Single Line of Accounting Challenges – Single Line of Accounting Traditional NWCF APN-1/5/6 O&M,N + RDT&E = ILS Elements x Govt Execution = Performance PBLs NWCF APN-1/5/6 O&M,N + RDT&E = ILS Elements x PBL Provider Execution = Performance2 Government (NAVICP, DLA, PMA, NAWCs, NADEPs, AIMDs, etc.) develops unique policies and budget mechanisms that allow them to maximize their internal metrics (SMA, BOs, schedule, cost, etc.)…segmented accountability and control by various stakeholders, all of which have budget requirements and restrictions, and different priorities. PBL providers integrate and align these unique policies and budget mechanisms to significantly increase weapon system performance at a reduced total cost…they create performance synergy for the weapon system. NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Super Hornet Readiness Status (FIRST PBL Improving F/A-18E/F MC Rate) Contract 73% 72% 70% 70% MCR Drivers Corrective Action 64% Canopy Optical SCRI Mar 04* New Displays CRI/SCRI Oct 06* GCU Reliability SCRI Oct 06* 57% Fuel Cells SCRIs Oct 05* Retrofit-3 Ladder Actuator CRI/SCRI Oct 06* Why Dip in 2004? USN stood up 5 squadrons in 2004, including east coast FRS. MC Rate for squadrons standing up is lower than fully operational squadrons. By contrast, USN stood up only 3 squadrons in 2003 and 2005. Super Hornet Readiness State What, in addition to the cost reduction initiatives, is driving the increased MCR? There are many factors that contribute to the increased readiness rate, among which is a fielded and mature maintenance training system, increased experience of the maintainers and the maturity of the overall logistics infrastructure. As the logistics infrastructure matures, early lessons learned are incorporated into the technical manuals testing and troubleshooting, training curriculum, and field service support. Finally, the introduction and maturity of the Hornet Support Center at Lemoore and Oceana has paid dividends in providing immediate feedback to maintainers on issues. Do we have the data on USN support personnel for the E/F as compared to the A/B and C/D aircraft? (Even in general terms) Squadron manning for the C/D and E/F are the same. Our E/F design objective included increasing capability and range without increasing squadron manning requirements. We have achieved that goal. Need a 1-sentence explanation for each called out improvement (I know, I know -- but it will be nice to have the list in case he asks) – -Hornet Support Center: Introduced HSC with fielding of E/F. This Center included Boeing, GE, NI and NGC personnel with High Speed Internet allowing us faster and higher quality information exchange with Fleet. - AME/IETMS Training: When we introduced the new electronic support system we found that the Fleet required more support to adjust to this higher tech system. We have fielded IT Tech Data Experts on site at the Hornet Support Center to significantly improved the acceptance and performance of our electronic support solution. -Pitot Static SCRI: Early in the E/F Program we experienced higher failure rates on this WRA the FIRST SCRI program has introduces a Supportability Design Change quickly and have now fielded an improved, more reliable Pitot Static Assembly. - Fuel Cell Training: Early in the E/F Program we have experience fuel cell failures (primarily #3 and #4 fuel cell). We and our NGC teammates conducted Fuel Cell replacement training for the NADEP and the Fleet to improve quality of fuel cell installations. - Wingfold Transmission SCRI: Another SCRI Supportability Design Change is being introduced, improving corrosion resistance and improving time on wing -MPCD CRI DECD: Combined with a production CRI we aided in the introduction of this new display which reduces costs for production and support. -GCU Reliability: Another SCRI combined with a production CRI reducing GCU costs and improving reliability and time on wing. - Boarding Ladder SCRI: Boarding Ladder is improved by a combined CRI/SCRI which will improve time on wing by structurally beefing up the boarding ladder. - Pressure Regulator Shut Off Valve; Processed SCRI Supportability ECP to improved time on wing. - Life Limited Retrofit: Another success story. Our Retrofit plans included combined Boeing/NGC/NADEP NI teams to efficiently retrofit life limited mods from the Weapon System before scheduled maintenance inspections would negatively impact fleet performance. - Canopy Optical SCRI: Improving the reliability of the Glass and the repairability of the Canopy was introduced by an SCRI. We have also followed up with a “common” canopy configuration improving fleet supply chain performance. - Fuel Cells ECP: We implemented an NGC/Boeing “Gold” Team to review fuel cell performance and introduce both production and support improvements for the fleet. We are now processing these ECPs to further improve the E/F Fuel System performance. - GCU SE Training: When we first introduced the I level support system for the fleet supporting the new higher tech GCU the I level was experience low RFI rates. The Boeing/Smith Team engaged and developed GCU Support Equipment Software improvements and conducted Smith Training for Fleet personnel which resulted in significantly improved RFI rates which currently exceed 90%. HS & TEF Actuator SCRI: We have introduced reliability improvements through an SCRI Supportability ECP improving the Horizontal Stabilator and Trailing Edge Flap Actuator which will result in more time on wing at lower support costs. ECS Valves – ECP and SCRI introduced to improve reliability of two different ECS Valves. AMAD retaining ring SCRI: Another SCRI introduced to minimize AMAD oil leaks and improve AMAD time on wing. Boarding Ladder Actuator: Combined CRI/SCRI that reduces the cost of the actuator from the supplier (MPC) and beefs up additional ladder structure. - New Displays SCRI: SCRI introduced to improve Color Display and Up Front Control Display reliability and lower cost by using alternate source (EFW vs Kaiser). - HSC @ Oceana: Introduced the HSC to the East Coast NAS OCEANA to replicate our successes experience on the West Coast (NAS Lemoore) through our Hornet Support Network and HSC concept. Is VADM Massenburg a supporter of the FIRST concept? VADM Massenburg was also present at the initial FIRST PMR that was held about 10 months prior to actual contract award, I believe July 2000. He was a big supporter of the FIRST concept and helped push it along. Wingfold Trans SCRI Aug 03* Pitot Static SCRI Oct 03* Boarding Ladder SCRI Feb 04* GCU SE-Training -SCM AMAD Retaining Ring SCRI Oct -06* Pressure Reg Shutoff Valve SCRI Jul 03* HS & TEF Actuator SCRI Nov 04* HSC Lemoore Fuel Cells Training MPCD CRI DECD ECS Valves ECP/SCRI Dec 04* * Production Incorporation Life Limits Retrofit -2 AME/IETMs Training Life Limits Retrofit -1 HSC Oceana 2000 2001 2002 2003 2004 2005 (thru 31 Jul 05) NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

