Boeing Company (The)

Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's first quarter 2022 earnings conference call. Today's call is being recorded. The management discussion and slide presentation, plus the analyst question and answer session, are being broadcast live over the internet. To ask a question on today's conference, please press the digit 1, followed by the digit 0 on your touchtone telephone. Again, it is 1-0 for questions. After pressing 1-0, you will hear a tone that you've placed in the queue. Pressing 1-0 again will take you out of the queue and may prevent you from being able to ask a question. At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead.

Thank you, John, and good morning, everyone. Welcome to Boeing's first quarter 2022 earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer, and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation through our website at Boeing.com. As always, we have provided detailed financial information in our press release issued earlier today. Projections, estimates, and goals we include in our discussion this morning involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the end of this web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures. Now I will turn the call over to Dave Calhoun.

Yeah, thanks, Matt. I'm going to make a few comments up front and turn it over to Brian for a more detailed look at our financials in the quarter. First, I need to acknowledge that on the 21st of March, Flight 5735 of our good customer, China Eastern, unfortunately crashed and took the lives of 132 passengers and crew. These things always take our breath away, and I want to extend our thoughts and prayers from the entire Boeing company, of course, to the families and friends of those passengers. Those are always rough moments. Our technical team is, in fact, supporting both the NTSB and the NTSB as it supports the CAAC, who is, of course, the lead investigator. Those are the only comments that I will make along the lines of the China Eastern accident, but know that we are in the middle of that investigation. 221Q, some challenges presented themselves unexpectedly. Russia, obviously, is the big issue in the news. Inflation continues to take a hard run at pretty much everything we do. And COVID, unfortunately, didn't leave as soon as we would have liked. So at least the first 45 days of the quarter were impacted more than we imagined. All that said, our focus and progress remains consistent with what we shared the last quarter. We still expect to accelerate our performance and the key financial metrics, namely cash flow, because that is our key financial metric. That's what we've been focused on for a couple of years. and we will remain focused on. And we remain committed to the notion that we will have positive free cash flow over the course of 22 and meaningful improvement in 2023. Everything we are doing is leading with safety, quality, and ultimately driving stability for our airline customers. And we believe we're taking the right actions for the future. We have progressed on many key milestones. We'll comment on a few of them today. But we're focused on the 37 MAX and the 787 production and the return to service of those airplanes that we have built and stored on behalf of our airline customers. We feel good about all the progress we're making on that front. The commercial market recovery, I'm not going to expand significantly on that. You've heard from almost all of the U.S. airline customers, many of the European customers, traffic is returning, and it's returning in a pretty big way. Airplanes are being utilized at a fairly high rate. Domestic markets are the first to have recovered, and they're recovering robustly. Regional markets second, and even long-haul traffic now is beginning to return. The only real exception in that demand scenario is China, in light of their current COVID constraints, but we're hopeful and we expect that they'll come out of that and continue to expand their fleets. So that commercial market is very, very strong. And it's particularly strong for our line of airplanes, namely the MAX, the 8-7, and the 777. And I don't want anyone to forget the 6-7 because it continues to play a very important role in the freighter world. I should comment on the conflict in Ukraine and I think I mentioned the last time we were together, we had 1,000 people in both the Ukraine, in Kiev, and in Moscow. And those two teams worked pretty closely together. So it's been a bit of a gut-wrenching and emotional period for all of the Boeing company and our associates. I'm very proud of the work that we are doing to support our team in Kiev. We've provided a million and a half in humanitarian assistance, but also matched all of our employee donations to those people who are helping. And then most importantly, we have Boeing families in Poland and throughout the region who have willingly accepted and opened their homes to our displaced teammates. That's a big deal, and it's been an uplift for all of us to watch that happen. We're following the lead of the U.S. government and strictly adhering to export controls and all the restrictions. We suspended maintenance and support for Russian customers. And in the spirit of doing the right thing, we have suspended titanium imports. Fortunately for us, we had a program of inventory built for quite some time, ever since Crimea, such that we believe we are reasonably protected on that front. Next, I should comment on the 37 MAX specifically. It's only been a little over a year since that airplane was recertified and put back into service. We now have over a million flight hours. It is performing incredibly well at 99% plus service reliability. Our customers are happy with it. In almost every case that I'm aware of, they talk about the airplane exceeding the performance specs that we sold it on. So we feel very good about that. and we feel very good about the skyline and our ability to deliver on that. Brian will get into rate discussions in his piece of