Boeing Company (The)

My 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 touchstone phone. Again, it's 1-0 for questions. After pressing 1-0, you will hear that you have been placed in queue. Pressing 1-0 again will take you out of queue. It may prevent you from being able to ask a question. At this time for opening remarks and introductions, I'm turning the conference over to Mr. Matt Welch, Vice President of Investor Relations for Boeing Company. Mr. Welch, please go ahead.

Thank you, and good morning. Welcome to Boeing's quarterly 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 at boeing.com. As always, detailed financial information is included in today's press release. Furthermore, projections, estimates, and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the end of the web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non gap measures. Now I will turn the call over to Dave Calhoun.

Thank you, Matt, and thanks to all for joining us this morning. Let me start with a comment on the conflict in Israel and Gaza. We were saddened to see the horrific attacks on Israel and the escalating conflict in the region that is significant humanitarian emergency. We will continue to monitor the situation. We will focus on the safety of our employees and we will aid those in need. As always, we'll follow the lead of the U.S. government and we'll coordinate closely with government agencies, customers, and suppliers, always with safety, security, and well-being as our top priority. Now let me turn to the quarter. As you know, we ran into a few challenges over the last several months, but we've demonstrated that we know how to overcome obstacles and it will continue to do just that. We knew 2023 would be a bumpy ride. We have more work to do, but overall we're making progress in our recovery and we are on track to meet the financial goals we shared for this year and for the 2526 timeframe. A timeframe I refer to as stability. As you know, free cash flow has been our primary financial metric through this recovery. And based on our performance year to date, we still plan to be in the guidance range for the year, as well as the $10 billion target by 2025 and 2026. This is a complex, long cycle business and driving stability takes time. especially as an entire industry works its way back from the impact of a global pandemic. We expect challenges to come our way. And when they do, we are transparent. We take action and we move forward. So month to month and quarter to quarter, it can be tough to predict. But we're focused on the long term and we're taking the tough actions now to ensure that the long term future is strong. So with that, I'll highlight a few key updates around the business. Boeing Commercial, BCA. In commercial, demand continues to be incredibly robust. We booked about 400 net orders in the quarter, including 150 737 MAX 10s for Ryanair, 50 787s for United Airlines, and 39 787s for Saudi Arabian Airlines. With demand strong, our focus remains on delivering airplanes. We are seeing increased stability and quality performance within our own factories, but we're working to get the supply chain caught up to the same standards. Our production system is poised for steady and efficient increases, but we won't push the system too fast and we'll ensure the supply base is in lockstep with us. On the 737, we're moving through rework on the most recent non-conformance in the aft pressure bulkhead. That work slowed production and deliveries down in the course of the quarter. And given our year-to-date total, we now expect 737 deliveries for the year to be in this 375 to 400 range. While a setback, we'll regain our momentum as we progress through the issue. We are keeping our suppliers hot according to the master schedule. We plan to complete the production transition to 38 per month by the end of the year, and still plan to reach the key rate of 50 per month by that 25 and 26 timeframe. Important to note with respect to our supply chain, delivery shortfalls have been driven by non-conformances, not actual supply chain constraints. On the 787, The program is demonstrating improved stability. We're now transitioning production from four to five per month and expect to meet our delivery range of 70 to 80 for the year. And longer term, we're on track for the rate step up to 10 per month by 25 and 26. To ensure our broader recovery and return to more normal margins, the key focus continues to be on liquidating our 787 and 737 inventory. so that we can eliminate those shadow factories and focus our resources on the production floor, all of our resources. Nonconformance costs are exponentially higher on all of those finished airplanes. We still plan to deliver most, if not all of the inventory by the end of next year, which will set us on a strong path for 25 and 26. With respect to China, We are encouraged by recent signs of progress and continue to work closely with our customers on the timing of returning to delivery. As I mentioned, supply chain performance will be a key enabler. As Spirit Aerospace Systems brings in new leadership, we're looking forward to working with Pat. Pat Shanahan is known by the Boeing company. We have great respect for his abilities on the shop floor, and we're pleased to have recently established a mutually beneficial agreement that will enhance stability of our production system and help us deliver on our customer commitments. A true win-win. Lastly, on the development side, we're progressing across our commercial programs and our timelines are unchanged on the 737-7 and the 10 and the 777X and 777-8 freighter. A reminder as always, The FAA will ultimately control the timing. Barring defense systems, BDS. In defense and space, we still have more work to improve operating performance. Results this quarter were impacted by higher estimated costs on the VC25B program. We are maturing through this build process, incorporating engineering changes to better support the installation process, and we resolved important supplier negotiations over the course of the quarter. I'll note that none of these items will impact the performance and capability of the end product. The increased estimates reflect the process by which we build the airplanes. And in a fixed priced environment, any unplanned hurdles can introduce unrecoverable cost. At the end of the day, we have two airplanes to build. We're getting past these hurdles and are committed to delivering two exceptional airplanes for our customer. As you saw, we're also expecting higher costs on a satellite program as we build out the constellation and meet our lifecycle commitments for our customer. We're working on real innovation and advanced capabilities in this space and see real potential market as we deliver against this commitment. More broadly across BDS, we're stabilizing operations and taking comprehensive actions to improve performance. including lean initiatives, contracting disciplines, factory improvements, engineering investments, and more. We're seeing some early signs of progress, but financial improvement at BDS's lower volumes takes time. Recovery in BDS is slower than we'd like, slower than I'd like, but we're confident in the future and our path to normalizing BDS margin performance by that 25 and 26 timeframe is intact. The confidence is due in part to key milestones we're starting to hit and the strong demand we're seeing. For example, we delivered the first T7A to the US Air Force this quarter. We also captured a key award from the US Army for 21 Apache helicopters. Additionally, we continue to invest and position ourselves for significant opportunities in proprietary programs. The backlog at BGS is $58 billion, and nearly 30% of that is outside the United States. We're proud of the role our products play in protecting global security and national defense. The band is strong, we're confident in the business, and we will continue to improve operational performance to more normalized levels. Boeing Global Services, BGS. In global services, the team had another strong quarter, both on the commercial and the government side, with improved revenue and earnings relative to the third quarter of 2022. The financials were again driven by strong operating performance and the team's ability to hit key milestones and capture new business. In the quarter, BGS delivered the 150th 737-800 Boeing converted freighter. Received an award from the U.S. Navy for PA trainer upgrades and signed a digital maintenance agreement with multiple airlines. Our services team represents Boeing with our customers nearly every minute of every day. The work they do to keep military and commercial fleets flying is best in class, and we're proud of the performance that they're delivering. A step back with respect to the market outlook. Looking across all three business units, demand for our products and services continues to be incredibly strong. Our backlog is at 469 billion, including over 5,100 commercial airplanes. Over the next 10 years, the value of the markets we serve across commercial, defense, space, and services is estimated at $10.7 trillion. according to our most recent Boeing market outlook. Our products deliver exceptional capability in strong and growing markets, and our portfolio is well aligned with our customers' needs. The demand is there to support our recovery. It is on us to perform, and we will remain disciplined and patient in the process. Brian, I'll turn it over to you.