FIRST vs Traditional Sustainment Under a traditional (non-PBL) support scenario, the cost of F/A-18 E/F spares & repairs was projected to increase at an annual rate of 7% (based on F/A-18 C/D historical support costs). FIRST stabilizes the cost of F/A-18 E/F spares & repairs. 218 E/Fs 518 E/F & Gs NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Supportability Cost Reduction Initiatives (SCRIs) ROI of 22 to 1 $19.8M non-recurring investment driving $430.2M* cost avoidance ECS Controller Software BIT Improvement Common Canopy Design Enhanced Surface Finish Training Damage Repair Analysis Software Tank 3 Fittings AMAD Power Takeoff Shaft Seal Improvement Arresting Hook Shank Corrosion Protection Canopy Glass Optical Repair Improvement Pressure Regulating/Shut Off Valve Redesign Tank 1F Scuff Patch Second Source Displays Horizontal Stabilator Servocylinder Wire Harness Improvement Digital Expandable Color Display (DECD) Supportability Generator Control Unit Reliability Improvement Trailing Edge Flap Servocylinder Wire Harness Improvement Pitot Static Probe Cover Enhancement LCS 3-Way Shutoff Valve Reliability Improvement Wing-fold Transmission Lug Bushings Pitot Static Probe Heater Redesign Boarding Ladder Actuator and Storage Flight Control Computer Maintainability Improvement Boarding Ladder Reliability Improvement Incorporated/Complete Approved / In Work IW/Partial Incorporation Pending Concurrence * Joint NAVAIR, NAVICP and Boeing total cost avoidance validated by AIR-4.2 & Approved 12/6/04 New for 2005 Slide approved by ESC on 6-2-05 NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Mean Flight Hours Between Demands Increases * All MFHBD values correspond to 30 year average ship set values MFHBD Focus is on costs Savings and Quality of Life Improvements NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Engineering Change Proposal Velocity 75% Cycle Time Reduction Calendar Year 2004-2005 6000-Series 157 Days Business As Usual 5000-Series 115 Days FIRST ECP 39 Days FIRST ECP Velocity Improvements Increase Time on Wing/MFHBD NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

