Brian West
Chief Financial Officer Executive Vice President, Finance at Boeing
Thank you, Dave, and good morning everyone. 2021 was a year of recovery for our business. We're optimistic about how we're positioned entering to 2022 and have high confidence in the long-term strength of the company. We remain focused on solidifying our business for long-term success. The lessons we've learned and the changes we've implemented in the last two years will help us to do that. We're driving safety, quality and stability in the every corner of our operations to enable future growth and we made solid progress against our goals over the last three months.
In particular, as Dave mentioned, we're proceeding to get 737 MAX airplanes ready to deliver in China as early as the first quarter and follow the lead of our customers and regulators on next steps. On the 787, while we can't predict when deliveries will restart, we've made meaningful strides in addressing many of the non-conformances we identified. We have work remaining to do and we continue to hold detailed productive discussions with the FAA every step of the way.
Looking to our financials. Despite some of the near-term challenges, we generated positive free cash flow in the fourth quarter and believe free cash flow will continue to materially improve this year and in the 2023. With this backdrop, we think of 2022 in three parts. First, we'll focus on reaching key milestones so that we can resume 737 deliveries to Chinese customers and restart 787 deliveries. Then once we achieve these important milestones, we expect to see improvement in our performance metrics, including deliveries, revenue, margin and cash flow and we intend to come back to you with detailed plans for the rest of the year and beyond.
Finally, as we move to the second half of the year, our financial performance should start to accelerate and we think there is a significant opportunity ahead for our company return to sustainable growth. Net debt, we're well positioned at the start of the year and encouraged by the hope of return to normalcy in 2022. Before I get into the detailed financial results, I want to make a few points on the current environment on Slide 4. Let's start with demand side. In the commercial market, we continue to see an overall broadening of the recovery starting with domestic traffic, which rebounded to around 90% of pre-pandemic levels in countries such as the U.S. and Brazil.
In the U.S., domestic traffic nearly fully recovered at 94% of pre-COVID levels in November. December data suggest resilient traffic despite the rapid spread of the omicron variant, but early 2022 bookings data indicate a more visible negative impact, likely extending through February. Beyond that, we expect the recovery for the spring and summer seasons. Outside of the U.S., the recovery continues broadening in Europe and South America. However, further lockdowns have stagnated recovery in China where we've seen traffic decrease considerably. Despite some near-term volatility, we are encouraged by airline's plans for the spring and summer travel seasons.
On the international front, traffic has improved throughout the year for more than 85% below 2019 levels to 60% as the year-ended with a meaningful benefit from reopening of borders and lifting of travel restrictions. In particular, the Trans-Atlantic quarter showed improvement due to coordinated travel policies between the E.U. and the U.S. The commercial freighter market continues to be robust with 2021 cargo traffic 7% above pre-pandemic levels. We saw a record freighter demand last year, driven by both e-commerce growth and demand for faster, more reliable transport that air freight can provide. And we're seeing the same steady recovery broadly in our Commercial Services business as well.
Given this demand recovery, our customers are increasingly focused on their medium-term flight planning and continue to prioritize fleet modernization as an enabler to reduce carbon emissions and increase operating efficiency. New airplanes we deliver will be as much as 25% to 40% more fuel efficient with commensurate reductions emissions compared to the airplanes they replace. And as oil prices remain high, our customers are keenly aware of these benefits. Overall, our projections for the three-phase, commercial market recover remain unchanged and we still assume passenger traffic will return to 2019 levels and the 2023 to 2024 timeframe.
We continue to see domestic traffic lead the recovery followed by intra-regional and then long haul international routes. Long-term fundamentals that support demand for air traffic remain attacked as we continue to project average traffic growth of mid single digits over the long term. In the Defense and Space markets, we're seeing stable demand. We continue to monitor the federal budget process in the U.S. and see strong bipartisan support for National Security including Boeing products and services. While governments around the world remain focused on COVID-19, security spending remains a priority given global threats.
On the supply side, with our production at relatively low rates and higher than normal inventory levels, the supply chain is currently not a constraint. However, as we look forward to the industry recovering and future production rate increases, our supply chain remains a key watch item due to raw material and labor availability, as well as logistical challenges. We regularly monitor supplier health and have risk mitigation plans in place for critical components. As we prepare for future rate production increases, we will continue to prioritize operational stability across the value stream. Long term, the markets we serve are robust and we remain confident in the fundamentals of our business and the growth of the industry.
With that, let's turn to the financials on page slide -- Slide 5. Fourth quarter revenue of $14.8 billion declined 3% and the core operating loss in the quarter was $4.5 billion resulting in a $7.69 loss per share. We generated positive operating cash flow of over $700 million in the fourth quarter, driven by 737 deliveries and favorable receipt timing and BDS.
