 1,458 $ 1,266
==============================================================================









55
56
Assets Liabilities
at December 31 at December 31
---------------------- ----------------------
1998 1997 1996 1998 1997 1996
==============================================================================
Commercial Airplanes $12,568 $12,763 $12,484 $6,127 $6,917 $ 5,824
Military Aircraft
and Missiles 3,560 743
Space and Communications 3,032 1,335
----- -----
Information, Space
and Defense Systems 6,592 6,597 6,785 2,078 2,379 2,361
Customer and Commercial
Financing/Other 5,751 4,716 3,903 301 396 286
Unallocated 11,761 13,948 14,708 15,850 15,379 15,907
- ------------------------------------------------------------------------------
$36,672 $38,024 $37,880 $24,356 $25,071 $24,378
==============================================================================

Contractual backlog at
Capital expenditures, net December 31 (unaudited)
------------------------- -----------------------
Year ended December 31, 1998 1997 1996 1998 1997 1996
==============================================================================
Commercial Airplanes $ 754 $ 531 $ 336 $ 86,057 $ 93,788 $ 86,151
Military Aircraft
and Missiles 198 17,007
Space and Communications 273 9,832
--- ------
Information, Space
and Defense Systems 471 463 304 26,839 27,852 28,022
Customer and Commercial
Financing/Other 1 1 1
Unallocated 358 396 330
- ------------------------------------------------------------------------------
$ 1,584 $ 1,391 $ 971 $112,896 $121,640 $114,173
==============================================================================





















56
57

THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS




(Dollars in millions except per share data)
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Sales and other operating revenues $56,154 $45,800 $35,453
Operating costs and expenses 50,546 40,644 29,383
General and administrative expense 1,993 2,187 1,819
Research and development expense 1,895 1,924 1,633
Share-based plans 153 (99) 133
Special charges 1,400
- -------------------------------------------------------------------------------
Earnings (loss) from operations 1,567 (256) 2,485
Other income, principally interest 283 428 388
Interest and debt expense (453) (513) (393)
- -------------------------------------------------------------------------------
Earnings (loss) before income taxes 1,397 (341) 2,480
Income taxes (benefit) 277 (163) 662
- -------------------------------------------------------------------------------
Net earnings (loss) $ 1,120 $ (178) $ 1,818
===============================================================================


Earnings (loss) per share
Basic $ 1.16 $ (.18) $ 1.88
Diluted $ 1.15 $ (.18) $ 1.85
===============================================================================


Cash dividends per share $ .56 $ .56 $ .55
===============================================================================




















See notes to consolidated financial statements.
57
58
THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



(Dollars in millions except per share data)
December 31, 1998 1997
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 2,183 $ 4,420
Short-term investments 279 729
Accounts receivable 3,288 3,121
Current portion of customer and commercial financing 781 261
Deferred income taxes 1,495 1,765
Inventories, net of advances and progress billings 8,349 8,967
- -------------------------------------------------------------------------------
Total current assets 16,375 19,263
Customer and commercial financing 4,930 4,339
Property, plant and equipment, net 8,589 8,391
Deferred income taxes 411 15
Goodwill 2,312 2,395
Prepaid pension expense 3,513 3,271
Other assets 542 350
- -------------------------------------------------------------------------------
$36,672 $38,024
===============================================================================


Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------
Accounts payable and other liabilities $10,733 $11,548
Advances in excess of related costs 1,251 1,575
Income taxes payable 569 298
Short-term debt and current portion of long-term debt 869 731
- -------------------------------------------------------------------------------
Total current liabilities 13,422 14,152
Accrued retiree health care 4,831 4,796
Long-term debt 6,103 6,123
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 1,011,870,159 and 1,000,029,538 5,059 5,000
Other equity accounts 7,257 7,953
- -------------------------------------------------------------------------------
Total shareholders' equity 12,316 12,953
- -------------------------------------------------------------------------------
$36,672 $38,024
===============================================================================







See notes to consolidated financial statements.
58
59
THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in millions)
Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------

Cash flows - operating activities:
Net earnings (loss) $ 1,120 $ (178) $ 1,818
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Special charges 1,400
Share-based plans 153 (99) 133
Depreciation 1,517 1,354 1,241
Amortization of goodwill and intangibles 105 104 25
Changes in assets and liabilities -
Short-term investments 450 154 (874)
Accounts receivable (167) (251) 182
Inventories, net of advances and
progress billings 618 (1,008) 306
Accounts payable and other liabilities (806) 1,490 514
Advances in excess of related costs (324) (139) 441
Income taxes payable and deferred 145 (451) (55)
Other (479) (272) (246)
Accrued retiree health care 35 (4) 126
- ------------------------------------------------------------------------------
Net cash provided by operating activities 2,367 2,100 3,611
- ------------------------------------------------------------------------------

Cash flows - investing activities:
Customer and commercial financing-additions (2,660) (1,889) (1,212)
Customer and commercial financing-reductions 1,418 1,030 1,482
Property, plant and equipment, net additions (1,584) (1,391) (971)
Other 15
- ------------------------------------------------------------------------------
Net cash used by investing activities (2,826) (2,250) (686)
- ------------------------------------------------------------------------------

Cash flows - financing activities:
New borrowings 811 232 1,051
Debt repayments (693) (867) (1,160)
ShareValue Trust (891)
Common shares purchased (1,397) (141) (718)
Common shares issued 268
Stock options exercised, other 65 166 215
Dividends paid (564) (557) (480)
- ------------------------------------------------------------------------------
Net cash used by financing activities (1,778) (899) (1,983)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (2,237) (1,049) 942
Cash and cash equivalents at beginning of year 4,420 5,469 4,527
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,183 $ 4,420 $ 5,469
==============================================================================
See notes to consolidated financial statements.
59
60
THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock Additional Treasury Stock
(Dollars in millions / --------------- Paid-in ---------------
Shares in thousands) Shares Amount Capital Shares Amount
==============================================================================
Balance December 31, 1995 989,255 $4,946 $ - 10,608 $ (209)
Shares repurchased (19,055) (95) (383)
Shares issued for acquisition
of Rockwell aerospace
and defense business 18,309 92 784
Shares issued for
ShareValue Trust 3,466 17 209
Shares acquired for original
ShareValue Trust funding
Shares issued for incentive
stock plans 1,373 7
Treasury shares transferred
to ShareValue Trust (2,964) 58
Treasury shares issued for
incentive stock plans, net 27 (7,614) 150
Tax benefit related to
incentive stock plans 58
Stock appreciation rights
expired or surrendered 9
ShareValue Trust market
value adjustment 216
Shares acquired from
dividend reinvestment
Accrued distributable appreciation
New issuances - unearned compensation
Amortization and forfeitures -
unearned compensation
Net earnings
Cash dividends declared
- ------------------------------------------------------------------------------
Balance December 31, 1996 993,348 $4,967 $ 920 30 (1)
- ------------------------------------------------------------------------------


















60
61
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)

Common Stock Additional Treasury Stock
(Dollars in millions / --------------- Paid-in ---------------
Shares in thousands) Shares Amount Capital Shares Amount
==============================================================================
Shares issued 4,550 23 245
Shares issued for
incentive stock plans 2,132 10
Treasury shares acquired 2,710 (141)
Treasury shares issued for
incentive stock plans, net (20) (2,580) 133
Tax benefit related to
incentive stock plans 41
Stock appreciation rights
expired or surrendered 6
ShareValue Trust
market value adjustment (102)
Shares transferred
from ShareValue Trust 5
Shares acquired from
dividend reinvestment
Accrued distributable appreciation
New issuances - unearned compensation
Amortization and forfeitures -
unearned compensation
Net loss
Cash dividends declared
- ------------------------------------------------------------------------------
Balance December 31, 1997 1,000,030 $5,000 $ 1,090 165 $ (9)
- ------------------------------------------------------------------------------
Shares issued for
ShareValue Trust 11,253 56 494
Shares issued for
incentive stock plans 587 3
Share-based compensation 153
Treasury shares acquired 37,473 (1,397)
Treasury shares issued for
incentive stock plans, net (43) (1,792) 85
Tax benefit related to
incentive stock plans 18
Stock appreciation rights
expired or surrendered 5
ShareValue Trust market
value adjustment (570)
Shares acquired from
dividend reinvestment
Amortization and forfeitures -
unearned compensation
Net earnings
Cash dividends declared
Minimum pension liability
adjustment, net of tax of $14
- ------------------------------------------------------------------------------
Balance December 31, 1998 1,011,870 $5,059 $ 1,147 35,846 $(1,321)
==============================================================================
See notes to consolidated financial statements.
61
62
THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)


ShareValue Trust
(Dollars in millions / ---------------- Unearned
Shares in thousands) Shares Amount Compensation
==================================================================
Balance December 31, 1995 $ - $(18)
Shares repurchased
Shares issued for acquisition
of Rockwell aerospace
and defense business
Shares issued for
ShareValue Trust
Shares acquired for original
ShareValue Trust funding 26,032 (1,171)
Shares issued for incentive
stock plans
Treasury shares transferred
to ShareValue Trust
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust market
value adjustment (216)
Shares acquired from
dividend reinvestment 88 (4)
Accrued distributable appreciation 133
New issuances - unearned compensation (20)
Amortization and forfeitures -
unearned compensation 16
Net earnings
Cash dividends declared
- ------------------------------------------------------------------
Balance December 31, 1996 26,120 $(1,258) $(22)
- ------------------------------------------------------------------

















62
63
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)

ShareValue Trust
(Dollars in millions / ---------------- Unearned
Shares in thousands) Shares Amount Compensation
==================================================================
Shares issued
Shares issued for
incentive stock plans
Treasury shares acquired
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust
market value adjustment 102
Shares transferred
from ShareValue Trust (5)
Shares acquired from
dividend reinvestment 270
Accrued distributable appreciation (99)
New issuances - unearned compensation (29)
Amortization and forfeitures -
unearned compensation 31
Net loss
Cash dividends declared
- ------------------------------------------------------------------
Balance December 31, 1997 26,385 $(1,255) $(20)
- ------------------------------------------------------------------
Shares issued for
ShareValue Trust 11,253 (550)
Shares issued for
incentive stock plans
Share-based compensation
Treasury shares acquired
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust market
value adjustment 570
Shares acquired from
dividend reinvestment 529
Amortization and forfeitures -
unearned compensation 3
Net earnings
Cash dividends declared
Minimum pension liability
adjustment, net of tax of $14
- ------------------------------------------------------------------
Balance December 31, 1998 38,167 $(1,235) $(17)
==================================================================
See notes to consolidated financial statements.
63
64
THE BOEING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)

Accumulated
Other
(Dollars in millions / Comprehensive Retained Comprehensive
Shares in thousands) Income Earnings Income
===================================================================
Balance December 31, 1995 $ - $7,808
Shares repurchased (233)
Shares issued for acquisition
of Rockwell aerospace
and defense business
Shares issued for
ShareValue Trust
Shares acquired for original
ShareValue Trust funding
Shares issued for incentive
stock plans
Treasury shares transferred
to ShareValue Trust
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust market
value adjustment
Shares acquired from
dividend reinvestment
Accrued distributable appreciation
New issuances - unearned compensation
Amortization and forfeitures -
unearned compensation
Net earnings 1,818 $1,818
Cash dividends declared (497)
- -------------------------------------------------------------------
Balance December 31, 1996 $ - $8,896 $1,818
- ------------------------------------------------------=============

















64
65
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)
Accumulated
Other
(Dollars in millions / Comprehensive Retained Comprehensive
Shares in thousands) Income Earnings Income
===================================================================
Shares issued
Shares issued for
incentive stock plans
Treasury shares acquired
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust
market value adjustment
Shares transferred
from ShareValue Trust
Shares acquired from
dividend reinvestment
Accrued distributable appreciation
New issuances - unearned compensation
Amortization and forfeitures -
unearned compensation
Net loss (178) $(178)
Cash dividends declared (571)
- -------------------------------------------------------------------
Balance December 31, 1997 $ - $8,147 $(178)
- ------------------------------------------------------=============
Shares issued for
ShareValue Trust
Shares issued for
incentive stock plans
Share-based compensation
Treasury shares acquired
Treasury shares issued for
incentive stock plans, net
Tax benefit related to
incentive stock plans
Stock appreciation rights
expired or surrendered
ShareValue Trust market
value adjustment
Shares acquired from
dividend reinvestment
Amortization and forfeitures -
unearned compensation
Net earnings 1,120 $1,120
Cash dividends declared (561)
Minimum pension liability
adjustment, net of tax of $14 (23) (23)
- ------------------------------------------------------------------
Balance December 31, 1998 $(23) $8,706 $1,097
==================================================================
See notes to consolidated financial statements.
65
66
THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997 and 1996
(Dollars in millions except per share data)
Note 1
Summary of Significant Accounting Policies
- ------------------------------------------
Principles of consolidation
The consolidated financial statements include the accounts of all majority-
owned subsidiaries. Investments in joint ventures in which the Company does
not have control, but has the ability to exercise significant influence over
the operating and financial policies, are accounted for under the equity
method. Accordingly, the Company's share of net earnings and losses from
these ventures is included in the consolidated statements of operations.
Intercompany profits, transactions and balances have been eliminated in
consolidation.

Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions and estimates
that directly affect the amounts reported in the consolidated financial
statements. Significant estimates for which changes in the near term are
considered reasonably possible and that may have a material impact on the
financial statements are addressed in these notes to the consolidated
financial statements.