FIRST is meeting logistics objectives of the Fleet FIRST Achievements Sustained Aircraft Availability During Time of War 97.5% Sortie Rate for VFA-115 during Operation Enduring Freedom 99% Depth and Range Stockage Effectiveness for Aircraft Carriers Decreased NMCS/PMCS Requisitions and Cannibalization Actions Increased Fleet Readiness via Supply Chain Improvements FIRST ECP Process Reduced ECP Approval Time (157 to 39 days) Average Depot Turn-around-Time Reduced (90 to 54 days) BCMs Decreased (GCU Improved I-Level RFI Rate from 30% to 75%) FIRST is meeting logistics objectives of the Fleet NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

FIRST is meeting objectives envisioned by DoD/DoN FIRST Achievements Provided Total Weapon System Lifecycle Support Integrated Supply Chain to Optimize & Consolidate Numerous Contracts Shifted Risk/Responsibility for Obsolescence Management to Industry Created Expandable Contract (Scope Adds: ECPs, SE, DLA, Training, Etc.) Streamlined Contracting and Financial Processes & Mechanisms Single PBL Contract for Multiple ILS Elements and Lines of Accounting Concurrent Production Procurements to Reduce Cost of Spares Commercial Services Agreements with All 3 Naval Depots FIRST is meeting objectives envisioned by DoD/DoN NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Commercial Services Agreement (CSA) NADEP North Island averaging 100 plus completed FIRST repairs per month Average NADEP Repair Time is 32 days (45 day requirement) Task Description Document (TDD) defines specific work scope Purchase Order provides quarterly forecast and required funding Memorandum of Agreement (MOA) allows use of government facilities The CSA is the basic Contractual Instrument and is the overall governing document for Boeing/NADEP teaming: Current CSA operates per 10 USC 2563. The CSA being negotiated for the FIRST LTC will be in accordance with 10 USC 2474, which allows operation with multiple programs (e.g. FIRST and HISS). Specifies Overall Terms and Conditions of the Business Arrangement and incorporates the six conditions set forth under 10 USC 2563. Incorporates technical documents that govern the work requirements. References the Proprietary Information Agreement and the MOA that establishes facility agreements. Establishes the funding requirements and terms of payment Required Conditions Six Conditions for CSA are Set Forth Under 10 USC 2563 Not Available From A Commercial Source Must Hold Harmless & Indemnify The U.S. Govt. Articles Or Services Must Be A Competency Item Public Interest Must Be Maintained Articles Or Services Can Not Interfere With Military Mission Advanced Incremental Funding Required NADEPs Success Good for Fleet and Industry NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

F/A-18 Sustainment Strategy Created Virtual Program Office to Focus, Manage, and Lead Sustainment Efforts of Numerous Government Stakeholders. Utilized Multiple OEM Centric Performance Based Logistics (PBL) Contracts to Provide the Best Value, Long-term Support Solution for all F/A-18 A through F and EA-18G. Focused F/A-18 Performance Goals on Metrics driven by the Performance Based Agreement (PBA) between the Warfighter and Program Manager (PM). One Team + One Focus = Improved Readiness for the Warfighter NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

F/A-18 Virtual Program Office Performance Based Agreement MOA between the warfighter (CNAF) and Program Manager. Specifies the warfighter’s performance expectations via quantifiable metrics. Documents the warfighter’s requirements to be achieved by award of the Performance Based Logistics Contracts. Facilitates CNAF/NAE Single Ready For Tasking (RFT) At Lowest Cost Metric Warfighter’s Performance Based Agreement PSI’s Roles and Responsibilities PM’s agent for implementing his sustainment vision/objectives. Coordinates organic/private sector support to maximize readiness at the lowest cost. Manages all support contracts, MOUs, and MOAs to meet the metrics specified in the Performance Based Agreement (PBA). Program Manager F/A-18 & EA-18G F/A-18 APML Assistant PM for Logistics Product Support Integrator NAVICP: F/A-18 Integrated Weapon System Team NADEP NI/JAX/CP FST NI/JAX/CP NAWC China Lake NATEC NI DLA DSCR/C/P PMA-265 209/260 NAWC Lakehurst FLEET AIMDS FLEET MALS NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