that one, but we still continue to think about this one airplane at a time so that we can maintain that high in-service reliability rate. We're applying the same rigor to the 787, and we took a very important step just in the last week by submitting the CERT paperwork and the plan to the FAA. We're proud of that work. We've touched a lot of operations across our facilities, exacting spec with respect to the 8-7, and that's all embedded in the CERT paperwork that we've presented to our FAA. And, as always, we will let the FAA take the lead with respect to CERT and ticketing, and we will work closely with them. They have been involved in this process from the very beginning. So there is no new news embedded in this. 777 family, I'd like to make a comment with respect to the decision we made on the 777X and the extension of its introduction until 2025. I believe we've made that decision out of a position of strength, not weakness. We've embedded every lesson that we've learned on the 3.7 MAX certs, and we continue to have two of those ahead of us. We've applied all the lessons from the 787 cert, which, of course, we have just submitted, and believe that we've got to give ourselves the time and freedom to get this right with the FAA and give everybody the time they need to give us the cert that will last, frankly, for decades and decades into the future. It also, by calling it out now, gives us an opportunity to create some capacity for our traditional metal wing 777 freighter, which right now is in incredibly high demand. So we will extend that airplane life and continue to meet that demand. And then finally, the 777-8 freighter, which we introduced with Qatar, is a very big deal with respect to the long-term ramifications of the 777 family in the decades ahead. We're very proud of the 777 family in the post-8380-747 world. We think it stands on its own and will be one of the great contributors to share in our value over the decades ahead. Boeing Global Services, I'm not going to get into a lot of detail other than to say we're riding that wave of recovery with respect to fleet utilization pretty much everywhere in the world. And so that business has enjoyed that success and has been able to stay ahead of the supply chain constraints that some are feeling. So all things good on that front. And then on BDS, a messy quarter. And we got hit where you might expect us to get hit in a supply constrained, still COVID impacted and inflationary world. And that is on a group of fixed price development contracts that I think you're all aware of. where we had to recognize future costs on those program economics. And so we have taken a write-off on those programs, VC25B, the T7A, and the MQ25. Brian will talk to you a little bit more about this. VC25B was by far the biggest part of that hit. You'll recall it was a public negotiation that happened quite some time ago we took some risks not knowing that COVID would arise and not knowing that an inflationary environment would take hold like it has. And both of those things have impacted us fairly severely. This will ultimately accrue to two airplanes where we will continue to do our work and deliver first-rate airplanes to our customer in the government. As we deliver the Today's numbers know that we are increasing our investment. Safety and producibility, digital transformation, autonomy, and sustainable aerospace are the keynotes with respect to where those investments are going. We feel good about where that's setting us up for the future. We're progressing on our development programs. Are we frustrated with the timing? You bet. But we're progressing, and everyone is getting their feet firmly planted on the ground, both us and our counterparty and the regulators around the world. And so I have to feel good about the progress that we're making collectively, and that matters for the long term. Stability and predictability, it's coming along. It'll matter in the years ahead. And above all else, our culture is built around safety, built around quality. And transparency is the word of the day with respect to how we interact with our counterparties everywhere in the world. Strong leadership team in place, I'll comment. And also congratulate Leanne. Leanne has retired. She's given us over 30 years of service, never had a more diehard and more engaged leader in our company. So I want to congratulate her on that. As you know, she'll be with us until the end of the year in supporting transition activities. But also to congratulate Ted Colbert, who's a fantastic leader and proven himself in our services world and servicing half of his business and servicing the U.S. military. So he is ready to go on Boeing defense and will do a fantastic job. And Stephanie Pope in our services business, it's a bit of an old hat. She was the CFO at our services business when we stood it up. She did a lot of the hard work associated with that stand up and we treasure her as an operator. all the right instincts, and look forward to her future leading the services business. So we feel good about the talent transitions that have occurred. And then I'll call out before I turn it back to Brian just the thanks to Administrator Steve Dixon at the FAA. As many of you know, he is retired. He stood tall during a difficult moment for the Boeing company and for the FAA in the recertification of the 737 MAX amongst the other multitude of uh, responsibilities that he's had. Uh, we respect the work that he did, um, and, uh, ultimately the courage that, uh, that he provided, uh, in the face of what was otherwise difficult external circumstance. So congratulations to him. And then the acting administrator, Billy Nolan, he can count on our full support, um, as he, uh, as he now takes over. Uh, so I'm confident, uh, in the milestones that we've been meeting. Um, and we've been focused, I think on the right things and with respect to long-term share owner value, that is what it's all about. And we intend to deliver on that, uh, uh, prospect. So Brian, I'll turn it over to you.