Let's now look to commercial airplanes on Slide 6. Commercial order activity picked up significantly at 2021 as airlines are positioning for the recovery, particularly in the narrow body and freighter markets. In total for the year, we booked 909 gross commercial airplane orders, including 749 orders for the 737 MAX. We also booked a record number of orders on our freighter airplanes and we ended the year with 11 straight months of positive net orders. We appreciate every order from our broad customer base, including United, Southwest, Alaska, UPS and FedEx.
We are also honored that Acasta, Allegiant and 777 Partners recently selected Boeing to support their future fleets. We had over 4200 airplanes in backlog at the end of 2021 valued at $297 billion. Fourth quarter revenue was $4.8 billion, essentially flat, primarily driven by higher 737 deliveries, partially offset by lower widebody deliveries and less favorable mix. Operating losses of $4.5 billion were primarily driven by charges on the 787 program resulting in a negative margin rate. 787 deliveries remain paused and we had 110 airplanes inventory at the end of the quarter.
As you know, last year, we set out on a comprehensive program to ensure every 787 airplane in our production system conforms to our exacting specifications. We resolved many of the non-conformances and we're finalizing our work on the remaining items. We also continue to focus on fulfilling the requirements and expectations of the FAA and we'll follow their lead on the timing of resuming deliveries. While this effort has inevitably impacted our deliveries to customers and our near-term financial performance, we are fully confident it's the right thing to do for our future.
In the fourth quarter, we determined that the activities required to resume deliveries and the rework that will be needed on each airplane and inventory will take longer than previously expected, resulting in further delays in customer delivery dates. We regret the impact these delays have had on our customers and are working closely with each of them to support their fleet planning needs. Consequently, we're producing at very low rates and we'll continue to do so until deliveries resume, gradually returning to five airplanes per month over time.
From a financial impact standpoint, we now anticipate 787 abnormal costs will be approximately $2 billion with most being incurred by the end of 2023. This estimate increased by approximately $1 billion from last quarter due to the additional rework requirements and lower production rates continuing longer than previously expected. We recorded $285 million of these abnormal costs in the fourth quarter. Additionally, we recorded a $3.5 billion non-cash charge in the quarter to write down unamortized deferred production costs, primarily due to an estimated customer compensation for the longer delivery delays.
It is important to keep in mind that from an economic standpoint, cash margins on the 787 remain positive. While the additional costs and customer considerations will put some downward pressure on cash margins in the near-term, cash margins are expected to remain positive and significantly improve over time. We remain very confident in the future success of the 787 and it remains one of our most compelling programs. Importantly, none of the issues we were addressing have raised immediate safety of flight concerns or impacted the capabilities of the in-service fleet.
We received gross orders for 21 airplanes last year and we see a long runway ahead. We are working diligently to ensure that we are well positioned as demand recovers and accelerates in the future. Moving on to the 737 MAX program. The MAX is now approved to fly in over 185 countries. As mentioned, we continue to prepare airplanes for deliveries as early as the first quarter subject to customer and regulatory approvals in China. We also delivered 245 737 MAX airplanes last year and we steadily ramped up production and we are now producing at 27 airplanes per month on our way to 31 per month early this year.
As we look to ramp both our production rate and delivery cadence this year, we will continue to monitor the impact of omicron on resource availability. We currently have 335 737 MAX airplanes inventory and still anticipate delivering most of these airplanes by the end of 2023. Timing and pace of deliveries to Chinese customers are also critical assumptions to our delivery outlook. 737 abnormal costs and the liability for 737 MAX customer considerations are largely behind us. We expect the majority of the remaining $2.9 billion liability to be liquidated this year with less than 10% of the total estimate left to be negotiated. On the triple 777X, we continue to progress through our rigorous and comprehensive test program. We have flown over 1800 flight hours through the end of 2021. We also completed engine and airplane performance testing and the airplane continues to perform in line with our customer commitments.
Our customers recognize the compelling economics and sustainability benefits this airplane offers. We remain engaged with the FAA and other global regulators throughout this process. We're working towards reaching Type Inspection Authorization or TIA which is a pacing item for us to begin FAA certification flight testing. We are still anticipating delivery of the first airplane in late 2023.
Also, we are currently offering the freighter version of our 777X airplane to customers and we'll keep you updated as we progress on sales campaigns and conclude our launch timing evaluation. As a result of increasing freighter demand, we plan to increase the combined 777/777X production rate from two to three per month this year and expect 2022 deliveries to be relatively in line with last year.