PMA-265 and the Fleet Combine for the First Ever PBA “… This F/A-18 PBA establishes Ready-for-Tasking (RFT) and Cost-Wise Readiness performance objectives as agreed to by Commander, Naval Air Forces (CNAF), the F/A-18 Program Manager (PMA-265), and Commanders Strike Fighter Wing Atlantic and Pacific.” “… CNAF, PMA-265, CSFWL and CSFWP shall utilize RFT to measure F/A-18 readiness. PMA-265 shall support the Fleet in meeting the CNAF RFT Entitlement.” “… CNAF and PMA-265 will assess the performance objectives in the PBA and monitor, analyze, and develop appropriate metrics that incentivize the supply chain to focus on mission accomplishment and cost-wise readiness.” “… Upon signature of this PBA, PMA-265 will incorporate these performance objectives into the F/A-18 Integrated Sustainment Strategy.” NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

F/A-18 Sustainment Vision Goal: Optimize Support to all F/A-18 Models for all F/A-18 Users New & Legacy FMS Sales E/F Roadmap Systems EA-18 Unique Items A-F Common Items A-D Unique Items FIRST SMS ALR-67 ARC-210 ALE-50 ASN-50 Tires APU F404 Various SE E/F Displays F414 C&A F404 MFC DLA E/F ECPs ALQ-126B Turbines DLA F414 Dpt Cp SMUG LEF Actuator TEF Servo/Stab AMC&D FIRST Follow-on ISS AESA EIBU DLA EA-18G Common TBD*: A – F TBD*: A – F EA-18G FMS DLA Retrofits Mods ATFLIR JHMCS TBD*: A – F EA-18G FMS DLA Retrofits Mods TBD*: A – F EA-18G FMS DLA Retrofits Mods Vertical Growth SE on PBL: CASS, QEC, EOTS, IFFITTS, EOSS+, SALSA, EWSE, JSECT, CASS Hi-Power, GOSSPL, AHE, Gas Detector F-18 PBLs In Work: F414 C&A – Controls and Accessories (GE/Jax) F414 EMA – Engine/Module Availability (GE/Jax) F404 MFC – Main Fuel Controls (Honeywell/Jax) LEF Actuator – Leading Edge Flap Actuator (Moog/NI/Jax) TEF (Trailing Edge Flap) Servo and Horizontal Stab (Parker Hannifin) SMUG – Stores Management Upgrade (Smiths) ALQ-126B (BAE/Jax) Turbines – Honeywell, Torrance CA AMC&D – Advanced Mission Computer(General Dynamics)/ Display (Honeywell) AESA – Add to FIRST? TBD JHMCS - ?? ATFLIR – Raytheon EIBU – Smiths? E/F Unique Material + ILS, SE, Tech Data Mods & Upgrades Retrofit Kits & Installs Fleet Support Engineering, etc. Goal: Optimized F/A-18 Support Solution Today Horizontal Growth * Target Select A-G Systems/Components on a case by case basis – add to FIRST or non-FIRST PBL as appropriate NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

F/A-18 Awarded & Pending PBLs by Subsystem HUD/DDI * Rockwell ALE-50 Raytheon LEF Moog/NI/Jax TEF/Stabs Parker Hannifin Fuel Control Honeywell F414 C&A GE F404 GE Awarded PBLs Pending PBLs * Supports Multiple A/C F414 Depot CompGE ARC 210 * Rockwell Turbines * Honeywell SHARP TBD FIRST Boeing: 73% of E/F 4193 E/F WRAs and SRAs 653 I-Level Repairables 349 Support Equip. Items 170 DLA Consumables 13,080 DLA Second Source 10,970 Non-DLA Consumables SMS * Smiths JHMCS * VSI APU * Honeywell SCRI 001 – Pitot Static Probe Completion Mar04 (1st Production Install), SCRI 002 Wingfold Transmission – 31 Mar 04 Compl, SCRI 003 Pressure Regulator Shut Off Valve – Complete 31 Jul 03 (Production Incorp), SCRI 004 Aft Avionic Cooling Fan – On-hold pending BCA outcome, SCRI 010 – FCC OFP BIT improvement 19 Jan 04 go “Green” target, SCRI 012 GCU Reliability Imp - 11 Apr 04 NAVAIR JCCB Go “Green”, SCRI 011 Hook Shank Corrosion – 31 Jul 04 (Production Incorp), SCRI 015 Boarding Ladder – Apr 04 Completion, SCRI 031 Pitot Static Probe Covers – Mar 04 first incorp., SCRI 032 Common Canopy Design - 16 Jan 04 Go “Green” date, SCRI 033 Canopy Glass Optical Repair – Apr 04 Completion, SCRI 039 Damage Repair Analysis S/W – Aug 05 Completion, SCRI 021 DECD Supportability - , SCRI 045 ECS Controller S/W BIT Jun 04. FIRST FY06 and Beyond: F/A-18 A through F EA-18G ISS AESA DLA Consumables FMS Modifications Retrofits AESA Boeing ALR-67v3 Raytheon Tires Michelin AMC&D * GD/Honeywell EIBU Smiths SMUG Smiths ALQ-126B * BAE/Jax ATFLIR Raytheon Support Equipment * Multiple OEMs NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