Sales and other operating revenues
Sales under fixed-price-type contracts are generally recognized as deliveries
are made or at the completion of contractual billing milestones. For certain
fixed-price contracts that require substantial performance over an extended
period before deliveries begin, sales are recorded based upon attainment of
scheduled performance milestones. Sales under cost-reimbursement contracts are
recorded as costs are incurred. Certain U.S. Government contracts contain
profit incentives based upon performance relative to predetermined targets.
Incentives based on cost performance are recorded currently, and other
incentives and fee awards are recorded when the amounts can be reasonably
estimated. Commercial aircraft sales are recorded as deliveries are made
unless transfer of risk and rewards of ownership is not sufficient. Income
associated with customer financing activities is included in sales and other
operating revenues.

Contract and program accounting
In the Military Aircraft and Missiles segment and Space and Communications
segment, operations principally consist of performing work under contract,
predominantly for the U.S. Government and foreign governments. Cost of sales
for such contracts is determined based on the estimated average total contract
cost and revenue.

Commercial aircraft programs are planned, committed and facilitized based on
long-term delivery forecasts, normally for quantities in excess of
firm contractually firm orders. Cost of sales for the 737, 747, 757, 767 and
777 commercial aircraft programs is determined under the program method of
accounting based on estimated average total cost and revenue for the current
program quantity. The program method of accounting effectively amortizes or
averages tooling and special equipment costs, as well as unit production,
costs, over the program quantity. Because of the higher unit production costs
experienced at the beginning of a new program and the substantial investment
required for initial
66
67
tooling and special equipment, new commercial jet aircraft programs normally
have lower operating profit margins than established programs. The initial
program quantities for the 777 program and the 737-600/700/800/900 (Next-
Generation 737) programs had been established at 400 units, the same initial
program quantity as used for the 747, 757 and 767 programs. Deliveries for the
777 program began in 1995, and deliveries for the Next-Generation 737 program
began in 1997. The estimated program average costs and revenues are reviewed
and reassessed quarterly, and changes in estimates are recognized over current
and future deliveries constituting the program quantity. Cost of sales for
the MD-80, MD-90 and MD-11 aircraft programs is determined on a specific-unit
cost method.

To the extent that inventoriable costs are expected to exceed the total
estimated sales price, charges are made to current earnings to reduce
inventoried costs to estimated realizable value.

Inventories
Inventoried costs on commercial aircraft programs and long-term contracts
include direct engineering, production and tooling costs, and applicable
overhead, not in excess of estimated realizable value. In accordance with
industry practice, inventoried costs include amounts relating to programs and
contracts with long production cycles, a portion of which is not expected to be
realized within one year. Commercial spare parts and general stock materials
are stated at average cost not in excess of realizable value.

Share-based plans
In 1998 the Company adopted the expense recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
The Company values stock options issued based upon an option-pricing model and
recognizes this value as an expense over the period in which the options vest.
Potential distribution from the ShareValue Trust, described in Note 16, have
been valued based upon an option-pricing model, with the related expense
recognized over the life of the trust. Share-based expense associated with
Performance Shares described in Note 16 is determined based on the market value
of the Company's stock at the time of the award applied to the maximum number
of shares contingently issuable based on stock price, and is amortized over a
five-year award period. Performance Shares were first issued in 1998. Prior to
1998, the Company recognized no expense for stock options, and ShareValue Trust
expense was determined based on the change in the distributable market value of
the trust. Share-based plans expenses for stock options, the ShareValue Trust,
Performance Shares and other share-based awards are offset by a credit to
additional paid-in capital.

Interest expense
Interest and debt expense is presented net of amounts capitalized. Interest
expense is subject to capitalization as a construction-period cost of property,
plant and equipment and of commercial program tooling.

Income taxes
Federal, state and foreign income taxes are computed at current tax rates, less
tax credits. Taxes are adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from
those previously used to determine deferred tax assets or liabilities. Tax
provisions include amounts that are currently payable, plus changes in deferred
tax assets and liabilities that arise because of temporary differences between
the time when items of income and expense are recognized for financial
reporting and income tax purposes.

67
68
Postretirement benefits
The Company's funding policy for pension plans is to contribute, at a minimum,
the statutorily required amount to an irrevocable trust. Benefits under the
plans are generally based on age at retirement, the employee's annual earnings
indexed at the U.S. Treasury 30-year bond rate, and years of service. The
actuarial cost method used in determining the net periodic pension cost is the
projected unit credit method.

Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments, such as
certificates of deposit, time deposits, treasury notes and other money market
instruments, which generally have maturities of less than three months.

Short-term investments
Short-term investments, consisting principally of U.S. Government Treasury
obligations, are classified as trading securities with unrealized gains and
losses reflected in other income.

Property, plant and equipment
Property, plant and equipment are recorded at cost, including applicable
construction-period interest, and depreciated principally over the following
estimated useful lives: new buildings and land improvements, from 20 to 45
years; and machinery and equipment, from 3 to 13 years. The principal methods
of depreciation are as follows: buildings and land improvements, 150% declining
balance; and machinery and equipment, sum-of-the-years' digits.

Goodwill
Goodwill, representing the excess of acquisition costs over the fair value of
net assets of businesses purchased, is being amortized by the straight-line
method over 30 years. Recoverability of the unamortized goodwill balance is
based upon assessment of related operational cash flows.

Note 2
Mergers and Acquisitions
- ------------------------
Merger with McDonnell Douglas Corporation
On August 1, 1997, McDonnell Douglas Corporation merged with the Company
through a stock-for-stock exchange in which 1.3 shares of Company stock were
issued for each share of McDonnell Douglas stock outstanding. The Company
issued 277.3 million shares in connection with the merger. The merger is
accounted for as a pooling of interests. Accordingly, except for adjustments
to reflect conformed accounting policies, the historical results of operations
of the two companies have been combined, and no acquisition revaluation or
goodwill was recorded.

The merger was subject to approval by the United States Federal Trade
Commission and the European Commission. Future requirements or obligations
associated with obtaining these approvals are not expected to have a material
impact on future operations or liquidity of the Company.

Acquisition of Rockwell Aerospace and Defense Business
On December 6, 1996, the Company acquired Rockwell's aerospace and defense
business by issuing 9.2 million shares of common stock valued at $875 and
assuming debt valued at $2,180. This transaction has been accounted for under
the purchase method. The assets and liabilities have been recorded at fair
value with excess purchase price recorded as goodwill.


68
69

Note 3
Special Charges - Douglas Products
Valuation Adjustment
- ----------------------------------
In the fourth quarter of 1997, the Company completed an assessment of the
financial impact of its post-merger strategy decisions related to its McDonnell
Douglas Corporation commercial aircraft product lines and recorded a special
charge of $1,400 relative to these decisions. The charge principally represents
an inventory valuation adjustment based on post-merger assessments of the
market conditions and related program decisions and commitments. Also included
in the charge were valuation adjustments in connection with customer financing
assets. The applicable programs currently in production are the MD-11 trijet
and the MD- 80 and MD-90 twinjets. Additionally, the MD-95 twinjet, now
referred to as the 717 model program, is currently in development, with first
delivery scheduled for 1999. The MD-80 and MD-90 twinjets and the MD-11 trijet
will continue to be produced through 2000.

Note 4
Earnings from Joint Ventures
- ----------------------------
Operating costs and expenses in the Consolidated Statements of Operations
include costs of $127, $102 and $53 for the years ending December 31, 1998,
1997 and 1996, respectively, representing the Company's share of losses from
joint venture arrangements in the developmental stages accounted for under the
equity method. The Company's principal joint venture arrangement in the
developmental stages is a 40% partnership in the Sea Launch program, a
commercial satellite launch venture with Norwegian, Russian and Ukrainian
partners.

Additionally, the Company recognized income of $60, $59 and $2 for
the years ending December 31, 1998, 1997 and 1996, respectively, attributable
to non-developmental joint venture arrangements. The Company's 50% partnership
with Lockheed Martin in United Space Alliance is the principal non-
developmental joint venture arrangement. United Space Alliance is responsible
for all ground processing of the Space Shuttle fleet and for space-related
operations with the U.S. Air Force.

Note 5
Earnings per Share
- ------------------
The weighted average number of shares outstanding (in millions) used to compute
basic earnings per share were 966.9, 970.1 and 968.7 for the years ended
December 31, 1998, 1997 and 1996, respectively. The weighted average number of
shares outstanding (in millions) used to compute diluted earnings per share
were 976.7, 970.1 and 981.9 for the same respective years. Basic earnings per
share are calculated based on the weighted average number of shares
outstanding, excluding treasury shares and the outstanding shares held by the
ShareValue Trust. Diluted earnings per share are calculated based on that same
number of shares plus additional dilutive shares representing stock
distributable under stock option plans computed using the treasury stock
method plus contingently issuable shares from other share-based plans. Because
1997 results reflected a net loss from continuing operations, both basic and
diluted earnings per share were calculated based on the same weighted average
number of shares for that year.



69
70
Note 6
Accounts Receivable
- -------------------
Accounts receivable at December 31 consisted of the following:

1998 1997
- ------------------------------------------------------------------------------
U.S. Government contracts $2,058 $2,053
Other 1,230 1,068
- ------------------------------------------------------------------------------
$3,288 $3,121
==============================================================================

Accounts receivable included the following as of December 31, 1998 and 1997,
respectively: amounts not currently billable of $381 and $587 relating
primarily to sales values recorded upon attainment of performance milestones
that differ from contractual billing milestones and withholds on U.S.
Government contracts ($109 and $161 not expected to be collected within one
year); $93 and $341 relating to claims and other amounts on U.S. Government
contracts subject to future settlement ($66 and $333 not expected to be
collected within one year); and $48 and $62 of other receivables not expected
to be collected within one year.

Note 7
Inventory
- ---------
Inventories at December 31 consisted of the following:

1998 1997
- ------------------------------------------------------------------------------
Commercial aircraft programs
and long-term contracts
in progress $ 24,812 $ 26,566
Commercial spare parts, general
stock materials and other 2,162 1,869
- ------------------------------------------------------------------------------
26,974 28,435
Less advances and
progress billings (18,625) (19,468)
- ------------------------------------------------------------------------------
$ 8,349 $ 8,967
==============================================================================

As of December 31, 1998, there were no significant excess deferred production
costs (inventory production costs incurred on in-process and delivered units in
excess of the estimated average cost of such units determined as described in
Note 1) or unamortized tooling costs not recoverable from existing firm orders
for commercial programs other than the 777 and the Next-Generation 737 programs.
The program quantity for the 777 and the Next-Generation 737 programs for
determining cost of sales based on estimated average total cost (including
inventory production costs and tooling) and revenue was initially established
at 400 units. In 1998 the accounting quantity for the Next-Generation 737
program was extended beyond the initial program quantity. The current
accounting quantity for the Next-Generation 737 program is 1,200 units.




70
71
Inventory costs at December 31, 1998, included unamortized tooling of $2,022
and $760 relating to the 777 and Next-Generation 737 programs, and excess
deferred production costs of $1,654 and $329 relating to the 777 and Next-
Generation 737 programs. Inventory costs at December 31, 1997, included
unamortized tooling of $2,678 and $809 relating to the 777 and Next-Generation
737 programs, and excess deferred production costs of $2,384 relating to the
777 program. Firm backlog for both the 777 and Next-Generation 737 programs is
sufficient to recover all significant amounts of excess deferred production
costs as of December 31, 1998; however, such deferred costs are recognized over
the current program accounting quantity in effect at the date of reporting.

Interest capitalized as construction-period tooling costs amounted to $20, $33
and $30 in 1998, 1997 and 1996, respectively.

As of December 31, 1998 and 1997, inventory balances included $231 subject to
claims or other uncertainties primarily relating to the A-12 program. See Note
21.

The estimates underlying the average costs of deliveries reflected in the
inventory valuations may differ materially from amounts eventually realized for
the reasons outlined in Note 22.

Note 8
Customer and Commercial Financing
- ---------------------------------
Customer and commercial financing at December 31 consisted of the following:

1998 1997
- ------------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 859 $ 647
Investment in sales-type/
financing leases 1,325 1,517
Operating lease equipment,
at cost, less accumulated
depreciation of $195 and $230 2,201 1,220
Commercial equipment financing
Notes receivable 534 317
Investment in sales-type/
financing leases 548 536
Operating lease equipment,
at cost, less accumulated
depreciation of $129 and $120 510 571
- ------------------------------------------------------------------------------
Less valuation allowance (266) (208)
- ------------------------------------------------------------------------------
$5,711 $4,600
==============================================================================

Customer and commercial financing assets that are leased by the Company under
capital leases and have been subleased to others totaled $333 and $342 as of
December 31, 1998 and 1997. Commercial equipment financing under operating
lease consists principally of real property, highway vehicles, machine tools
and production equipment. Commercial equipment financing also includes amounts
attributable to regional aircraft, principally with fewer than 80 seats.



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Scheduled payments on customer and commercial financing are as follows:

Sales-type/ Operating
Principal Financing Lease Lease
Payments on Payments Payments
Year Notes Receivable Receivable Receivable
- ------------------------------------------------------------------------------
1999 $346 $522 $240
2000 280 225 161
2001 92 216 146
2002 126 187 136
2003 87 175 132
Beyond 2003 462 1,037 1,107

The components of investment in sales-type/financing leases at December 31 were
as follows:

1998 1997
- ------------------------------------------------------------------------------
Minimum lease payments
receivable $2,362 $ 2,754
Estimated residual value
of leased assets 438 519
Unearned income (927) (1,220)
- ------------------------------------------------------------------------------
$1,873 $ 2,053
==============================================================================

The Company has entered into interest rate swaps with third-party investors
whereby the interest rate terms differ from the terms in the original
receivable. These interest rate swaps related to $62 of customer financing
receivables as of December 31, 1998. Interest rate swaps on financing
receivables are settled on the same dates interest is due on the underlying
receivables and principally swap the interest rate from a fixed to a variable
rate.