Let's now move to Defense, Space & Security on Slide 7. Fourth quarter revenue was $5.9 billion, down 14% and operating margin was negative 4.4%. These results were primarily driven by lower volume and less favorable performance across the portfolio, including a $402 million pre-tax charge on the KC-46 tanker program. The charge is primarily driven by evolving customer requirements for a Remote Vision System as well as factory and supply chain disruptions, including the impact of COVID.
On the commercial crew program, as previously shared, we and NASA anticipate the second uncrewed orbital flight test to occur in May. We received $7 billion in orders during the quarter, including an award for modernization of airborne warning and control system to Royal Saudi Air Force. The BDS backlog increased to $60 billion. During the quarter, BDS also delivered on critical customer milestones. Overall, we remain optimistic about our Defense business.
Now let's turn to Global Service results on Slide 8. Fourth quarter Global Services revenue was $4.3 billion, up 15% and operating margin was 9.3%. Results were driven by higher commercial services volume and favorable mix. Earnings were impacted by a $220 million inventory impairment in the fourth quarter. We received $6 billion in orders during the quarter taking the BGS backlog to $20 billion. We also delivered the 50th 767-300 converted freighter and announced plans to add 10 new converted freighter lines. Our services business has shown great resilience in part due to the balance of both defense and commercial offerings.
Let's move to Slide 9 and cover the full year financials. Full year revenue of $62.3 billion, improved 7% versus prior year. The core operating loss was negative $4.1 billion, an improvement of $10.1 billion. The resulting core loss per share was $9.44, primarily driven by the charge on the 787. Operating cash flow was negative $3.4 billion, an improvement of $15 billion. The, in-year cash usage was driven by 787 inventory build, 737 customer considerations and interest payments, partially offset by commercial deliveries, order activity, favorable timing of cash receipts at BDS and tax refunds related to the CARES Act.
Now let's turn to Slide 10 to cover cash and debt. We ended the fourth quarter with strong liquidity comprised of $16.2 billion of cash and marketable securities on the balance sheet and access to $14.7 billion across our bank credit facilities, which remain undrawn. Our debt balance decreased by $4.3 billion from the end of the third quarter to $58.1 billion, driven by the early pay down of the delayed draw term loan. We remain committed to reducing debt levels and our investment grade credit rating is a priority.
Please turn to next slide for a look at 2022 and key drivers of the business. As you look ahead, 2022 performance will be driven by the commercial market recovery, return to delivery for the 787 and 737 MAX in China, production system and delivery stability and U.S.-China trade relations. Our efforts to stabilize our production system, including the supply chain and improve our delivery predictability remain top priorities. These activities will be paramount to our success.
Looking broadly across our enterprise, we're maintaining in some cases expanding key investments in our people, technology, manufacturing capabilities and strategic partnerships. We're advancing our development of the MAX 7, MAX 10, and 777X programs, all while continuing to invest in digital capabilities to support our next commercial airplane program. In BDS, we're progressing on the MQ-25. T-7A, Commercial Crew and several other key development programs. As we invest, we continue to be laser focused on our business transformation efforts to drive quality, productivity and cash flow.
Now let's take a look at the key drivers of 2022 revenue and cash. We anticipate revenue increase, primarily driven by higher commercial airplane deliveries on the 737 and 787 programs. That said revenue will be impacted by 787 customer considerations and delivering 737 airplanes that were previously remarketed. We are forecasting stable revenue in our defense business and solid growth in our services business, as the commercial market continues to improve.
Moving to cash, we still expect to generate positive free cash flow in the year. The key driver remains higher 737 and 787 delivery volume. Keep in mind, the working capital of benefit from delivering airplanes from inventory will be partially offset by a lower advances and progress payments balance. We still anticipate a significant burn down of our advances balance this year, which we expect to be more front-end loaded in line with customer discussions. Additionally, cash flow will remain impacted by timing of receipts and expenditures. As you may recall, we booked orders last year that filled near term skyline positions and those unique receipts may not continue at the same levels this year.
From a phasing standpoint, we anticipate the first quarter to be our lowest quarter of the year for deliveries, revenue, earnings and cash flow. First quarter cash flow could look similar to the usage we saw in 1Q '21 driven by unfavorable receipt timing, excess advanced payment burn down, resource availability due to the omicron variant and normal seasonality. We remain confident that our free cash flow will improve in the second quarter and will meaningfully accelerate in the back half of the year as we achieve the key delivery milestones as I previously outlined.
As you look to the future, we expect 2023 cash flow will be materially higher than 2022. We look forward to sharing more details on our plan as soon as we can. In closing, the business environment remains dynamic, but we've made important progress. We are confident that we're on the right path, we're taking the right steps to drive stability and making the right investments to ensure the business is well positioned for future growth.
With that. Closing comments?