F/A-18 Awarded and Pending PBLs by OEM Warfighter’s Performance Based Agreement Awarded PBLs Pending PBLs Non-PBL Contracts * Supports Multiple A/C ** Planned FIRST FY06 PSI’s Roles and Responsibilities PM’s agent for implementing his sustainment vision/objectives. Coordinates organic and private sector logistic support to maximize readiness and availability at the lowest total cost. Manages all support contracts, MOUs, and MOAs to meet the metrics specified in the Performance Based Agreement (PBA). Warfighter’s Performance Based Agreement Virtual Program Office F/A-18 Program Office F/A-18 APML Product Support Integrator F/A-18 NAVICP IWST DLA R/C/P NADEP NI/JAX/CP FST NI/JAX/CP PMA-265 209/260 NAWC C. L. NAWC L.H. NATEC NI FLEET/ AIMD/MALS FIRST Boeing FIRST** Boeing ISS** Boeing AESA Boeing Ailerons Boeing Hooks Boeing Stabs Boeing BOAs Boeing ARF Boeing SRF Boeing ATFLIR Raytheon SHARP Raytheon TEF/Stabs Parker Hannifin ARC 210 * Rockwell HUD/DDI * Rockwell SMS * Smiths EIBU Smiths SMUG Smiths ALQ-126B * BAE/Jax ALR – 67v3 Raytheon ALE -50 * Raytheon APU * Honeywell Fuel Control Honeywell Turbines * Honeywell AMC&D * GD/Honeywell LEF Moog/NI/Jax JHMCS * VSI Support Equip * Multiple OEMs F414 Depot GE Tires * Michelin F404 GE F414 C&A GE NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Samples of Navy Performance Based Logistics Success PBL (OEM) Results APU (Honeywell) F404 (GEAE) Displays (Rockwell-Collins) SMS (Smiths) Pre Post Availability 65% 94% 43% 95% 47% 99% 61% Backorders 125 5 718 583 489 R-TAT * 162 38 116 81 55 22 177 40 $ Avoidance N/A $70M $90M $94M $15M * Repair Turnaround Time Reductions in days Updated 11-21-05 NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

