Boeing Company (The)

Thank you for standing by. Good day everyone and welcome to the Boeing Company's second quarter 2026 earnings conference call. At this time all participants are in a listen only mode. Please be advised that 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 call please press star then one on your telephone. At this time I am turning the call over to Mr. Eric Hill Vice President of Investor Relations for opening remarks and introductions. Mr. Hill, please go ahead.

Thank you and good morning. Welcome to Boeing's quarterly earnings call. With me today are Kelly Ortberg, Boeing's President and Chief Executive Officer, and Jay Malabe, Boeing's Executive Vice President and Chief Financial Officer. This quarter's webcast, earnings release, and presentation, which include relevant disclosures and non-GAAP reconciliations, are available on our website. Today's discussion includes forward-looking statements that are subject to risks and uncertainties, including the ones described in our SEC filings. As always, we will leave time at the end of the call for analyst questions. With that, I will turn the call over to Kelly Ortberg.

Thanks, Eric, and good morning, everyone. Thanks for joining in today's call. Before we get started, I want to express our sincere condolences to the families and loved ones of the eight dedicated aircrew whose lives were lost in the U.S. Air Force B-52 accident in June. Our hearts remain heavy for the lives lost, including two incredible Boeing colleagues who worked side by side with our customer on the program. We continue to provide technical assistance to the investigation and we're supporting the Air Force in every way we can. Now let's shift our focus to the second quarter. We're halfway through the year and I'm very pleased with our progress as we execute on our 2026 plan. With a continued focus on safety and quality, our teams are increasing production and delivering at levels we have not seen since 2018. Our commercial certification programs, the key focus for us this year, remain on plan and I'm proud of our team's dedication to complete the certification work. as well as how we have continued to work collaboratively with our regulators. Earlier this month, the FAA authorized Boeing to resume issuing airworthiness certificates for all 737 MAX and 787 airplanes. We worked hard to build this trust from the FAA and we take this responsibility very seriously. Safety will continue to lead the way in everything we do. In defense and space, we continue to address risks in the portfolio while increasing output to meet today's mission and invest in the capabilities for our future fight. Our service business has seen robust growth despite macro uncertainty, and we continue to win favor with our customers every day. We are strengthening the trust with our supply chain through increased transparency and strong demonstrated performance. This positions us to deliver higher volumes and respond quickly when challenges arise. All of this progress is set against a backdrop of a record backlog and culture change that continues to take hold and improve the way we work together. We know there's more work to do and remain clear-eyed about managing the risks in front of us, but the momentum that we've built in the first half of this year is setting us up for more dependable performance as we execute the second half. Let's now take a closer look at our businesses and we'll start with commercial airplanes. As we said all year long, completing the certification work on our development programs is one of our biggest goals. We continue to make a lot of progress consistent with our plans. In fact, on 737-7, testing is done and we expect to receive an amended type cert from the FAA very soon. On 737-10, we recently completed our final test flight and expect certification following the 737-7. These certifications paved the way for both airplane variants to start deliveries in 2027, and I'm confident these newest members of the 737 MAX family will deliver on the promise of greater efficiency and more capability for our customers. On the 777-9, we remain on plan for first delivery in 2027. In June, we received approval from the FAA for the next phase of the certification flight test called TIA-4B. This unlocked the largest remaining portion of the flight testing. And we've currently completed more than 55% of the certification flight testing and expect our accelerated pace to continue progressing this summer. In addition to certification flight testing under the phase TIAs, we expect approval to start ETOPS testing later this year. Turning now to the BCA production programs. On 737, we're now ramping to 47 airplanes per month after a successful capstone review in May and expect factory rollouts to reach 47 per month this summer. Just as with our previous rate breaks on the program, are closely monitoring our key performance indicators in the factory. And so far, early results are within our expectations, driven by the fundamental improvements we made to factory health. And in Wichita, our integration is going well as teams continue to meet targeted reduction in quality defects before shipping fuselages to the final assembly. Earlier this month, we began low-rate max production on our north line. which enables us to reach our next planned rate break of 52 per month. I was with the team in Everett just after the first fuselage loaded into our new production line and I can tell you they are ready and energized to build 737s. Our Everett team will be guided by the same safety and quality plan that has been successful in Wren and the low rate production will include certification of that new line. In Charleston on the 787 program, we've now stabilized at eight airplanes per month. We did take the decision to temporarily slow production systems for several days in April to allow portions of the supply chain to recover. As we said before, we're guided by our safety and quality plan and will only move production forward when the system and our supply chain are ready. and we'll continue to work with GE on the engine delivery recovery this summer, which will be important for our rate 10 timing. Across the commercial market, we continue to see exceptional demand and market conditions as evidenced by our record backlog of more than 6,200 airplanes and a market outlook of nearly 44,000 new aircraft over the next 20 years. Let's now shift to BDS where we're making progress and staying focused on disciplined execution to strengthen performance, meeting customer commitments, and making deliberate investments in our programs. During the quarter, we achieved milestone C for both the T7 and the MQ25 programs, securing approval to begin low-rate initial production. For the T7, as an outcome of our active management efforts, we're delivering a production-ready configuration that further reduces risk Thank you for joining us today. One of our fixed price development programs where we have seen cost growth is the VC25B. As we disclosed this morning, we've made the decision to add significant resources to support the build and test schedule of VC25B. We have also aligned with the Air Force on moving from an FAA to a military certification basis. These additional resources will also help mitigate potential risks during certification and flight tests. Since this program is in a reach forward loss, these additional investments resulted in a $280 million charge during the quarter. Now, while the charge is disappointing, we recognize how critical schedule performance is to our customer. We are investing accordingly to maintain our commitment to deliver this airplane in 2028. It shouldn't overshadow all the meaningful progress we're making to reduce the risk across our defense portfolio and we are in much better shape than we were two years ago. Like in our commercial business, the demand signal on our defense and space products remains very strong with notable increased demand in missiles and munitions and secure communications satellites programs. We continue to do a good job in improving our underwriting of new contracts and being selective on the programs we bid. Finally, in BGS, where our service team continues to deliver strong results against the backdrop of a robust aftermarket. So far, we've not seen a material impact in the commercial service business from the conflict in the Middle East, and the government service business has seen incremental demand to support ongoing operations. In closing, the momentum we're seeing across these three businesses reflect the steady work our teams are doing every day to strengthen safety, quality, and stability. And I want to thank all of our employees for elevating our performance and helping deliver another improving quarter. As you may know, we've been in early contract negotiations with our Puget Sound engineering union, SPIA, ahead of the current contract expiration this October. We began these discussions early because we wanted to work towards an agreement that supports our employees and their families, creates greater clarity for our business, and helps us stay focused on the progress we're making. And so far, the tone of those talks have been respectful and productive. Looking ahead, I'm encouraged by the broader momentum we're building across Boeing as we move into the second half of the year. We had a great Farnborough air show last week. customers and suppliers I spoke with have renewed confidence in our team, products, and ability to deliver on time with higher quality. The work we've done together over the last two years is making a difference, and our team is ready to meet the rising expectations. We have a stronger foundation to build upon, our operations are more stable, and we're ramping up production to deliver on our record $715 billion backlog. We're on track to be free cash flow positive for the year, and most importantly, we're building trust with all of our stakeholders. So now I'll turn the call over to Jay for our second quarter results in more detail before we take on the questions.