Chairman's Letter

We also announced key Head-up Guidance System positions on Gulfstream and Bombardier aircraft and received certification for these systems on the Dassault Falcon 7X business jet and the Embraer 190 regional jet.

In the air transport market segment, our dedication and hard work on the integrated avionics and pilot controls for the Boeing 787 Dreamliner are coming to fruition. The subsystems we are developing and integrating are on schedule and being delivered to Boeing in preparation for the aircraft's first flight.

Our success winning positions for airline-selectable systems on new aircraft deliveries was also stellar this year. Between 2002 and 2006, international carriers, particularly those in Asia, accounted for most of the opportunities in the air transport segment. In 2007, we began to see increased activity from U.S. carriers. Notably we were selected to provide the avionics for Continental Airlines' order of more than 100 Boeing 737 and 777 aircraft.

Government Systems continues to demonstrate solid growth rates. Among the key offerings that make this success possible is the Common Avionics Architecture System being deployed on the United States Army's helicopter fleet. Our innovative open architecture solutions for military helicopter avionics provided a competitive edge as we won positions on several international programs including the AgustaWestland AW 149 and the Eurocopter German CH-53 G heavy lift helicopter, as well as upgrade programs for other branches of the U.S. military.

We extended our already strong position in military tanker/transport avionics upgrades with wins on several international C-130 upgrade programs, including Singapore and Thailand. This brings the total to nine countries around the world that have selected Rockwell Collins' open architecture avionics for their C-130 platforms.

The continued deployment of troops in Iraq and Afghanistan is driving a need for systems that enable situational awareness. The need for this capability is so great, we have ramped up production of our advanced GPS technology, and delivered a total of more than 125,000 handheld and embedded GPS systems this year alone.

In today's global marketplace, it is more important than ever to deliver on your promises. Companies are judged on their ability to perform. At Rockwell Collins, we have a proven track record of delivering on commitments. Through a continued focus on Lean ElectronicsSM we are able to drive efficiencies, allowing us to achieve outstanding performance in quality and on-time delivery.

Winning new programs requires a significant investment in research and development. Over the last five years we have invested, on average, 18% of sales on new technologies and development programs. For 2007, that investment topped $825 million. These expenditures in R&D are a testament to our focus on providing innovative solutions to customers and our intention to deliver leading-edge capabilities in the future. A centralized advanced technology group and centers of excellence for major technology areas allow us to leverage technology investments across the Commercial and Government product portfolios, maximizing the returns on these investments.