FIRST Dollar and Material Flow FLEET: Lemoore, Oceana, Atsugi, CVNs Dollars Material Material Material Flying Hour Dollars Supply Chain: Boeing; NGC; Parker Hannifin;GKN; Sierracin; Smiths; Rosemount; Kaiser; EFW; Honeywell; BAE; Goodrich; Etc. NAVICP 63% APN ILS, Spares and Repairs Material NAVAIR HQ NWCF, DWCF and APN Ontario DWCF Warehousing and Transportation Boeing DLA 2% Material NADEP Labor 30% NADEP CP ILS & ISE 5% NADEPs: North Island Jacksonville Cherry Point NADEP NI ILS and ISE Services: Boeing; NGC; VSE, Immedius; Smiths; MTI; Martin Baker; Raytheon, Textron, Etc. NADEP JAX 227 Suppliers in 30 States NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Migration to a Single FIRST Firm Fixed Price Contract CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006-2015 Baseline Contract - CPI/AF $205.4 M Option Yr 1 - CPI/AF $124.6 M Option Yr 2 - FPI/AF $126.1 M Option Yr 3 - FPI/AF $136.7 M May 01 – Sep 02 Oct 02 – Sep 03 Oct 03 – Sep 04 Oct 04 – Dec 05 } FIRST - NAVICP Contract - F/A-18E/F Supply Chain Management - Provisioning and Warehousing - Shipping and Transportation - Obsolescence Management - Reliability Improvements - Configuration Management - Material Support and Total Asset Visibility Single FIRST Contract Single 5 year FFP Contract with 5 year option (Firm Fixed Price contracting vehicle shifts performance and financial risks to Boeing). Provides Navy and Boeing with flexibility to resolve sustainment challenges through the most optimal combination of additional spares, training, redesign, support equipment, maintenance planning, etc. Facilitates Execution of the F/A-18 Virtual Program Office. Increases aircraft availability and readiness for the Warfighter while reducing contract administration. Provides all F/A-18 Stakeholders with single focus through single contract. FIRST - NAVAIR Contract - Program Management - Unique In Service Engineering - Hornet Support Center - Integrated Information Systems - Sustaining Integrated Logistics Support (ILS) - Support Equipment - Technical Publications - ECPs, TSPAT, Etc. Traditional ILS Apr 03 – Dec 03 Jan 04 – Dec 04 Jan 05 – Dec 05 CPFF/IF-$129.9M FY00 ILS CPFF/IF-$105.2M FY01 ILS Base Contract CPI/AF-$63.4M Option Yr 1 – FPI/AF $79.3M Option Yr 2 – FPI/AF $77.4M NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter 2006 to 2010 FIRST Contract FFP Contract with 5 yr Base and Single 5 yr Option Combines Previously Separate Supply and ILS FIRST Contracts Utilizes 20 plus Fleet Driven Performance Metrics J & A for $2.9B with Built-In Flexibility to Support all F/A-18 T/M/S NAVICP made UCA Award for $995M; NAVAIR Funds sent to NAVICP NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Performance Metrics and Incentive Plan Focused on the Fleet CNAF signed PBA specifying warfighter’s requirements F/A-18 availability and readiness will be improved Total operating and cost per flight hour will be reduced Composed of three sections Aircraft Management ILS Performance Contract Incentive With three contract incentive targets Supply Response Time (targets SCM performance) Product Support (targets ILS performance) Fleet/Customer Survey (targets satisfaction of warfighter) NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Fleet Focused Performance Plan Plan utilizes over 20 metrics such as Ao, RFT, MFHBD, SRT, Cost @ FH, etc. Includes a disincentive fee structure based on the following 3 areas: Supply Response Time (65% of fee pool) Measures Boeing’s ability to deliver the right material at the right place at the right time…every time. Rewards 1st time quality (properly packaged with correct paperwork), 1st pass requisition fills (4 days for high priority and 16 days for low priority), & elimination of aged backorders Product Support (25% of fee pool) Aggregation of ILS metrics (i.e. maintenance planning, support equipment, technical data, site activation, hornet support network, depot capability, etc.) Rewards increase in availability, readiness, and MFHBD/Time-on-Wing Fleet/Customer Satisfaction (10% of fee pool) Measures Boeing’s support of primary F/A-18 stakeholders (Lemoore, Oceana, Commander Strike Fighter Wings, Lakehurst, Fleet Support Teams, Deployed Carriers, etc.) Rewards responsive day-to-day operational support of all F/A-18s Boeing’s Failure to Meet Performance Metrics Results in Lost Profit NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Improving Fleet Readiness by Increasing Performance Expectations Fleet Readiness Metrics FIRST before 2006: FIRST after 2006: Award Fee Metrics Supply Response Time Time on Backorder Avg Age of Unfilled BOs CV Stockage Effectiveness Supply Chain Mgt Support Supportability Site Activation Hornet Support Network Supportability/Reliability Sustainability Maintenance Planning NAVAIR NAVICP Improving Fleet Readiness by Increasing Performance Expectations NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Aircraft Management Metrics Ref # Metric Name Measure 2.1 RFT Boeing & Navy’s ability to meet the Fleet allocation. 2.2 Availability (Ao) Boeing & Navy’s ability to achieve readiness at aircraft level 2.3 Cost @ Flight Hour Boeing and Navy’s ability to reduce cost per flight hour 2.4 NMCS/PMCS 1st Day Boeing’s responsiveness to high priority requisitions 2.5 Canns @ 100 Flight Hours Boeing’s ability to influence maintenance and supply practices 2.6 MFHBD Boeing’s ability to increase time-on-wing NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

ILS Performance Metrics Ref # Category Measure 3.1.1 SRT Fleet Requisitions Processing Timeliness 3.1.2 DCNs Provisioning DCN Processing Timeliness 3.2 Maintenance Planning Logistics Rqmts Change Requests (LRCR) Response Timeliness 3.3.1 TPDR Fleet TPDR Response Timeliness 3.3.2 Fleet Tech Data Quality (Quantity) NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