Interest rates on fixed-rate notes ranged from 5.06% to 12.43%, and effective
interest rates on variable-rate notes ranged from 0.03% to 4.50% above the
London Interbank Offered Rate (LIBOR).

Sales and other operating revenues included interest income associated with
notes receivable and sales-type/financing leases of $205, $217 and $195 for
1998, 1997 and 1996, respectively.

Financing for aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing such
collateral. The operating lease aircraft category includes new and used jet and
commuter aircraft, spare engines and spare parts.

The valuation allowance is subject to change depending on estimates of
collectability and realizability of the customer financing balances.







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Note 9
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at December 31 consisted of the following:

1998 1997
- ------------------------------------------------------------------------------
Land $ 499 $ 530
Buildings 8,244 8,133
Machinery and equipment 10,521 9,940
Construction in progress 977 691
- ------------------------------------------------------------------------------
20,241 19,294
Less accumulated depreciation (11,652) (10,903)
- ------------------------------------------------------------------------------
$ 8,589 $ 8,391
==============================================================================

Depreciation expense was $1,386, $1,266 and $1,132 for 1998, 1997 and 1996,
respectively. Interest capitalized as construction-period property, plant and
equipment costs amounted to $45, $28 and $28 in 1998, 1997 and 1996,
respectively.

Rental expense for leased properties was $349, $308 and $242 for 1998, 1997 and
1996, respectively. These expenses, substantially all minimum rentals, are net
of sublease income. Minimum rental payments under operating leases with initial
or remaining terms of one year or more aggregated $737 at December 31, 1998.
Payments, net of sublease amounts, due during the next five years are as
follows:

1999 2000 2001 2002 2003
----------------------------------------
$192 $148 $100 $78 $66
========================================

Note 10
Goodwill
- --------
As of December 31, goodwill associated with the December 1996 acquisition of
Rockwell's aerospace and defense business units consisted of the following:

1998 1997
- ------------------------------------------------------------------------------
Goodwill $2,486 $2,486
Less cumulative amortization (174) (91)
- ------------------------------------------------------------------------------
$2,312 $2,395
==============================================================================










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Note 11
Income Taxes
- ------------
The provision for taxes on income consisted of the following:

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
U.S. Federal
Taxes paid or
currently payable $ 370 $ 103 $689
Change in deferred taxes (124) (253) (78)
- ------------------------------------------------------------------------------
246 (150) 611
State
Taxes paid or
currently payable 33 9 57
Change in deferred taxes (2) (22) (6)
- ------------------------------------------------------------------------------
31 (13) 51
- ------------------------------------------------------------------------------
Income tax
provision (benefit) $ 277 $(163) $662
==============================================================================

The following is a reconciliation of the income tax provision (benefit)
computed by applying the U.S. federal statutory rate of 35 percent to the
recorded income tax provision:

1998 1997 1996
- ------------------------------------------------------------------------------
U.S. federal statutory tax $ 489 $(119) $ 868
Foreign Sales Corporation
tax benefit (130) (79) (110)
Research benefit (70) (8) (4)
Prior years' research
benefit settlement (57)
Prior years' investment
tax credit (95)
Prior years' tax adjustment (8) (23) (30)
Nondeductibility of
goodwill and merger costs 31 71 2
State income tax provision,
net of effect on
U.S. federal tax 31 (9) 31
Other provision adjustments (9) 4
- ------------------------------------------------------------------------------
Income tax
provision (benefit) $ 277 $(163) $ 662
==============================================================================









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The deferred tax assets, net of deferred tax liabilities, resulted from
temporary tax differences associated with the following:

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
Inventory and long-term
contract methods
of income recognition $ 800 $ 1,186 $ 999
Pension benefit accruals (1,179) (1,152) (1,026)
Retiree health care accruals 1,771 1,806 1,712
Other employee
benefits accruals 415 318 339
Customer and
commercial financing 99 (378) (519)
- ------------------------------------------------------------------------------
Net deferred tax assets $ 1,906 $ 1,780 $ 1,505
==============================================================================

The temporary tax differences associated with inventory and long-term contract
methods of income recognition encompass related costing differences, including
timing and depreciation differences.

Valuation allowances were not required due to the nature of and circumstances
associated with the temporary tax differences.

Income taxes have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and IRS examinations have been completed through 1987. In
connection with these examinations, the Company disagrees with IRS proposed
adjustments, and the years 1979 through 1987 are in litigation. The Company has
also filed refund claims for additional research and development tax credits,
primarily in relation to its fixed-price government development programs.
Successful resolutions will result in increased income to the Company.

In December 1996, The Boeing Company filed suit in the U.S. District Court for
the Western District of Washington for the refund of over $400 in federal
income taxes and related interest. The suit challenged the IRS method of
allocating research and development costs for the purpose of determining tax
incentive benefits on export sales through the Company's Domestic International
Sales Corporation (DISC) and its Foreign Sales Corporation (FSC) for the years
1979 through 1987. In September 1998, the District Court granted the Company's
motion for summary judgment. The U.S. Department of Justice has appealed this
decision. If the Company were to prevail, the refund would include interest
computed to the payment date. The issue could affect tax computations for
subsequent years; however, the financial impact would depend on the final
resolution of audits for these years.

The Company believes adequate provision has been made for all open years.

Income tax payments were $85, $219 and $648 in 1998, 1997 and 1996,
respectively.








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Note 12
Accounts Payable and Other Liabilities
- --------------------------------------
Accounts payable and other liabilities at December 31 consisted of the
following:

1998 1997
- ------------------------------------------------------------------------------
Accounts payable $ 5,263 $ 5,609
Accrued compensation and
employee benefit costs 2,326 2,154
Lease and other deposits 539 819
Other 2,605 2,966
- ------------------------------------------------------------------------------
$10,733 $11,548
==============================================================================

Note 13
Debt
- ----
Debt at December 31 consisted of the following:
1998 1997
- ------------------------------------------------------------------------------
Unsecured debentures and notes:
7 5/8% due Feb. 17, 1998 $ - $ 301
8 7/8% due Sep. 15, 1999 304 311
8.25% due Jul. 1, 2000 200 200
8 3/8% due Feb. 15, 2001 180 182
7.565% due Mar. 30, 2002 54
9.25% due Apr. 1, 2002 120 120
6 3/4% due Sep. 15, 2002 298 297
6.35% due Jun. 15, 2003 299 299
7 7/8% due Feb. 15, 2005 208 209
6 5/8% due Jun. 1, 2005 292 291
6.875% due Nov. 1, 2006 248 248
8 1/10% due Nov. 15, 2006 175 175
9.75% due Apr. 1, 2012 348 348
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
6 5/8% due Feb. 15, 2038 300
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Senior debt securities
6.0% - 9.4%, due through 2011 55 148
Senior medium-term notes,
5.5% - 13.6%, due through 2017 1,320 1,129
Subordinated medium-term notes,
5.5% - 8.3%, due through 2004 55 70
Capital lease obligations,
due through 2008 433 500
Other notes 319 262
- ------------------------------------------------------------------------------
$6,972 $6,854
==============================================================================
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The $300 debentures due August 15, 2024, are redeemable at the holder's option
on August 15, 2012. All other debentures and notes are not redeemable prior
to maturity. Maturities of long-term debt for the next five years are as
follows:
1999 2000 2001 2002 2003
----------------------------------------
$650 $429 $442 $684 $519
========================================

The Company has $2,400 currently available under credit line agreements with a
group of commercial banks. The Company has complied with the restrictive
covenants contained in various debt agreements.

During the fourth quarter of 1997, Boeing Capital Corporation (BCC), a
corporation wholly owned by the Company, filed a shelf registration statement
with the Securities and Exchange Commission for up to $1,200 aggregate
principal amount of debt securities. As of December 31, 1998, $571 has been
drawn on this shelf registration. In addition, BCC has $240 available but
unused under a credit line agreement with a group of commercial banks. At
December 31, 1998 and 1997, borrowings under commercial paper and uncommitted
short-term bank facilities totaling $172 and $98 were supported by available
unused commitments under the revolving credit agreement. Total consolidated
debt attributable to BCC amounted to $1,971 and $1,798 as of December 31, 1998
and 1997.

The $100 notes due August 15, 2042, with a stated rate of 7.50% were issued to
a private investor in connection with an interest rate swap arrangement that
resulted in an effective synthetic rate of 7.865%. The swap arrangement
results in semi-annual interest rate payments at LIBOR, and is scheduled to
settle when the underlying note matures. Additionally, BCC has interest rate
swaps totaling $350 relating to capital lease obligations and $80 relating to
medium-term notes. The swaps attributable to capital lease obligations have a
receive rate that is floating based on LIBOR, and a pay rate that is fixed. Of
the swaps attributable to medium-term notes, $50 have a receive rate that is
fixed, and a pay rate that is floating based on LIBOR; and $30 have a receive
rate that is floating based on LIBOR, and a pay rate that is fixed. Interest
rate swaps on these capital lease obligations and medium-term notes are
settled on the same dates interest is due on the underlying obligations.

BCC has available approximately $60 in uncommitted, short-term bank credit
facilities whereby the Company may borrow, at interest rates which are
negotiated at the time of the borrowings, upon such terms as the Company and
the banks may mutually agree. At December 31, 1998 and 1997, borrowings on
these credit facilities totaled $50 and $18.

Total debt interest, including amounts capitalized, was $520, $573 and $450 for
the years ended December 31, 1998, 1997 and 1996, and interest payments were
$514, $588 and $436, respectively.

Note 14
Postretirement Plans
- --------------------
The following table reconciles the funded status of both pensions and other
postretirement benefits (OPB), principally retiree health care, to the balance
on the Consolidated Statements of Financial Position. Plan assets consist
primarily of equities, fixed income obligations and cash equivalents. Boeing


77
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stock represents less than 1% of the fair value of plan assets. The pension
benefit obligations and plan assets shown in the table are valued as of
September 30.

Other
Pensions Postretirement Benefits
-------------- -----------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------
Benefit obligation
Beginning balance $25,845 $24,212 $ 4,008 $ 3,742
Service cost 573 506 81 86
Interest cost 1,793 1,727 271 274
Plan participants'
contributions 1 1
Amendments 489 4
Actuarial loss 1,862 815 330 143
Benefits paid (1,676) (1,420) (272) (237)
- ------------------------------------------------------------------------------
Ending balance $28,887 $25,845 $ 4,418 $ 4,008
==============================================================================
Plan assets - fair value
Beginning balance $33,119 $28,259
Actual return on plan assets 1,146 5,932
Company contributions 18 345
Plan participants'
contributions 1 1
Benefits paid (1,659) (1,409)
Exchange rate adjustment (16) (9)
- ------------------------------------------------------------------------------
Ending balance $32,609 $33,119
==============================================================================
Reconciliation of funded status
to net amount recognized
Funded status - plan assets
in excess of (less than)
benefit obligation $ 3,722 $ 7,274 $(4,418) $(4,008)
Unrecognized net actuarial gain (1,699) (4,938) (21) (352)
Unrecognized prior service costs 1,491 1,066 (392) (436)
Unrecognized net transition asset (241) (331)
- ------------------------------------------------------------------------------
Net amount recognized $ 3,273 $ 3,071 $(4,831) $(4,796)
==============================================================================
Amount recognized in statement
of financial position
Prepaid benefit cost $ 3,513 $ 3,271
Intangible asset 105
Accumulated other
comprehensive income 37
Accrued benefit liability (382) (200) $(4,831) $(4,796)
- ------------------------------------------------------------------------------
Net amount recognized $3,273 $3,071 $ (4,831) $(4,796)
==============================================================================





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Components of net periodic benefit costs and other
supplemental information were as follows:

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
Components of net periodic
benefit cost - Pensions
Service cost $ 573 $ 506 $ 429
Interest cost 1,793 1,727 1,161
Expected return on plan assets (2,507) (2,163) (1,397)
Amortization of transition asset (86) (86)
Amortization of prior service cost 101 101
Recognized net actuarial loss (gain) 5 (20) 2
- ------------------------------------------------------------------------------
Net periodic benefit cost (income) $ (121) $ 65 $ 195
==============================================================================

Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
Components of net periodic
benefit cost - OPB
Service cost $ 81 $ 86 $ 97
Interest cost 271 274 219
Amortization of prior service cost (45) (45) (45)
Recognized net actuarial loss (gain) (16) (22) 17
- ------------------------------------------------------------------------------
Net periodic benefit cost $ 291 $ 293 $ 288
==============================================================================

Weighted average assumptions
as of December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
Discount rate:
pensions and OPB 6.50% 7.00% 7.36%
Expected return on
plan assets 8.75% 8.33% 8.46%
Rate of compensation
increase 4.50% 5.00% 5.07%

Effect of 1% change in
assumed health care costs 1998 1997 1996
- ------------------------------------------------------------------------------
Effect on total of service
and interest cost
1% increase $ 44 $ 43 $ 41
1% decrease (39) (38) (36)
Effect on postretirement
benefit obligation
1% increase 452 410 377
1% decrease (406) (368) (336)

The Company has various noncontributory plans covering substantially all
employees. All major pension plans are funded and have plan assets that exceed
accumulated benefit obligations.

Certain of the pension plans provide that, in the event there is a change in
control of the Company which is not approved by the Board of Directors and the

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plans are terminated within five years thereafter, the assets in the plans
first will be used to provide the level of retirement benefits required by the
Employee Retirement Income Security Act, and then any surplus will be used to
fund a trust to continue present and future payments under the postretirement
medical and life insurance benefits in the Company's group insurance programs.

The Company has an agreement with the Government with respect to certain of the
Company pension plans. Under the agreement, should the Company terminate any of
the plans under conditions in which the plan's assets exceed that plan's
obligations, the Government will be entitled to a fair allocation of any of the
plan's assets based on plan contributions that were reimbursed under Government
contracts. Also, the Revenue Reconciliation Act of 1990 imposes a 20%
nondeductible excise tax on the gross assets reverted if the Company
establishes a qualified replacement plan or amends the terminating plan to
provide for benefit increases; otherwise, a 50% tax is applied. Any net amount
retained by the Company is treated as taxable income.

Effective January 1, 1999, two new pension plans were created for the salaried,
non-represented employees of pre-merger Boeing and McDonnell Douglas. Assets
and liabilities associated with benefits earned through 1998 were transferred
to the new plans, which provide substantially the same benefit levels as the
prior plans. The change in projected benefit obligations as a result of
establishing the two plans is $420, which is reflected in the "amendments" line
in the table above that reconciles the benefit obligation balance.

The Company has certain unfunded and partially funded plans with a projected
benefit obligation of $688 and $387; plan assets of $243 and $56; and
unrecognized prior services costs and actuarial losses of $240 and $131 as of
December 31, 1998 and 1997. The net provision for these plans was $52 and $49
for 1998 and 1997.

The principal defined contribution plans are the Company-sponsored 401(k) plans
and a funded plan for unused sick leave. The provision for these defined
contribution plans in 1998, 1997 and 1996 was $417, $361 and $287, respectively.

The Company's postretirement benefits other than pensions consist principally
of health care coverage for eligible retirees and qualifying dependents and, to
a lesser extent, life insurance for certain groups of retirees. Retiree health
care is provided principally until age 65 for approximately half those retirees
who are eligible for health care coverage. Certain employee groups, including
employees covered by most United Auto Workers bargaining agreements, are
provided lifetime health care coverage.

Benefit costs were calculated based on assumed cost growth for retiree health
care costs of a 6.9% annual rate for 1998, decreasing to a 4.5% annual growth
rate by 2010.

Note 15
Shareholders' Equity
- --------------------
In August 1998, the Board of Directors approved a resolution authorizing
management to repurchase up to 15% of the Company's issued and outstanding
stock as of June 30, 1998 (excluding shares held by the ShareValue Trust),
which would amount to 145,899,000 shares. As of December 31, 1998, 35,195,000
shares had been repurchased pursuant to this resolution.

Twenty million shares of authorized preferred stock remain unissued.

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Note 16
Share-Based Plans
- -----------------
The Share-based plans expense caption on the Consolidated Statements of
Operations represents the total expense recognized for all company plans that
are payable only in stock. These plans are described below.

In 1998 the Company adopted the expense recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Had the Company not adopted SFAS No. 123, 1998 net earnings would
have been $1,229, and basic and diluted earnings per share would have been
$1.27 and $1.26. The following table compares 1997 and 1996 results as
reported to the results had the Company adopted the expense recognition
provision of SFAS No. 123:
1997 1996
- ------------------------------------------------------------------------------
Net earnings (loss)
As reported $(178) $1,818
Pro forma under SFAS No. 123 (332) 1,852
- ------------------------------------------------------------------------------
Basic earnings (loss) per share
As reported $(.18) $ 1.88
Pro forma under SFAS No. 123 (.34) 1.91
- ------------------------------------------------------------------------------
Diluted earnings (loss) per share
As reported $(.18) $ 1.85
Pro forma under SFAS No. 123 (.34) 1.89
- ------------------------------------------------------------------------------

Performance Shares
Performance Shares are stock units that are convertible to common stock
contingent upon stock price performance. If, at any time up to five years after
award, the stock price reaches and maintains a price equal to 161.0% of the
stock price at the date of the award (representing a growth rate of 10%
compounded annually for five years), 25% of the Performance Shares awarded are
convertible to common stock. Likewise, at stock prices equal to 168.5%, 176.2%,
182.4%, 192.5% and 201.1% of the stock price at the date of award, the
cumulative portion of awarded Performance Shares convertible to common stock
are 40%, 55%, 75%, 100% and 125%, respectively. Performance Shares awards not
converted to common stock expire five years after the date of the award;
however, the Compensation Committee of the Board of Directors may, in its
discretion, allow vesting of up to 100% of the target Performance Shares if the
Company's total shareholder return (stock price appreciation plus dividends)
during the five-year performance period exceeds the average total shareholder
return of the S&P 500 over the same period.

As of December 31, 1998, the following number of Performance Shares were
outstanding: 3,586,268 at an issue price of $50 11/16 and an expiration date of
February 23, 2003; and 45,771 at an issue price of $33 9/16 and an expiration
date of December 14, 2003. The Company recognized a share-based expense of $38
in 1998 attributable to Performance Shares.

Other stock unit awards
The total number of stock unit awards that are convertible only to common stock
and not contingent upon stock price were 1,161,652, 301,631 and 376,628 as of
December 31, 1998, 1997 and 1996, respectively.

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ShareValue Trust
The ShareValue Trust, established effective July 1, 1996, is a 14-year
irrevocable trust that holds Boeing common stock, receives dividends, and
distributes to employees appreciation in value above a 3% per annum threshold
rate of return. As of December 31, 1998, the Trust had acquired 26,025,460
shares of the Company's common stock, equivalent to $1,150 of market value
based upon the average price per share on June 28, 1996, which was $44 3/16,
plus 11,253,197 shares of stock, equivalent to $550 of market value based upon
the average price per share on January 1, 1998, which was $48 7/8. The Trust
has additionally acquired 887,944 shares representing reinvested dividends, net
of shares used to pay the nominal administrative costs borne by the Trust.

Two investment periods began on July 1, 1996. One period was established with a
duration of two years through June 30, 1998, and the other with a duration of
four years through June 30, 2000. Each period was allocated one-half of the
total shares. At the end of each initial investment period, a new four-year
investment period will begin, resulting in overlapping periods with potential
distributions every two years. The Trust fund market value after distribution
will be the base from which the distributable market value appreciation over
the threshold for the succeeding investment period will be determined. On June
30, 1998, the first investment period of the Trust ended with a fund
appreciation insufficient to generate a distribution to employees.

The ShareValue Trust is accounted for as a contra-equity account and stated at
market value. Market value adjustments are offset to additional paid-in capital.
The Company recognized a share-based expense of $72, $(99) and $133 for the
years 1998, 1997 and 1996, respectively, attributable to the ShareValue Program.
The 1998 ShareValue Trust expense was calculated under the provisions of SFAS
No. 123.

Stock options
The Company's 1997 Incentive Stock Plan permits the grant of stock options,
stock appreciation rights (SARs) and restricted stock awards (denominated in
stock or stock units) to any employee of the Company or its subsidiaries. Under
the terms of the plan, 30,000,000 shares are authorized for issuance upon
exercise of options, as payment of SARs and as restricted stock awards, of
which no more than an aggregate of 6,000,000 shares are available for issuance
as restricted stock awards and no more than an aggregate of 3,000,000 shares
are available for issuance as restricted stock that is subject to restrictions
based on continuous employment for less than three years. This authorization
for issuance under the 1997 plan will terminate on April 30, 2007. As of
December 31, 1998, no SARs have been granted under the 1997 plan. The 1993
Incentive Stock Plan permitted the grant of options, SARs and stock to
employees of the Company or its subsidiaries. The 1988 and 1984 stock option
plans permitted the grant of options or SARs to officers or other key employees
of the Company or its subsidiaries. No further grants may be awarded under
these three plans.

Options and SARs have been granted with an exercise price equal to the fair
market value of the Company's stock on the date of grant and expire ten years
after the grant date. Vesting is generally over a five-year period, with
portions of a grant becoming exercisable at one year, three years and five
years after the grant date. SARs, which have been granted only under the 1988
and 1984 plans, were granted in tandem with stock options; therefore, exercise
of the SAR cancels the related option and exercise of the option cancels the
attached SAR.


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In 1994, McDonnell Douglas shareholders approved the 1994 Performance Equity
Incentive Plan. Restricted stock issued under this plan prior to 1997 vested
upon the merger between McDonnell Douglas and The Boeing Company. As of
December 31, 1998, a total of 594,000 shares had been granted, and 454,285
remain restricted. Substantially all compensation relating to these restricted
shares is being amortized to expense over a period of six years. Unearned
compensation is reflected as a component of shareholders' equity.

Information concerning stock options issued to directors, officers and other
employees is presented in the following table.

1998 1997 1996
-----------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------
Number of shares
under option:
Outstanding at
beginning of year 27,705 $32.36 26,525 $25.47 28,754 $20.19
Granted 3,772 52.72 6,320 53.16 6,692 40.32
Exercised (2,493) 20.77 (4,502) 21.77 (8,356) 19.34
Canceled or expired (255) 46.35 (223) 47.84 (233) 35.92
Exercised as SARs (76) 19.27 (415) 15.21 (332) 13.70
------ ------ ------
Outstanding at
end of year 28,653 36.03 27,705 32.36 26,525 25.47
==============================================================================
Exercisable at
end of year 15,577 $29.57 12,277 $24.09 12,412 $20.13
==============================================================================

As of December 31, 1998, 21,681,000 shares were available for grant under the
1997 Incentive Stock Plan, and 9,548,000 shares were available for grant under
the Incentive Compensation Plan.

The following table summarizes information about stock options outstanding at
December 31, 1998 (shares in thousands).

Options Outstanding
------------------------------------------
Weighted
Average Weighted
Remaining Average
Range of Contractual Exercise
Exercise Prices Shares Life (years) Price
- ------------------------------------------------------------------------------
$10 to $19 4,315 4.5 $16.35
$20 to $29 8,480 5.0 23.32
$30 to $39 1,779 7.1 38.44
$40 to $49 4,598 7.4 41.25
$50 to $59 9,481 8.7 53.37
- ------------------------------------------------------------------------------
28,653
==============================================================================

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Options Exercisable
----------------------
Weighted
Average
Range of Exercise
Exercise Prices Shares Price
- ------------------------------------------------------------------------------
$10 to $19 3,847 $16.61
$20 to $29 6,673 23.29
$30 to $39 101 37.68
$40 to $49 2,148 41.04
$50 to $59 2,808 53.18
- ------------------------------------------------------------------------------
15,577
==============================================================================

The Company has determined the weighted average fair values of stock-based
arrangements granted, including the ShareValue Trust, during 1998, 1997 and
1996 to be $19.99, $20.67 and $8.39, respectively. The fair values of stock-
based compensation awards granted and of potential distributions under the
ShareValue Trust arrangement were estimated using a binomial option-pricing
model with the following assumptions.

Expected
Grant ---------------------------
Date Option Term Volatility
- ------------------------------------------------------------------------------
1998 4/13/98 9 years 20%
- ------------------------------------------------------------------------------
1997 1/13/97 9 years 19%
2/24/97 9 years 19%
- ------------------------------------------------------------------------------
1996 1/11/96 5 years 17%
7/1/96 2 years 17%
7/1/96 4 years 17%
2/26/96 9 years 21%
==============================================================================

Grant Expected Risk-Free
Date Dividend Yield Interest Rate
- ------------------------------------------------------------------------------
1998 4/13/98 1.1% 5.9%
- ------------------------------------------------------------------------------
1997 1/13/97 1.1% 6.6%
2/24/97 1.1% 6.6%
- ------------------------------------------------------------------------------
1996 1/11/96 1.3% 5.3%
7/1/96 - 6.3%
7/1/96 - 6.3%
2/26/96 1.2% 6.0%
==============================================================================

The Company recognized a share-based expense of $31 in 1998 attributable to
stock options with an offset to additional paid-in capital, and recognized no
expense in 1997 and 1996.



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85
Note 17
Derivative Financial Instruments
- --------------------------------
The derivative financial instruments held by the Company at December 31, 1998,
consisted of simple and specifically tailored interest rate swaps and foreign
currency forward contracts. The Company does not trade in derivatives for
speculative purposes.

The interest rate swaps, which are associated with certain customer financing
receivables and long-term debt, are designed to achieve a desired balance of
fixed and variable rate positions. These swaps are accounted for as integral
components of the associated receivable and debt, with interest accrued and
recognized based upon the effective rates. Due to the component nature of these
interest rate swaps, there are no associated gains or losses. (See Note 8, Note
13 and Note 20.)

Foreign currency forward contracts are entered into to hedge specific receipt
and expenditure commitments made in foreign currencies. As of December 31, 1998,
the notional amount of foreign currency forward contracts through 2002
denominated in foreign currencies was $395, with unrealized gains, net of
unrealized losses, of $2.

The Company believes that there is no significant credit risk associated with
the potential failure of any counterparty to perform under the terms of
derivative financial instruments.

Note 18
Financial Instruments with Off-Balance-Sheet Risk
- -------------------------------------------------
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business, principally relating to customer financing
activities. Financial instruments with off-balance-sheet risk include financing
commitments, credit guarantees, and participation in customer financing
receivables with third-party investors that involve interest rate terms
different from the underlying receivables.

Irrevocable financing commitments related to aircraft on order, including
options, scheduled for delivery through 2004 totaled $6,239 and $6,029 as of
December 31, 1998 and 1997. The Company anticipates that not all of these
commitments will be used and that it will be able to arrange for third-party
investors to assume a portion of the remaining commitments, if necessary. The
Company has additional commitments to arrange for commercial equipment
financing totaling $163 and $132 as of December 31, 1998 and 1997.

Participations in customer financing receivables with third-party investors
that involve interest rate terms different from the underlying receivables
totaled $62 and $64 as of December 31, 1998 and 1997.

The Company's maximum exposure to credit-related losses associated with credit
guarantees, without regard to collateral, totaled $1,426 ($730 associated with
commercial aircraft and collateralized) and $955 ($660 associated with
commercial aircraft and collateralized) as of December 31, 1998 and 1997.

The Company's maximum exposure to losses associated with asset value guarantees,
without regard to collateral, totaled $444 and $470 as of December 31, 1998 and
1997. These asset value guarantees relate to commercial aircraft and are
collateralized.

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86
Note 19
Significant Group Concentrations of Credit Risk
- -----------------------------------------------
Financial instruments involving potential credit risk are predominantly with
commercial airline customers and the U.S. Government. As of December 31, 1998,
off-balance-sheet financial instruments described in Note 18 predominantly
related to commercial aircraft customers. Of the $8,999 in accounts receivable
and customer financing included in the Consolidated Statements of Financial
Position, $4,871 related to commercial aircraft customers and $2,058 related to
the U.S. Government. No single commercial airline customer is associated with
more than 17% of all financial instruments relating to customer financing.
Financing for aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing such
collateral.

Of the $4,871 of commercial accounts receivable and aircraft customer financing,
$3,511 related to customers the Company believes have less than investment-
grade credit. Similarly, of the $6,239 of irrevocable financing commitments
related to aircraft on order including options, $4,067 related to customers the
Company believes have less than investment-grade credit.

The Company has customer financing and commitments to arrange for future
financing with Trans World Airlines (TWA) totaling $2,363. TWA continues to
operate under a reorganization plan, confirmed by the U.S. Bankruptcy Court in
1995, which restructured its indebtedness and leasehold obligations to its
creditors. In addition, TWA continues to face financial and operational
challenges. Further deterioration of TWA's financial condition could adversely
affect the performance of customer financing extended to TWA; however, based on
the Company's assessment of the underlying collateral position held by the
Company, possible future non-performance of financing currently extended to TWA
would not have a material adverse impact on the Company's liquidity or results
of operations.

Note 20
Disclosures about Fair Value of Financial Instruments
- -----------------------------------------------------
As of December 31, 1998 and 1997, the carrying amount of accounts receivable
was $3,288 and $3,121, and the fair value of accounts receivable was estimated
to be $3,239 and $3,033. The lower fair value reflects a discount due to
deferred collection for certain receivables that will be collected over an
extended period. The carrying value of accounts payable is estimated to
approximate fair value.

The carrying amount of notes receivable, net of valuation allowance, is
estimated to approximate fair value. Although there are generally no quoted
market prices available for customer financing notes receivable, the valuation
assessments were based on the respective interest rates, risk-related rate
spreads and collateral considerations.

As of December 31, 1998 and 1997, the carrying amount of debt, net of capital
leases, was $6,539 and $6,354, and the fair value of debt, based on current
market rates for debt of the same risk and maturities, was estimated at $7,198
and $6,996. The Company's debt, however, is generally not callable until
maturity.

With regard to financial instruments with off-balance-sheet risk, it is not
practicable to estimate the fair value of future financing commitments, and all

86
87
other off-balance-sheet financial instruments are estimated to have only a
nominal fair value. The terms and conditions reflected in the outstanding
guarantees and commitments for financing assistance are not materially
different from those that would have been negotiated as of December 31, 1998.

Note 21
Contingencies
- -------------
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
legal proceedings are related to matters covered by insurance. Major
contingencies are discussed below.

The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations since the
1980s.

The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation
of contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures
related to environmental remediation sites based on conservative estimates of
investigation, cleanup and monitoring costs to be incurred.

The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to the
Company's financial position. With respect to results of operations, related
charges have averaged less than 2% of annual net earnings exclusive of special
charges. Such accruals as of December 31, 1998, without consideration for the
related contingent recoveries from insurance carriers, are less than 2% of
total liabilities.

Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for
identified contaminated sites. However, based on all known facts and expert
analyses, the Company believes it is not reasonably likely that identified
environmental contingencies will result in additional costs that would have a
material adverse impact to the Company's financial position or operating
results and cash flow trends.

The Company is subject to U.S. Government investigations of its practices from
which civil, criminal or administrative proceedings could result. Such
proceedings could involve claims by the Government for fines, penalties,
compensatory and treble damages, restitution and/or forfeitures. Under
government regulations, a company, or one or more of its operating divisions or
subdivisions, can also be suspended or debarred from government contracts, or
lose its export privileges, based on the results of investigations. The Company
believes, based upon all available information, that the outcome of any such
government disputes and investigations will not have a material adverse effect
on its financial position or continuing operations.


87
88
In 1991 the U.S. Navy notified the Company and General Dynamics Corporation
(the Team) that it was terminating for default the Team's contract for
development and initial production of the A-12 aircraft. The Team filed a legal
action to contest the Navy's default termination, to assert its rights to
convert the termination to one for "the convenience of the Government," and to
obtain payment for work done and costs incurred on the A-12 contract but not
paid to date. At December 31, 1998, inventories included approximately $581 of
recorded costs on the A-12 contract, against which the Company has established
a loss provision of $350. The amount of the provision, which was established in
1990, was based on the Company's belief, supported by an opinion of outside
counsel, that the termination for default would be converted to a termination
for convenience, that the Team would establish a claim for contract adjustments
for a minimum of $250, that there was a range of reasonably possible results on
termination for convenience, and that it was prudent to provide for what the
Company then believed was the upper range of possible loss on termination for
convenience, which was $350.

On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the court
issued an opinion confirming its prior no-loss adjustment and no-profit
recovery order. On December 5, 1997, the Court issued an opinion confirming its
preliminary holding that plaintiffs were entitled to certain adjustments to the
contract funding, increasing the plaintiffs' possible recovery to $1,200. On
March 31, 1998, the Court entered a judgment, pursuant to a March 30, 1998,
opinion and order, determining that plaintiffs were entitled to be paid that
amount, plus statutory interest from June 26, 1991, until paid.

Although the Government has appealed the resulting judgment, the Company
believes the judgment will be sustained. Final resolution of the A-12
litigation will depend on such appeals and possible further litigation, or
negotiations, with the Government. If sustained, however, the expected damages
judgment, including interest, could result in pretax income that would more
than offset the $350 loss provision established in 1990.

On October 31, 1997, a federal securities lawsuit was filed against the Company
in the U.S. District Court for the Western District of Washington in Seattle.
The lawsuit named as defendants the Company and three of its executive officers.
Additional lawsuits of a similar nature have been filed. The plaintiffs in each
lawsuit seek to represent a class of purchasers of Boeing stock between July 21,
1997, and October 22, 1997, (the "Class Period"), including recipients of
Boeing stock in the McDonnell Douglas merger. July 21, 1997, was the date on
which the Company announced its second quarter results, and October 22, 1997,
was the date on which the Company announced charges to earnings associated with
production problems being experienced on commercial aircraft programs. The
lawsuits generally allege that the defendants desired to keep the Company's
share price as high as possible in order to ensure that the McDonnell Douglas
shareholders would approve the merger and, in the case of two of the individual
defendants, to benefit directly from the sale of Boeing stock during the Class
Period. The plaintiffs seek compensatory damages and treble damages. The
Company believes that the allegations are without merit and that the outcome of
these lawsuits will not have a material adverse effect on its earnings, cash
flow or financial position.

On June 6, 1998, sixteen African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint

88
89
in the U.S. District Court for the Western District of Washington (Washington
Class Action) alleging, on the basis of race, discrimination in promotions and
training. The plaintiffs also allege retaliation and harassment and seek, among
other things, an order certifying a class of all African American employees who
are currently working or have worked for the three companies during the past
few years. Also, on July 31, 1998, seven African American employees of the
helicopter division of the Military Aircraft and Missile Systems Group in
Philadelphia filed an action in the U.S. District Court for the Eastern
District of Pennsylvania (Philadelphia Class Action) alleging, on the basis of
race, discrimination in compensation, promotions and terminations. The
complaint also alleges retaliation at that division. Plaintiffs are seeking an
order certifying a class of all African American employees of The Boeing
Company. In September 1998, the Court denied plaintiffs' motion seeking class
certification, but allowed plaintiffs to renew their motion upon completion of
class discovery.

On January 25, 1999, the U.S. District Court in the Western District of
Washington entered an order preliminarily approving a proposed Consent Decree,
which settles both the Washington Class Action and the Philadelphia Class
Action, along with a multi-plaintiff racial discrimination lawsuit. The order,
inter alia, conditionally certified a nationwide class of 20,000 current and
former African American Boeing (including all U.S. subsidiaries and former
McDonnell Douglas Corporation and Rockwell International) employees. If
approved by the Court, the Company will pay $15 allocated in a manner described
in the proposed Consent Decree. The Company will devise systems changes that
will inform hourly employee class members about the promotion selection process,
and which employee was awarded a certain promotion; provide training and other
programs to assist employees with career development; employ a consultant to
assess these system changes; implement across the system a revised first-level
management selection process and revised internal complaint process; and
implement enforcement procedures to maintain a harassment-free workplace.

A hearing is set for May 26, 1999, to determine the fairness of the proposed
Consent Decree, and if so determined, for the Court to approve the Consent
Decree. The Company believes that the proposed Consent Decree, if approved,
will not have a materially adverse effect on its earnings, cash flow or
financial position.

Note 22
Segment Information
- -------------------
Segment information may be found on pages 52 - 56.
















89
90
THE BOEING COMPANY AND SUBSIDIARIES

QUARTERLY FINANCIAL DATA (UNAUDITED)



(Dollars in millions except per share data)

1998 1997
-----------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
===============================================================================
Sales and other
operating
revenues $17,099 $12,721 $13,389 $12,945 $11,727 $11,371 $12,343 $10,359

Earnings from
operations 602 430 416 119 (782) (1,019) 707 838

Net earnings 465 347 258 50 (498) (696) 476 540

Basic earnings
per share .49 .36 .26 .05 (.51) (.72) .49 .56

Diluted earnings
per share .48 .36 .26 .05 (.51) (.72) .48 .55
- -------------------------------------------------------------------------------

Cash dividends
per share .14 .14 .14 .14 .14 .14 .14 .14
- -------------------------------------------------------------------------------

Market price:
High 44.00 50.13 56.25 54.75 55.25 60.50 58.00 57.25
Low 29.50 30.38 42.13 42.81 43.00 51.31 47.00 49.31
Quarter end 32.63 34.31 44.56 52.13 48.94 54.44 53.06 49.31
===============================================================================





















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THE BOEING COMPANY AND SUBSIDIARIES

FIVE-YEAR SUMMARY

(Dollars in millions except per share data)

1998 1997 1996 1995 1994
==============================================================================
Operations
Sales and other operating revenues
Commercial Airplanes $35,545 $26,929 $19,916 $17,511 $19,778
Military Aircraft and Missiles 12,990
Space and Communications 6,889
-------
Information, Space and Defense
Systems 19,879 18,125 14,934 14,849 14,676
Customer and Commercial
Financing/Other 730 746 603 600 515
- ------------------------------------------------------------------------------
Total $56,154 $45,800 $35,453 $32,960 $34,969
- ------------------------------------------------------------------------------
Net earnings (loss) $ 1,120 $ (178) $ 1,818 $ (36) $ 1,483
Basic earnings
(loss) per share (a) 1.16 (.18) 1.88 (.04) 1.50
Diluted earnings
(loss) per share (a) 1.15 (.18) 1.85 (.04) 1.48
- ------------------------------------------------------------------------------
Net earnings excluding share-based
plans and special charges (b) $ 1,216 $ 632 $ 1,905 $ 1,479 $ 1,483
Diluted earnings per share (a) 1.25 .64 1.94 1.49 1.48
Percent of sales 2.2% 1.4% 5.4% 4.5% 4.2%
- ------------------------------------------------------------------------------
Cash dividends paid $ 564 $ 557 $ 480 $ 434 $ 395
Per share .56 .56 .55 .50 .50
- ------------------------------------------------------------------------------
Other income, principally interest 283 428 388 280 194
- ------------------------------------------------------------------------------
Research and development expense 1,895 1,924 1,633 1,674 2,076
General and administrative expense 1,993 2,187 1,819 1,794 1,776
- ------------------------------------------------------------------------------
Additions to plant and
equipment, net 1,584 1,391 971 747 883
Depreciation of plant and equipment 1,386 1,266 1,132 1,172 1,294
- ------------------------------------------------------------------------------
Employee salaries and wages 12,074 11,287 9,225 8,688 9,037
Year-end workforce 231,000 238,000 211,000 169,000 183,000
==============================================================================
Financial position at December 31
Total assets $36,672 $38,024 $37,880 $31,877 $32,259
Working capital 2,953 5,111 7,783 7,490 6,299
Net plant and equipment 8,589 8,391 8,266 7,927 8,399
- ------------------------------------------------------------------------------
Cash and short-term investments 2,462 5,149 6,352 4,527 3,064
Total debt 6,972 6,854 7,489 5,401 5,247
Customer and commercial
financing assets 5,711 4,600 3,888 4,212 5,408
- ------------------------------------------------------------------------------

91
92
THE BOEING COMPANY AND SUBSIDIARIES

FIVE-YEAR SUMMARY (Continued)

(Dollars in millions except per share data)

1998 1997 1996 1995 1994
==============================================================================
Shareholders' equity 12,316 12,953 13,502 12,527 13,173
Per share 13.13 13.31 13.96 12.80 13.37
Common shares outstanding
(in millions)(a) 937.9 973.5 967.2 978.6 985.3
==============================================================================
Contractual backlog
Commercial Airplanes $ 86,057 $ 93,788 $ 86,151 $73,715 $68,158
Military Aircraft and Missiles 17,007
Space and Communications 9,832
--------
Information, Space and Defense
Systems 26,839 27,852 28,022 21,773 18,798
- ------------------------------------------------------------------------------
Total $112,896 $121,640 $114,173 $95,488 $86,956
==============================================================================

Cash dividends have been paid on common stock every year since 1942.

(a) Computation excludes outstanding shares held by the ShareValue Trust.

(b) Special charges include $600 pretax special retirement charge and
$1,838 pretax charge associated with the MD-11 program in 1995, and
$1,400 pretax charge associated with Douglas products in 1997.



























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93
Market for Registrant's Common Equity and Related Stockholder Matters

THE BOEING COMPANY GENERAL OFFICES
The Boeing Company
7755 East Marginal Way South
Seattle, WA 98108
(206) 655-2121

TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
The transfer agent is responsible for shareholder records, issuance of stock
certificates, distribution of dividends and IRS Form 1099. Requests
concerning these or other related shareholder matters are most efficiently
answered by contacting:

BankBoston, N.A.
c/o EquiServe, L.P.
P.O. Box 8040
Boston, MA 02266-8040
(888) 777-0923 (toll-free for domestic U.S. callers)
(781) 575-3400 (call collect for non-U.S. callers)

Boeing shareholders can also obtain answers to frequently asked questions
(FAQ), such as transfer instructions, direct deposit of dividends, and terms
of the Dividend Reinvestment and Stock Purchase Plan through EquiServe's home
page at http://www.equiserve.com.

ANNUAL MEETING
The annual meeting of Boeing shareholders will be held at The Westin Los
Angeles Airport Hotel, 5400 West Century Boulevard, Los Angeles, California,
at 10:00 a.m. Pacific time on Monday, April 26, 1999. Formal notice of the
meeting, proxy statement, form of proxy, and annual report were mailed to
shareholders beginning March 19, 1999.

ELECTRONIC PROXY RECEIPT AND VOTING
Shareholders now have the option of voting their proxies by Internet or
telephone, instead of returning their proxy cards through the mail.
Instructions are in the proxy statement and attached to the proxy card for the
1999 annual meeting.

Registered shareholders can go to http://www.econsent.com/ba to sign up to
receive their annual report and proxy statement in an electronic format in the
future. Beneficial owners may contact the brokers or banks who hold their
stock to find out whether electronic receipt is available. If you choose
electronic receipt, you will not receive the paper form of the annual report
and proxy statement. Instead, you will receive notice by e-mail when the
materials are available on the Internet.

WRITTEN INQUIRIES MAY BE SENT TO:
Shareholder Services Investor Relations
Mail Code 13-08 Mail Code 10-16
The Boeing Company The Boeing Company
P.O. Box 3707 P.O. Box 3707
Seattle, WA 98124-2207 Seattle, WA 98124-2207





93
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COMPANY SHAREHOLDER SERVICES
Pre-recorded shareholder information and quarterly earnings data are available
toll-free from Boeing Shareholder Services at (800) 457-7723. You may also
speak to a Boeing Shareholder Services representative at (206) 655-1990
between 8:00 a.m. and 4:30 p.m. Pacific time.

TO REQUEST AN ANNUAL REPORT, PROXY STATEMENT, FORM 10-K, OR FORM 10-Q:
Data Shipping
The Boeing Company
Mail Code 3T-33
P.O. Box 3707
Seattle, WA 98124-2207
or call (425) 393-4964 or (800) 457-7723

BOEING ON THE WORLD WIDE WEB
The Boeing home page - http://www.boeing.com - is your entry point for
viewing the latest Company information about its products or for viewing
electronic versions of the annual report, proxy statement, Form 10-K, or
Form 10-Q.

DUPLICATE SHAREHOLDER ACCOUNTS
Registered shareholders with duplicate accounts may call our transfer
agent, EquiServe, for instructions on consolidating those accounts. The
Company recommends that registered shareholders always use the
same form of their names in all stock transactions to be handled in the same
account. Registered shareholders may also ask EquiServe to eliminate excess
mailings of annual reports going to shareholders in the same household.

CHANGE OF ADDRESS
For Boeing registered shareholders:
BankBoston, N.A.
c/o EquiServe L.P.
P.O. Box 8040
Boston, MA 02266-8040
or call (888) 777-0923
For Boeing beneficial owners:
Contact your brokerage firm or bank to give notice of your change of address.

STOCK EXCHANGES
The Company's common stock is traded principally on the New York Stock
Exchange; the trading symbol is BA. Boeing common stock is also listed on the
Amsterdam, Brussels, London, Swiss and Tokyo stock exchanges. Additionally,
the stock is traded, without being listed, on the Boston, Chicago, Cincinnati,
Pacific and Philadelphia exchanges.

GENERAL AUDITORS
Deloitte & Touche LLP
700 Fifth Avenue, Suite 4500
Seattle, Washington 98104-5044
(206) 292-1800

EQUAL OPPORTUNITY EMPLOYER
Boeing is an equal opportunity employer and seeks to attract and retain the
best-qualified people regardless of race, color, religion, national origin,
gender, sexual orientation, age, disability, or status as a disabled or
Vietnam Era Veteran.


94
95



THE BOEING COMPANY

EXECUTIVE LAYOFF BENEFITS PLAN

Includes Amendment No. 3













































October 1998




95
96



Table of Contents

Page
Introduction 1

Article 1 - Definitions 2
1.1 Affiliate or Subsidiary 2
1.2 Committee 2
1.3 Company 2
1.4 Compensation Committee 2
1.5 Effective Date 2
1.6 Employee 2
1.7 Equivalent Employment 2
1.8 Layoff Benefit 2
1.9 Layoff Event 3
1.10 Plan 3
1.11 Plan Year 3
1.12 Service 3

Article 2 - Eligibility and Layoff Event 4
2.1 Eligibility 4
2.2 Participating Groups 4
2.3 Layoff Event 4


Article 3 - Layoff Benefit 6
3.1 Layoff Benefit 6
3.2 Payment of Layoff Benefit 6
3.3 Death Benefit 7


Article 4 - Administration 8
4.1 Administration 8
4.2 Committee Liability 8
4.3 Claim Procedure 8

Article 5 - General Provisions 9
5.1 Plan Amendment and Termination 9
5.2 Funding 9
5.3 Benefit Plan Application 9
5.4 Provision Against Anticipation 9
5.5 Employment Status 9
5.6 Facility of Payment 9
5.7 Construction 10

-i-









96
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Introduction

The Boeing Company hereby establishes The Boeing Company Executive Layoff
Benefits Plan to provide for lump sum payments as layoff benefits for its
executive employees as provided in this document.

It is intended that this Plan constitute a welfare benefit severance pay
plan under the Employee Retirement Income Security Act (ERISA) and that
the plan shall be construed and interpreted in a manner consistent with
such intention.
















































97
98
Article 1
Definitions


1.1 "Affiliate or Subsidiary" means a member (other than The Boeing Company)
of a controlled group of corporations (as defined in Internal Revenue Code
Section 1563(a) determined without regard to Internal Revenue Code Sections
1563(a)(4) and (e)(3)(c)), a group of trades or businesses (whether
incorporated or not) which are under common control within the meaning of
Internal Revenue Code Section 414(c), or an affiliated service group (as
defined in Internal Revenue Code Section 414(m) or 414(o)) of which The
Boeing Company is a part.

1.2 "Committee" means the Employee Benefit Plans Committee (or its successor)
appointed by the Board of Directors of The Boeing Company.

1.3 "Company" means The Boeing Company, and any Affiliate or Subsidiary which
has adopted the Plan by action of its Board of Directors if such adoption has
been approved by the Compensation Committee or by such corporate officers
as the Compensation Committee may designate.

1.4 "Compensation Committee" means the Compensation Committee appointed by the
Board of Directors of The Boeing Company.

1.5 "Effective Date" means the closing date, August 1, 1997, of the Agreement
and Plan of Merger dated as of December 14, 1996 among The Boeing Company, West
Acquisition Corporation, a wholly-owned subsidiary of The Boeing Company,
and McDonnell Douglas Corporation.

1.6 "Employee" means a person who is employed by the Company including a
person on an approved leave of absence.

1.7 "Equivalent Employment" means an employment offer made prior to a Layoff
Event

a) at an annual base salary equal to no less than 90% of the Employee's
base salary at the time of the offer,

b) if the Employee is eligible for incentive compensation, with a target
under the applicable incentive compensation plan which is no less than
90% of the Employee's target at the time of the offer,

c) for a job which is located within 70 miles of the normal location
of the Employee's employment at the time of the offer.

1.8 "Layoff Benefit" is defined in Article 3.

1.9 "Layoff Event" is defined in Section 2.3

1.10 "Plan" means The Boeing Company Executive Layoff Benefits Plan.

1.11 "Plan Year" means the calendar year.

1.12 "Service" shall be determined in the same manner as the service time
calculation under the Company Service Awards Program procedure.



98
99
Article 2
Eligibility and Layoff Event

2.1 Eligibility

In order to be eligible for a Layoff Benefit, an Employee must meet the
following requirements as of the date of the Layoff Event:

a) The Employee must be a member of a participating group of Employees in
accordance with Section 2.2.

b) The Employee must have at least one year of Service, and

c) A Layoff Event must occur with respect to the Employee.

2.2 Participating Groups

a) Employees of The Boeing Company who are Executive Payroll Employees
shall participate in the Plan.

b) Employees of McDonnell Douglas Corporation, a subsidiary of The Boeing
Company, who are participants in the Senior Executive Performance
Sharing Plan or the Performance Sharing Plan shall participate in the
Plan.

c) The Compensation Committee may, by written resolution, provide for
participation of other Employees as of an effective date specified in
the resolution.

2.3 Layoff Event

A Layoff Event is an involuntary layoff from employment with the Company
between the Effective Date and June 30, 1999, pursuant to a merger-related
staffing decision, but does not include a layoff if:

a) The Employee becomes employed by the Company or any Affiliate or
Subsidiary of the Company within 90 days of the layoff.

b) The layoff occurs because of a merger, sale, spin-off,
reorganization, or similar transfer of assets or stock, and the Employee
is offered Equivalent Employment with The Boeing Company or any
Affiliate or Subsidiary of the Company.

c) The layoff occurs because of an act of God, natural disaster, or
national emergency.

d) The layoff occurs because of a strike, picketing of the Company's
premises, work stoppage, or any similar action which would interrupt or
interfere with any operation of the Company, or

e) The termination of employment is for any reason other than
involuntary layoff, including, but not limited to, voluntary or
temporary layoff, resignation, dismissal, retirement, death, or leave
of absence.




99
100
Article 3
Layoff Benefit

3.1 Layoff Benefit

An Employee's Layoff Benefit is equal to:

a) One year of salary (base salary at time of layoff), plus

b) Incentive target under the Incentive Compensation Plan for Officers and
Employees of The Boeing Company and Subsidiaries or the McDonnell
Douglas Senior Executive Performance Sharing Plan or the Performance
Sharing Plan effective at the time of the Layoff Event, plus

c) The Company paid portion of the cost (grossed up for taxes) for the
current medical and dental coverage for the Employee and dependents for
twelve months, less

d) If applicable, the total of all payments made, or to be made, pursuant
to the Employee's Termination Benefits Agreement; or the Employee
Severance Pay Plans of McDonnell Douglas Corporation (McDonnell
Douglas Finance Corporation or McDonnell Douglas Realty Corporation);
or any other individual employment agreement.

3.2 Payment of Layoff Benefit

a) Lump Sum Benefit

An Employee will receive his or her Layoff Benefit as a lump sum, net
of any applicable withholding taxes, to be paid within a reasonable
period of time following the Layoff Event. Interest shall not accrue
on a Layoff Benefit regardless of the time of payment.

b) Limit on Payment

No Employee shall be paid more than one Layoff Benefit under
this Plan. In no event will the Layoff Benefit exceed the
equivalent of twice the Employee's Annual Compensation during
the year immediately preceding the termination of an
Employee's service.

For purposes of this section, Annual Compensation means the total of
all compensation, including wages, salary, and any other benefit of
monetary value, whether paid in the form of cash or otherwise, which
was paid as consideration for the Employee's service during the year,
or which would have been so paid at the Employee's usual rate of
compensation if the employee had worked a full year.

c) Recovery of Payment

If a Layoff Benefit is paid to an Employee and the Committee
determines that all or part of such payment was not owed under the
terms of the Plan, the Company reserves the right to recover such
payment, including deducting such amounts from any sums due the
Employee.



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d) Recovery of Debt

If an Employee owes the Company an acknowledged debt, including, but
not limited to, loans, relocation fees, and travel advances, such
debt may be deducted from the Layoff Benefit, subject to applicable
state laws.

e) Waiver of Claims

As a condition to receiving the Layoff Benefit described in Section
3.1, the Employee must execute a release of all claims by submitting
to the Company a Waiver and Release form in a form provided by the
Company.

3.3 Death Benefit

No death benefit is payable under the Plan. All rights to a Layoff Benefit
shall terminate upon the death of the Employee whether or not payment has
been made or begun.







































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Article 4
Administration

4.1 Administration

a) The Committee will serve as the Plan administrator and named fiduciary
pursuant to ERISA. The Committee will have complete control of the
administration of the Plan, subject to the provisions hereof, with all
powers necessary to enable it to carry out its duties properly in that
respect. Not in limitation, but in amplification of the foregoing, it
will have the power to interpret the Plan, to apply its discretion, and
to determine all questions that may arise hereunder, including all
questions relating to the eligibility of Employees to participate in
the Plan and the amount of benefit to which any Employee may become
entitled. Its decisions upon all matters within the scope of its
authority will be final and binding.

b) The Committee will establish rules and procedures to be followed by
Employees in filing applications for benefits and in other matters
required to administer the Plan.

4.2 Committee Liability

The members of the Committee shall use ordinary care and diligence in the
performance of their duties, but no member will be personally liable by
virtue of any contract, agreement, or other instrument made or executed as a
member of the Committee, nor for any mistake of judgment made by such member
or by any other member, nor for any loss unless resulting from willful
misconduct or failure to exercise good faith. No member of the Committee
will be liable for the neglect, omission, or wrongdoing of any other member
or of the agents or counsel of the Committee. The Company shall indemnify
each member of the Committee against, and hold each member harmless from any
and all expenses and liabilities arising out of, any act or omission to act
as a member of the Committee, except such liabilities and expenses as are
due to willful misconduct or failure to exercise good faith.

4.3 Claim Procedure

The Committee shall adopt procedures for the presentation of claims for
benefits and for the review of the denial of such claims by the Committee.
The decision of the Committee upon such review shall be final, subject to
appeal rights provided by law.
















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Article 5
General Provisions

5.1 Plan Amendment and Termination

The Company, acting through the Compensation Committee, may amend or
terminate the Plan in whole or in part at any time. Such amendments may
include any remedial retroactive changes to comply with the requirements of
any law or regulation issued by any government agency to which the Company
is subject. If not terminated earlier by action of the Committee, the Plan
will terminate on September 30, 1999.

5.2 Funding

The Plan shall be unfunded, and Layoff Benefits shall be paid from the
general assets of the Company.

5.3 Benefit Plan Application

Layoff Benefits and periods for which an Employee receives a Layoff Benefit
shall not be considered as compensation or service under any employee
benefit plan or program and shall not be counted toward Service under this
Plan. Layoff Benefits may not be deferred into the Voluntary Investment
Plan or any other cash or deferred arrangement.

5.4 Provision Against Anticipation

No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge, or
other legal process, and any attempt to do so shall be void.

5.5 Employment Status

Nothing contained in the Plan will be deemed to give any Employee the right
to be retained in, or recalled to, the employ of the Company or to interfere
with the rights of the Company to discharge any Employee at any time.

5.6 Facility of Payment

If any Employee is physically or mentally incapable of giving a valid receipt
for any payment due and no legal representative has been appointed for such
Employee, the Committee may make such payment to any person or institution
maintaining such Employee and the release of such person or institution will
be a valid and complete discharge for such payment. Any final payment or
distribution to any Employee or the legal representative of the Employee in
accordance with the provisions herein will be in full satisfaction of all
claims against the Plan, the Committee, and the Company arising under or by
virtue of the Plan.

5.7 Construction

The validity of the Plan or any of its provisions will be determined under
and will be construed according to federal law and, to the extent permissible,
according to the laws of the state of Washington. If any provision of the
Plan is held illegal or invalid for any reason, such determination will not
affect the remaining provisions of the Plan and the Plan will be construed and
enforced as if said illegal or invalid provision had never been included.

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SETTLEMENT AND RELEASE


This Settlement and Release ("Agreement") is entered into by and between
Ronald B. Woodard (the "Executive") and The Boeing Company (the "Company"). The
parties have agreed to enter into this Agreement to resolve any and all issues
arising out of or relating in any way to Executive's employment, including but
not limited to his termination effective February 1, 1999.

1. The Company agrees to place Executive on an authorized, unpaid
leave of absence effective November 16, 1998, from which status Executive
will be laid off effective February 1, 1999.

2. The Company agrees to pay Executive a lump sum (less applicable
withholdings) of $900,000, to be paid within 30 days of signing this Agreement.

3. The Company agrees to pay to Executive a lump sum (grossed up for
taxes) representing the cost to the Company of medical and dental coverage for
the Executive and currently-covered dependents for twelve months.

4. Executive will be eligible for a pro-rated bonus payment in 1999
under the Company's Incentive Compensation Plan for Officers and Executives
("ICP") with respect to his service through November 1, 1998. The determination
of the size of Executive's bonus will be based on the Company's evaluation of
its overall performance for 1998. It is understood that the Executive's bonus
will be established by the same method used for the members of the Executive
Committee and that Executive's performance index will be established at 1.0.

5. With respect to awards of Career Shares, BSUs under the ICP, and
LTIPs which are not yet vested or fully vested, termination of the Executive
shall be treated as a "layoff." In addition, the Executive's termination shall
be treated as a "layoff" for purposes of vesting any Company Matching
Contributions credited to the Executive under the Deferred Compensation Plan for
Executives of The Boeing Company. The form of payment with respect to such
vested amounts shall be governed by the terms of the respective plans.

6. Any and all stock options held by the Executive shall be
exercisable according to the terms under which such options were granted. Any
Performance Shares awarded to the Executive shall be forfeited upon the
Executive's termination, consistent with the term of those awards.

7. Executive may elect either to keep his Company-provided
automobile or to receive from the Company a lump sum payment in the amount of
the retail value established by the "Blue Book" reporting firm (grossed up to
account for any applicable taxes on such payment). If Executive chooses to
retain the vehicle, the Company will transfer title to Executive as soon as
practical following his termination.

8. The Company will continue to match contributions made by
Executive to the Seattle Symphony Orchestra, the Pacific Northwest Ballet,
Tacoma Art Museum and the University of Puget Sound, pursuant to the
Executive's most recent pledge agreements made prior to the date of this
Agreement, to the extent of contributions actually made by Executive. The
Company's contributions made pursuant to this paragraph shall be in the same
proportion to Executive's contributions as was in effect at the date of this
Agreement, consistent with Company policy regarding matching contributions for
executives who are also members of charitable boards of directors.

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9. The Company will pay on behalf of Executive the sum of $43,070.63
(grossed up for taxes), representing a tax liability otherwise due from
Executive with respect to a recent exercise of stock options.

10. The Company will provide Executive with financial counseling
through September 1999, tax preparation services for his 1998 tax return, and
senior executive-level outplacement assistance with Drake Beam Morin through
calendar year 1999.

11. Executive agrees to fully cooperate with the Company in the
defense of any litigation in which he is called to serve as a witness or to
provide information. The Company confirms that Executive is covered by the
indemnification protections of Article VII, Section 4 of the Company's by-laws.
The Executive shall be entitled to an advancement of all reasonable personal and
legal expenses as permitted by such by-laws, provided the Board of Directors of
the Company does not determine that advancement of such expenses would violate
law or public policy.

12. Executive agrees to refrain from communicating to any other
person or entity any proprietary, confidential, and/or trade secret
information or data belonging to the Company or entrusted to it by others. In
the event of violation of this paragraph, the Company will be entitled to
pursue any and all legal and equitable relief against Executive.

13. Commencing November 17, 1998 and terminating on the earlier of (a)
November 16, 2000, and (b) the date Executive commences other, full-time
employment, Executive agrees to be available, from time to time, to provide
consulting services to senior executives of the Company on various aspects of
Company business, as requested or authorized by the Chief Executive Officer of
the Company. During the term specified above, Company shall pay Executive a
retainer of $19,000 per month, such amount to be pro-rated during the first and
final months of such term. In addition, Executive will be reimbursed for actual
costs incurred for travel and related expenses incurred in the performance of
services under this paragraph. Expenses may include first class air travel,
lodging, meals, car rental and other customary business expenses; any such
expenses must be itemized, and are subject to approval under applicable Company
guidelines. Executive shall be solely responsible for any and all income and
employment tax obligations associated with payments received under this
paragraph, and such amounts shall not be treated as wages for purposes of any
Company employee benefit plan or program.

14. In consideration of the foregoing, Executive releases and waives
any and all claims he may now or hereafter have against the Company which
relate in any way to the terms or conditions of his employment, including but
not limited to the termination thereof. This release and waiver covers any
claims arising out of any federal, state, or local statute, regulation, or
ordinance, including but not limited to any claims arising out of Title VII of
the Civil Rights Act of 1964 or the Age Discrimination in Employment Act, and
any claim arising out of tort, contract, or common law.

15. Executive acknowledges and agrees that he has the opportunity to
consider for twenty-one days whether to enter this Agreement and that he has
voluntarily chosen to enter into this Agreement on this date. Executive may
revoke this Agreement for a period of seven days following execution of this
Agreement, and if not revoked, this Agreement shall become effective following
lapse of this seven-day period. Executive acknowledges that he is voluntarily
executing this Agreement, that he has not relied on any representations or

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106
statements not set forth herein or made by the Company's agents or
representatives, and that he has been advised to consult an attorney prior to
executing this Agreement.

16. The parties agree that they will not disclose or publicize the
terms and conditions of, or negotiations leading to, this Agreement to any
third party (other than counsel for the parties), except that they may state
the matter was settled to the parties' mutual satisfaction. In addition, the
Company may make such disclosures concerning the terms of this Agreement as
are required for it to meet any legally-required disclosure obligations.

17. In the event any provision of this Agreement is held invalid, all
remaining provisions of this Agreement shall continue in full force and effect.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Washington.



RONALD B. WOODARD THE BOEING COMPANY


/s/ Ronald B. Woodard /s/ James B. Dagnon
____________________________ By_________________________

Sr. V.P. - People
Its__________________________

10/31/98 10/31/98
DATED:_____________________ DATED:_____________________





























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November 10, 1998






Deborah C. Hopkins
c/o Gretchen Fitch
646 Kimberly Rd.
Birmingham, MI 48009


Dear Deborah,

We would be delighted to have you join the Boeing team as Senior Vice President
and Chief Financial Officer. The following is a summary of certain terms of
this conditional offer of employment.

Employment Incentives:

- - To welcome you as a key member of the executive team, you will receive a
Boeing Performance Share Grant equal to 4.5 times your base salary.

- - You will also receive $180,000 of Career Shares

- - The Company will also pay you a lump sum (less applicable withholding) of
seven hundred and fifty thousand dollars ($750,000) within 30 days of
employment with the Company.

- - The Company will also provide you with thirteen years of additional service
under the Supplemental Executive Retirement Plan, subject to you remaining a
Boeing employee until age 62.

- - If The Boeing Company terminates your employment for any reason prior to
December 31, 2001, other than for an intentional violation of Company
policies or practices, you will be entitled to a lump sum payment equal to
the base salary wages and target incentive awards you would have earned from
the date of termination through December 31, 2001 (less applicable
withholding).

- - The company will also provide placement assistance for your spouse through
calendar year 1999.


Deborah C. Hopkins - Page 2


Executive Compensation:

- - Your initial annual compensation will be:
Base Salary $450,000
Annual Incentive Target $360,000
(80% of base salary)

- - Your $360,000 incentive target is guaranteed for 1999. However, depending
on business results, the actual value could be higher.

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- - You will participate in Boeing's Long Term Incentive Plans as follows:

An annual grant of Performance Shares that have the potential to vest,
based on specific stock price performance hurdles, with a grant value of
four and one-half times your base salary.

An annual grant of Career Shares equal to 20% of your base salary.

- - You will also be eligible for the following executive perquisites:

Company provided automobile
Comprehensive Financial Planning and Counseling

You will be assigned a grade level of E1C in the Executive Compensation Program.
You will find enclosed a brochure that explains the elements of the program in
more detail. In addition, the initial awards of Performance and Career shares,
as well as your guaranteed incentive award for 1999, are subject to Compensation
Committee approval.

You will also find enclosed, employee benefit program information covering our
retirement, vacation, sick leave, 401(k) savings and insurance plans. Life,
medical and dental insurance plans are effective the first day of the month
following your first full calendar month of employment.

Relocation assistance will be provided in accordance with the enclosed "New
Employee Travel and Moving Allowances Agreement." The Home Sale/Home Purchase
Plan will be provided in conjunction with this offer as well.

Boeing is strongly committed to maintaining a drug and alcohol free workplace in
order to provide for a safe and productive work environment. In order to
maintain this environment, Boeing requires a drug-screening


Deborah C. Hopkins - Page 3


test as a condition of employment. Please contact Northwest Toxicology as 1-
800-322-3361, request the Client Services Department and identify yourself as a
Boeing candidate (the account Number is 210104 and the Location Code is PS).
The results of this test will become the confidential information of Boeing.
Once you have visited the collection location, please call Marilyn Tilley toll
free on 1-800-254-1591 to inform us that collection has occurred.

Boeing hires only U.S. citizens and non-citizens lawfully authorized to work in
the U.S. As part of your application package, you are required to submit the
"Employment Eligibility Verification" (1-9 Form), with proof of your identity
and authorization to work. Original documents will be required for verification
purposes prior to your hiring into the Company. Questions regarding this
procedure should be addressed to the undersigned.

To accomplish your entrance on the payroll, it will be necessary to complete
pre-employment sign-up prior to your reporting date.

Please contact Michael Valliere on 206-655-5086, at your earliest convenience if
you have any questions regarding this offer. This contingent offer will remain
in effect through November 28, 1998.


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We look forward to your acceptance of this offer and working together at The
Boeing Company.

Sincerely,


/s/ Jim Dagnon
James B. Dagnon


Enc.















































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EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries

(Wholly owned unless identified by asterisk)


Place of Date of
Name Incorporation Incorporation
===============================================================================
2433265 Manitoba Ltd. Manitoba 1989
692567 Ontario Limited Ontario 1986
757UA, Inc. Delaware 1989
767ER, Inc. Delaware 1987
ACN 004 471 078 PTY LIMITED Australia 1960
AeroSpace Technologies of Australia
Limited Australia 1986
Aileron Inc. Delaware 1989
Akash, Inc. Delaware 1998
Aldford-1 Corporation Delaware 1993
ARGOSystems, Inc. California 1969
Astro Limited Bermuda 1975
Astro-II, Inc. Vermont 1984
Autonetics, Inc. Delaware 1958
Bahasa Aircraft Corporation Delaware 1993
BCS Richland, Inc. Washington 1975
Beaufoy-1 Corporation Delaware 1993
BNA International Systems, Inc. Delaware 1974
BNA Operations International, Inc. Delaware 1996
BNJ, Inc. Delaware 1998
Boeing - Corinth Co. Delaware 1987
Boeing - Irving Co. Delaware 1979
Boeing - Oak Ridge Co. Delaware 1980
Boeing - Aerospace Hungary Ltd. Hungary 1997
Boeing Aerospace Ltd. Delaware 1980
Boeing Aerospace Operations, Inc. Washington 1972
Boeing Aerospace Poland Poland 1996
Boeing Aerospace Switzerland, Inc. Delaware 1972
Boeing Aerospace - TAMS, Inc. Delaware 1981
Boeing Aerospace - U.K., Ltd. Delaware 1993
Boeing Agri-Industrial Company Oregon 1973
Boeing Aircraft Holding Company Delaware 1984
Boeing Australia Limited Australia 1986
Boeing Canada Inc. Ontario 1929
Boeing Capital Corporation Delaware 1968
Boeing Capital Services Corporation Delaware 1988
Boeing China Technical Services, Inc. Delaware 1985
Boeing China, Inc. Delaware 1986
Boeing Commercial Information and
Communication Company Delaware 1997
Boeing Commercial Space Company Delaware 1987
Boeing Constructors, Inc. Texas 1970
Boeing Defence UK Limited England 1976
Boeing Domestic Sales Corporation Washington 1974





110
111
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries

(Wholly owned unless identified by asterisk)


Place of Date of
Name Incorporation Incorporation
===============================================================================
Boeing Enterprises, Inc. Delaware 1997
Boeing Financial Corporation Washington 1965
Boeing Global Services, Inc. Delaware 1998
Boeing Information Services, Inc. Delaware 1981
Boeing International Corporation Delaware 1953
Boeing International Holdings, Ltd. Bermuda 1998
Boeing International Logistics
Spares, Inc. Delaware 1996
Boeing International Sales Corporation Washington 1971
Boeing Investment Company, Inc. Delaware 1985
Boeing Leasing Company Delaware 1988
Boeing Logistics Spares, Inc. Delaware 1980
Boeing Middle East Limited Delaware 1982
Boeing Nevada, Inc. Delaware 1989
Boeing North American Services, Inc. Texas 1973
Boeing North American Space Alliance
Company Delaware 1995
Boeing North American Space
Enterprises Canada, Inc. Canada 1996
Boeing North American Space
Operations Company Delaware 1983
Boeing North American, Inc. Delaware 1928
Boeing of Canada Ltd. Delaware 1986
Boeing Offset Company, Inc. Delaware 1985
Boeing Operations International,
Incorporated Delaware 1981
Boeing Overseas, Inc. Delaware 1984
Boeing Precision Gear, Inc. Delaware 1994
Boeing Realty Corporation California 1972
Boeing Sales Corporation Guam 1984
Boeing Sales Corporation, Limited Bermuda 1993
Boeing Space Operations Company Delaware 1998
Boeing Spain, Ltd. Delaware 1983
Boeing Support Services, Inc. Delaware 1980
Boeing Technology International, Inc. Washington 1973
Boeing Toronto, Ltd. Canada 1964
Boeing Travel Management Company Delaware 1980
Boeing Worldwide Operations Limited Bermuda 1998
Canard Holdings, Inc. Delaware 1996
CBSA Leasing II, Inc. Delaware 1998
CBSA Leasing, Inc. Delaware 1998
Cougar, Ltd. Delaware 1998
Dillon, Inc. Delaware 1998
Douglas Express Limited Virgin Islands 1996
Douglas Federal Leasing Limited Virgin Islands 1996
Douglas Leasing Inc. Delaware 1996
Douglas Realty Company, Inc. California 1965
Falcon II Leasing Limited Virgin Islands 1998

111
112
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries

(Wholly owned unless identified by asterisk)

Place of Date of
Name Incorporation Incorporation
===============================================================================
Falcon Leasing Limited Virgin Islands 1998
Fine Chemicals Offset Limited British Virgin Islands 1996
Finnish American International
Trade, Inc. * Delaware 1988
Gaucho-1 Inc. Delaware 1994
GAUCHO-2 Inc. Delaware 1994
Hanway Corporation Delaware 1993
Kuta-3 Aircraft Corporation, Limited Delaware 1994
Kuta-One Aircraft Corporation, Limited Delaware 1994
Kuta-Three Aircraft Corporation Delaware 1993
Kuta-Two Aircraft Corporation Delaware 1993
Longacres Park, Inc. Washington 1948
Longbow Golf Club Corporation Delaware 1997
McDonnell Douglas (Australia) Pty. Ltd. Delaware 1980
McDonnell Douglas (Singapore) Pte. Ltd. Singapore 1989
McDonnell Douglas Administrative
Services, Inc. Missouri 1993
McDonnell Douglas Aerospace
(Malaysia) Sdn. Bhd. Malaysia 1993
McDonnell Douglas Aerospace -
Middle East Limited Delaware 1993
McDonnell Douglas Aerospace
Services Company Delaware 1978
McDonnell Douglas Aircraft Finance
Corporation Delaware 1989
McDonnell Douglas Capital Corporation Delaware 1987
McDonnell Douglas Commercial Delta,
Inc. Delaware 1988
McDonnell Douglas Corporation Maryland 1939
McDonnell Douglas Dakota Leasing, Inc. Delaware 1996
McDonnell Douglas Express, Inc. Delaware 1996
McDonnell Douglas F-15 Technical
Services Company, Inc. Delaware 1978
McDonnell Douglas Finance Corporation
- Federal Leasing, Limited Virgin Islands 1994
McDonnell Douglas Finland Oy Finland 1991
McDonnell Douglas Foreign Sales
Corporation Virgin Islands 1984
McDonnell Douglas Helicopter Company Delaware 1980
McDonnell Douglas Helicopter Support
Services, Inc. Delaware 1984
McDonnell Douglas Indonesia Leasing,
Inc. Delaware 1997
McDonnell Douglas Insurance Holdings
Corporation Delaware 1989
McDonnell Douglas International Sales
Corporation Delaware 1972
McDonnell Douglas Japan, Ltd. Japan 1958
McDonnell Douglas Korea, Ltd. Delaware 1986

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113
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries

(Wholly owned unless identified by asterisk)

Place of Date of
Name Incorporation Incorporation
===============================================================================
McDonnell Douglas Macedonia Leasing,
Inc. Delaware 1997
McDonnell Douglas Middle East, Ltd. Delaware 1989
McDonnell Douglas Overseas Finance
Corporation Delaware 1975
McDonnell Douglas Radio Services
Corporation Delaware 1973
McDonnell Douglas Services, Inc. Missouri 1980
McDonnell Douglas Support Services -
Military, Inc. Delaware 1991
McDonnell Douglas Technical Services
Company Delaware 1980
McDonnell Douglas Truck Services, Inc. Delaware 1982
McDonnell Douglas Worldwide, Ltd. British West Indies 1986
MD Computer Sales, Ltd. British West Indies 1986
MD Dakota Leasing, Ltd. Virgin Islands 1996
MD Indonesia Limited Virgin Islands 1997
MD Technical Services International,
Inc. Delaware 1991
MD-Air Leasing Limited Virgin Islands 1996
MD-Federal Holding Company Delaware 1996
MDAFC - Nashville Company Delaware 1996
MDC Properties, Inc. Michigan 1979
MDFC - Aircraft Leasing Company Delaware 1995
MDFC - Aircraft Leasing Limited Virgin Islands 1995
MDFC - Aircraft Ltd. Ireland 1995
MDFC - Bali, Limited Virgin Islands 1993
MDFC - Carson Company Delaware 1997
MDFC - Carson Limited Virgin Islands 1996
MDFC - Express Leasing Company Delaware 1995
MDFC - Express Leasing Limited Virgin Islands 1995
MDFC - Jakarta, Limited Virgin Islands 1993
MDFC - Knoxville Company Delaware 1996
MDFC - Knoxville Limited Virgin Islands 1995
MDFC - Lakewood Company Delaware 1996
MDFC - Lakewood Limited Virgin Islands 1996
MDFC - Memphis Company Delaware 1996
MDFC - Memphis Ltd. Virgin Islands 1995
MDFC - Nashville Ltd. Virgin Islands 1995
MDFC - Reno Company Delaware 1996
MDFC - Sierra Company Delaware 1985
MDFC - Spring Limited Virgin Islands 1996
MDFC - Tahoe Company Delaware 1996
MDFC Equipment Leasing Corporation Delaware 1972
MDFC Loan Corporation Delaware 1983
MDRC of Missouri, Inc. Missouri 1989
Montana Aviation Research Company Delaware 1991
Network Information Service Co., Ltd. Japan 1984
North American Aviation, Inc. Delaware 1967

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114
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries

(Wholly owned unless identified by asterisk)

Place of Date of
Name Incorporation Incorporation
===============================================================================
Plaza Realty Holdings Corporation Delaware 1986
Processing Properties, Inc. Delaware 1993
Rainier Aircraft Leasing, Inc. Delaware 1992
RGL-1 Corporation Delaware 1993
RGL-2 Corporation Delaware 1993
RGL-3 Corporation Delaware 1993
RGL-4 Corporation Delaware 1993
RGL-5 Corporation Delaware 1993
RGL-6 Corporation Delaware 1993
Rocketdyne Technical Services Company Delaware 1986
Rocketdyne, Inc. Delaware 1958
Sunshine Leasing Company - 1 Delaware 1997
Taiko Leasing, Inc. Delaware 1998
Team Apache Systems, LLC * Delaware 1997
Thayer Leasing Company - 1 Delaware 1997
VC-X 757, Inc. Delaware 1996
Wingspan, Inc. Delaware 1994

































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115

Appendix of graphic and image material pursuant
to Rule 304(a) of Regulation S-T


Graphic and image material item Number 1

Revenues by industry segment:
A bar chart for the five years 1994-1998 indicating revenues by industry
segment (Dollars in billions):

1994 1995 1996 1997 1998

Commercial Airplanes 19.778 17.511 19.916 26.929 35.545

ISDS - Military Aircraft and Missiles 12.990
ISDS - Space and Communications 6.889
------
Information, Space and Defense Systems 14.676 14.849 14.934 18.125 19.879

Customer and Commercial Financing/Other 0.515 0.600 0.603 0.746 0.730

Total 34.969 32.960 35.453 45.800 56.154




Graphic and image material item Number 2

Commercial sales by geographic region:
A bar chart for the five years 1994-1998 indicating sales by region of
customer (Dollars in billions):

1994 1995 1996 1997 1998

United States 6.044 7.530 8.634 9.625 13.391
Asia, Other than China 6.847 5.256 6.576 9.254 11.337
China 1.284 0.754 0.950 1.265 1.572
Europe 4.545 2.533 2.757 5.886 7.274
Oceania 0.995 0.599 0.536 0.560 0.732
Other 0.291 0.839 0.463 0.339 1.239

Total 20.006 17.511 19.916 26.929 35.545



Graphic and image material item Number 3

Comparative net earnings (exclusive of special charges and share-based plans):
A bar chart of net earnings for the five years 1994-1998 (Dollars in billions):

1994 - 1.483; 1995 - 1.479; 1996 - 1.905; 1997 - 632; 1998 - 1.216






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Graphic and image material item Number 4

Research and development expensed by segment:
A bar chart of research and development expensed for the five
years 1994-1998 (Dollars in billions):

1994 1995 1996 1997 1998

Commercial Airplanes 1.681 1.232 1.156 1.208 1.021

ISDS - Military Aircraft and Missiles 0.304
ISDS - Space and Communications 0.570
-----
Information, Space and Defense Systems 0.395 0.442 0.477 0.716 0.874

Total 2.076 1.674 1.633 1.924 1.895



Graphic and image material item Number 5

Go-ahead and certification/delivery graph:
A time line graph indicating go-ahead and certification/delivery for
various major airplane programs and derivatives.

Go-ahead Certification/Delivery
(month/year) (month/year)
777-200 < 1/1995 4/1995
777-200ER < 1/1995 2/1997
777-300 6/1995 6/1998
737-700 < 1/1995 12/1997
737-800 < 1/1995 3/1998
737-600 3/1995 10/1998
737-900 11/1997 1/2001
757-300 9/1996 2/1999
767-400ER 4/1997 4/2000
717-200 10/1995 6/1999





















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Independent Auditors' Report

Board of Directors and Shareholders, The Boeing Company:
We have audited the accompanying consolidated statements of financial position
of The Boeing Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
on our audits. The consolidated financial statements give retroactive effect
to the merger of The Boeing Company and McDonnell Douglas Corporation, which
has been accounted for as a pooling of interests as described in Note 2 to the
consolidated financial statements. We did not audit the statements of
operations, shareholders' equity, and cash flows of McDonnell Douglas
Corporation for the year ended December 31, 1996, which statements reflect
total revenues of $13,834,000,000. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for McDonnell Douglas Corporation for 1996, is
based solely on the report of such other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Boeing Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

As discussed in Notes 1 and 16 to the financial statements, The Boeing Company
has changed its method of expense recognition for share-based incentive plans
in 1998.


Deloitte & Touche LLP
Seattle, Washington
January 26, 1999











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