ILS Performance Metrics Ref # Category Measure 3.4.1 Support Equipment Site Activation Delivery 3.4.2 FAT Schedule Maintenance/Support 3.4.3 SE EI Response to USN 3.4.4 SERD Submittals to USN 3.5 HSC HSN RFA / RFI Response 3.6.1 Depot Support Scheduled Component Capability 3.6.2 Support of Depot Site Activation 3.7 Site Activation Quality of ILS Sustaining O&I level Site Activation Support 3.8 AME Request for AME Assistance (RFAA) Response Timeliness NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Contract Incentive Metrics Ref # Category Measure 4.1 SRT Incentive based on point system (focuses on 1st time fills and age of backorder) 4.2 Product Support (ILS) Incentive based on achieving customer expected performance values 4.3 Fleet/Customer Satisfaction Survey PCO will utilize survey results from a dozen or so organizations to ensure that Boeing is responsive to the “subjective” requirements of those organizations % Incentive Withhold for Failure to Meet Customer Expected Performance Values NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Incentivizes Boeing to Aggressively Manage Backorders Supply Support Metrics FY01 to FY05: FY06 and Beyond: Disincentive Fee Metrics Supply Response Time “with Points” Repairables Priority 1 thru 3 Consumables Priority 1 thru 3 Repairables Priority 4 thru 15 Consumables Priority 4 thru 15 SRT “with Points” requires Boeing to: a. Eliminate all backorders within specified time periods b. Focus on age of each backorder vice the “average” age of aggregate backorders c. Based on Boeing’s past backorder fulfillment times/age, the Navy has raised performance levels. Award Fee Metrics % of Award Supply Response Time Fee Earned Repairables 48 hours 39% Consumables 48 hours 68% Aggregate 120/360 hours 91% Average Time on Backorder Priority 1 thru 3 99% Priority 4 thru 15 92% Average Age of Unfilled BOs Priority 1 thru 3 100% Priority 4 thru 15 98% Incentivizes Boeing to Aggressively Manage Backorders NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter CSDR Reporting Plan OEMs will submit CSDRs annually by major and sub-major cost elements for ILS, Spares and Repair CSDRs collect actual incurred costs and are the basis for projecting future costs Actual costs are the most valuable data in the hierarchy of DoD cost estimating sources ILS costs traditionally reported only in conjunction with development or production contracts DoD Instruction 5000.2 silent regarding CSDR reporting requirements for PBLs NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

Steering Committee Level FIRST FY 06 Long Term Contract Award Team FY 06 to FY 10 FIRST LTC Team Enterprise Level NAVAIR: RADM Venlet NAVICP: RADM Roesner BOEING: Ginger Barnes Executive Level NAVAIR: CAPT Gaddis/Bill Taylor/CAPT Jaynes NAVICP: CAPT Rau/Donna Gruber BOEING: Terry Kunkel Steering Committee Level NAVAIR: CDR Rick Nielsen/Tracy Moran NAVICP: CDR Santo Salvo/Nick Viggiano BOEING: Larry Sellman/Bill Collier FIRST FY 06 Long Term Contract Award Team Planning Contracts BCA/Pricing Supply Chain ILS & ISE Legal/Comptroller NAVAIR Travis Hayes Geoff Tisone Tim Lawless Tim Petrow Valerie Odell/Mary Pracchia NAVICP Nadine Baj Gerry Tonoff Steve Wiley G. Galasso/M. Smith Cunningham/CDR Skinner BOEING Joe Luberda Wayne Clermont Jeremy Wentz R. McCreary J. Prevedel/S. Reynolds N/A DLA Chuck Bloom Roy Peay Brian Benfer Patsy Johnson Edilia Correa DCMA G. Behrens Vickey Burkey Kathy Christ Lt. Bannister Ellen Roberts NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

FIRST Evolution and Improvements FIRST FY 2006 to FY 2010 allows the Navy to improve support to the Warfighter while reducing cost to the Taxpayer FY11 – FY15 Single Availability Metric (Ao) Single Line of Accounting Non-severable CLIN FY06 – FY10 All F/A-18 Type Model Series Single Fixed Price Contract Disincentive Fee Metrics Automated Warfighter Feedback DMSMS Plan Boeing Reliability Investments FY01 – FY05 F/A-18 E/F Only Two Cost Plus Contracts Multiple Award Fee Metrics Passive Warfighter Feedback Obsolescence Plan Navy Reliability Investments Merging of Contracts = Improved Readiness at Reduced Cost NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter